INSPERITY, INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023. Design and Evaluation of Internal Control over Financial Reporting Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Ernst & Young LLP, our independent registered public accounting firm, also audited our internal control over financial reporting. Management’s report and the independent registered public accounting firm’s audit report are included in our 2023 Consolidated Financial Statements under the captions entitled “Management’s Report on Internal Control” and “Report of Independent Registered Public Accounting Firm,” and are incorporated herein by reference. There has been no change in our internal control over financial reporting that occurred during the three months ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Trading Plans During the fourth quarter of 2023 , none of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K). Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 59 2023 Form 10-K MANAGEMENT AND CERTAIN SECURITY HOLDERS PART III Item 10. Directors, Executive Officers and Corporate Governance. Some of the information required by this item is incorporated by reference to the Insperity Proxy Statement. Code of Business Conduct and Ethics Our Board adopted our Code of Business Conduct and Ethics (the “Code of Ethics”), which meets the requirements of Rule 303A.10 of the New York Stock Exchange Listed Company Manual and Item 406 of Regulation S-K. You can access our Code of Ethics on the Corporate Governance page of our website at insperity.com. Changes in and waivers to the Code of Ethics for our directors, executive officers and certain senior financial officers will be posted on our website within five business days and maintained for at least 12 months. Item 11. Executive Compensation. The information required by this item is incorporated by reference to the Insperity Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to the Insperity Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to the Insperity Proxy Statement. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to the Insperity Proxy Statement. 60 2023 Form 10-K EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV Item 15. Exhibits, Financial Statement Schedules. (a) 1. Financial Statements of the Company The Consolidated Financial Statements listed by the Registrant on the accompanying Index to Consolidated Financial Statements are filed as part of this Annual Report. (a) 2. Financial Statement Schedules The required information is included in the Consolidated Financial Statements or Notes thereto. (a) 3. List of Exhibits Exhibit No. Exhibit 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 29, 2018). 3.2 Amended and Restated Bylaws of Insperity, Inc. dated November 15, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 17, 2023). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (No. 33-96952)). 4.2 Description of Registrant’s Common Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 10-K for the year ended December 31, 2019) . 4.3 Rights Agreement dated as of May 21, 2020 between Insperity, Inc. and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2020). 4.4 Certificate of Designations of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2020). 4.5 Certificate of Elimination with Respect to Series A Junior Participating Preferred Stock of Insperity, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 26, 2021). 10.1 † Insperity, Inc. 2001 Incentive Plan, as amended and restated (incorporated by reference to Appendix A to the Registrant’s definitive proxy statement on Schedule 14A filed on March 18, 2009 (No. 1-13998)). 10.2 † Form of Restricted Stock Unit Agreement for awards granted to executive officers on or after December 30, 2019 (incorporated by reference to Exhibit 10.18 to the Registrant’s Form 10-K for the year ended December 31, 2019). 10.3 † Form of Restricted Stock Unit Agreement for awards granted to certain senior personnel on or after December 30, 2019 (incorporated by reference to Exhibit 10.19 to the Registrant’s Form 10-K for the year ended December 31, 2019). 10.4 † Form of Restricted Stock Unit Agreement for awards granted to other employees on or after December 30, 2019 (incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-K for the year ended December 31, 2019). 10.5 *† Form of Restricted Stock Unit Agreement for awards granted to executive officers on or after January 29, 2024. 10.6 *† Form of Restricted Stock Unit Agreement for awards granted to certain senior personnel on or after January 29, 2024. 10.7 *† Form of Restricted Stock Unit Agreement for awards granted to certain other employees on or after January 29, 2024. 10.8 † Form of Employee Award Notice and Agreement under LTIP granted on or after December 30, 2019 (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K for the year ended December 31, 2019). 10.9 *† Form of Employee Award Notice and Agreement under LTIP granted on or after January 29, 2024. 61 2023 Form 10-K EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Exhibit No. Exhibit 10.10 † Directors Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September 30, 2012). 10.11 † Amendment to the Directors Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on February 22, 2013). 10.12 † First Amendment and Appendix A to Directors Compensation Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 25, 2015). 10.13 † Directors Compensation Plan (as amended and restated April 1, 2017) (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2017). 10.14 Insperity, Inc. 2008 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (No. 333-151275)). 10.15 Insperity, Inc. 2012 Incentive Plan (incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed on March 29, 2012 (No. 1-13998)). 10.16 First Amendment to the Insperity, Inc. 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 22, 2013). 10.17 Second Amendment to Insperity, Inc. 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 25, 2015). 10.18 Third Amendment to Insperity, Inc. 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 1, 2016). 10.19 Insperity, Inc. 2012 Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 21, 2017). 10.20 First Amendment to the Insperity Inc. 2012 Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.34 to the Registrant’s Form 10-K filed for the year ended December 31, 2019). 10.21 Insperity, Inc. Incentive Plan (incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed on April 14, 2023 (No. 1-13998)). 10.22 Insperity, Inc. Long-Term Incentive Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 2, 2015). 10.23 * I nsperity, Inc. Long-Term Incentive Program, as amended and res tated January 29, 2024. 10.24 † Insperity, Inc. Executive Severance Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on January 3, 2020 ). 10.25 † Form of Participant Agreement under the Insperity, Inc. Executive Severance Plan (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on January 3, 2020 ). 10.26 (+) Minimum Premium Financial Agreement, amended and restated effective January 1, 2005, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005). 10.27 (+) Minimum Premium Administrative Services Agreement, amended and restated effective January 1, 2005, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005). 10.28 (+) Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2009, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2013). 10.29 (+) Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2013, by and between Insperity Holdings, Inc. and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended September 30, 2015). 10.30 (+) Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2008, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2013). 62 2023 Form 10-K EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Exhibit No. Exhibit 10.31 (+) Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2013, by and between Insperity Holdings, Inc. and UnitedHealthcare Insurance Company, effective as of January 1, 2015 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2015). 10.32 (+) Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare Insurance Company, effective as of January 1, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended September 30, 2014). 10.33 (+) Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare Insurance Company, effective as of January 1, 2013 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2014). 10.34 (+) Amendment to the Minimum Premium Financial Agreement, as amended effective January 1, 2015, by and between Insperity Holdings, Inc. and UnitedHealthcare Insurance Company, effective as of January 1, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 2016). 10.35 (+) Amendment to the Minimum Premium Administrative Services Agreement, as amended effective January 1, 2015, by and between Insperity Holdings, Inc. and UnitedHealthcare Insurance Company, effective as of January 1, 2016 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended June 30, 2016). 10.36 (+) Amendment to the Minimum Premium Financial Agreement, as amended effective January 1, 2016, by and between Insperity Holdings, Inc. and UnitedHealthcare Insurance Company, effective as of January 1, 2017 (incorporated by reference to Exhibit 10.39 to the Registrant’s Form 10-K for the year ended December 31, 2016). 10.37 (+) Amendment to Minimum Premium Administrative Services Agreement (as previously amended effective January 1, 2016) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019). 10.38 (+) Amendment to Minimum Premium Financial Agreement (as previously amended effective January 1, 2017) by and between Insperity Holdings, Inc., and United Healthcare Insurance Company entered into as of January 1, 2019 (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended March 31, 2019). 10.39 (+) Letter Agreement by and between Insperity Holdings, Inc. and United Healthcare Insurance company entered into as of February 7, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2020). 10.40 (+) Letter Agreement by and between Insperity Holdings, Inc. and United Healthcare Insurance company entered into as of December 28, 2021. 10.41 Amended and Restated Credit Agreement dated February 6, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 12, 2018). 10.42 First Amendment to Amended and Restated Credit Agreement dated September 13, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 17, 2019). 10.43 Second Amendment to Amended and Restated Credit Agreement dated March 9, 2021 (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q for the quarter ended March 31, 2021). 10.44 Third Amendment to Amended and Restated Credit Agreement dated April 28, 2021 (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-Q for the quarter ended March 31, 2021). 10.45 Fourth Amendment to the Amended and Restated Credit Agreement dated June 30, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on July 6, 2022). 10.46 Fifth Amendment to the Amended and Restated Credit Agreement dated September 28, 2023 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended September 30, 2023). 21.1 * Subsidiaries of Insperity, Inc. 63 2023 Form 10-K EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Exhibit No. Exhibit 23.1 * Consent of Independent Registered Public Accounting Firm. 24.1 * Powers of Attorney. 31.1 * Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 ** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 ** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 * Insperity, Inc. Policy for Recovery of Erroneously Awarded Compensation Applicable to Executive Officers. 101.INS * Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH * Inline XBRL Taxonomy Extension Schema Document. 101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF * Inline XBRL Extension Definition Linkbase Document. 101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (embedded with the Inline XBRL document). * Filed herewith. ** Furnished with this report. † Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. (+) Certain portions of the exhibit have been omitted pursuant to an order granting confidential treatment or Item 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) the type of information the Company treats as private or confidential. ITEM 16. FORM 10-K SUMMARY. None. 64 2023 Form 10-K SIGNATURES SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Insperity, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 8, 2024. INSPERITY, INC. By: /s/ Douglas S. Sharp Douglas S. Sharp Executive Vice President of Finance, Chief Financial Officer & Treasurer (Principal Financial Officer and Principal Accounting Officer) 65 2023 Form 10-K SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Insperity, Inc. in the capacities indicated on February 8, 2024: Signature Title /s/ Paul J. Sarvadi Chairman of the Board, Chief Executive Officer Paul J. Sarvadi and Director (Principal Executive Officer) /s/ Douglas S. Sharp Executive Vice President of Finance, Chief Financial Officer & Treasurer Douglas S. Sharp (Principal Financial Officer and Principal Accounting Officer) * Director Timothy Clifford * Director Eli Jones * Director Carol R. Kaufman * Director John L. Lumelleau * Director Ellen H. Masterson * Director Randall Mehl * Director John Morphy * Director Latha Ramchand * Director Richard G. Rawson *By: /s/ Christian P. Callens Christian P. Callens, attorney-in-fact 66 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F- 2 Management’s Report on Internal Control F- 4 Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 5 Consolidated Balance Sheets F- 6 Consolidated Statements of Income and Comprehensive Income F- 7 Consolidated Statements of Stockholders’ Equity and (Deficit) F- 8 Consolidated Statements of Cash Flows F- 9 Notes to Consolidated Financial Statements F- 11 F-1 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Insperity, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Insperity, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, stockholders' equity and (deficit), and cash flows for each of the three years in the period ended December 31, 2023 , and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 , in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 8, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. F-2 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS Estimation of the Cost of Incurred but Not Reported Health Insurance Claims Description of the Matter As discussed in Note 1 of the consolidated financial statements under “Health Insurance Costs”, the Company provides the majority of its health insurance coverage to its employees through a fully insured health insurance policy with UnitedHealthcare (“United”). While the policy with United is a fully insured plan, as a result of certain contractual terms, the Company accounts for this plan using a partially self-funded insurance accounting model. Accordingly, the Company records the cost of the United plan, including an estimate of the incurred claims, taxes and administrative fees, as benefits expense, which is a component of Payroll taxes, benefits and workers’ compensation costs in the consolidated statement of income and comprehensive income. The estimated incurred but not reported claims under the Company’s United insurance policy are based upon: (i) the level of claims processed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan. Auditing management’s estimate of the cost of incurred but not reported health insurance claims was subjective and judgmental due to the significant estimation required in determining the medical reserve. Estimating incurred but not reported claims is subjective due to the large number of plan participants and the possibility that the number, nature, magnitude, and the timing of processing of current period claims may not be comparable to historical results experienced by the Company. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the estimation process, including, among others, controls over the completeness and accuracy of the data used to estimate the cost of incurred health insurance claims and the review and approval processes that management has in place for the assumptions applied and the calculation of the cost of incurred health insurance claims. Our audit procedures included, among others, assessing (i) the Company’s health insurance cost estimation methodology, (ii) significant assumptions used to develop the medical completion rates, which includes the incurred but not reported component, (iii) the accuracy and completeness of the claims processed data used in the Company’s computation, as well as (iv) the historical accuracy of management’s estimates of the cost of incurred health insurance claims. Our testing of the medical completion rate assumptions included comparing the completion rate assumptions used by management to the completion rates experienced in historical periods and assessing whether contrary evidence exists with respect to the completion rate assumptions utilized by the Company to estimate the cost of incurred health insurance claims. Furthermore, we involved our actuarial specialists to assist in our evaluation of the Company’s methodology and compared the Company’s estimate to a range developed by our actuarial specialists based on the historical claim data and independently selected assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1991. Houston, Texas February 8, 2024 F-3 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT’S REPORT ON INTERNAL CONTROL The Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, has been audited by the Company’s independent registered public accounting firm, as stated in their report that is included herein. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. The Company’s assessment of the effectiveness of its internal control over financial reporting included testing and evaluating the design and operating effectiveness of its internal controls. In management’s opinion, the Company has maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in the COSO 2013 framework . /s/ Paul J. Sarvadi /s/ Douglas S. Sharp Paul J. Sarvadi Douglas S. Sharp Chairman of the Board & Chief Executive Officer Executive Vice President, Finance, Chief Financial Officer & Treasurer F-4 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Insperity, Inc. Opinion on Internal Control Over Financial Reporting We have audited Insperity, Inc.’s internal control over financial reporting as of December 31, 2023 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Insperity, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 , based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, stockholders’ equity and (deficit), and cash flows for each of the three years in the period ended December 31, 2023 , and the related notes and our report dated February 8, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas February 8, 2024 F-5 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) December 31, 2023 December 31, 2022 Assets Cash and cash equivalents $ 692,873 $ 732,828 Restricted cash 57,403 49,779 Marketable securities 15,905 33,068 Accounts receivable, net 693,878 622,764 Prepaid insurance and related assets 7,013 11,706 Funds held for clients and other current assets 128,220 61,728 Total current assets 1,595,292 1,511,873 Property and equipment, net of accumulated depreciation 197,424 199,992 Right-of-use (“ROU”) leased assets 57,438 56,532 Deposits and prepaid health insurance 215,070 213,270 Goodwill and other intangible assets, net 12,707 12,707 Deferred income taxes, net 20,347 15,533 Other assets 21,381 29,354 Total assets $ 2,119,659 $ 2,039,261 Liabilities and stockholders' equity Accounts payable $ 10,693 $ 7,732 Payroll taxes and other payroll deductions payable 566,373 556,085 Accrued worksite employee payroll costs 559,194 513,397 Accrued health insurance costs 46,460 53,402 Accrued workers’ compensation costs 60,475 53,485 Accrued corporate payroll and commissions 64,286 89,147 Client funds liability and other accrued liabilities 128,808 80,122 Total current liabilities 1,436,289 1,353,370 Accrued workers’ compensation costs, net of current 162,852 179,629 Long-term debt 369,400 369,400 Operating lease liabilities, net of current 57,494 55,587 Total noncurrent liabilities 589,746 604,616 Commitments and contingencies Stockholders' equity: Preferred stock ($ 0.01 per share par value; 20,000 shares authorized; no shares issued and outstanding) — — Common stock ($ 0.01 per share par value; 120,000 shares authorized; 55,489 shares issued and 37,281 shares and 37,881 shares outstanding, respectively) 555 555 Additional paid-in capital 185,031 151,144 Treasury stock, at cost ( 18,208 and 17,608 shares held in treasury, respectively) ( 830,524 ) ( 725,532 ) Accumulated other comprehensive income (loss), net of tax 9 ( 82 ) Retained earnings 738,553 655,190 Total stockholders' equity 93,624 81,275 Total liabilities and stockholders’ equity $ 2,119,659 $ 2,039,261 See accompanying notes. F-6 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended December 31, (in thousands, except per share amounts) 2023 2022 2021 Revenues $ 6,485,871 $ 5,938,818 $ 4,973,070 Payroll taxes, benefits and workers’ compensation costs 5,449,068 4,927,585 4,152,968 Gross profit 1,036,803 1,011,233 820,102 Salaries, wages and payroll taxes 460,715 430,945 379,171 Stock-based compensation 52,996 50,080 40,623 Commissions 46,847 45,672 34,922 Advertising 37,324 37,503 29,097 General and administrative expenses 177,664 156,134 124,413 Depreciation and amortization 42,708 40,660 38,547 Total operating expenses 818,254 760,994 646,773 Operating income 218,549 250,239 173,329 Other income (expense): Interest income 33,666 9,393 2,447 Interest expense ( 27,137 ) ( 14,207 ) ( 7,458 ) Income before income tax expense 225,078 245,425 168,318 Income tax expense 53,696 66,075 44,238 Net income $ 171,382 $ 179,350 $ 124,080 Unrealized gain (loss) on available-for-sale securities, net of tax 91 ( 73 ) ( 14 ) Comprehensive income $ 171,473 $ 179,277 $ 124,066 Net income per share of common stock Basic $ 4.53 $ 4.70 $ 3.22 Diluted $ 4.47 $ 4.64 $ 3.18 See accompanying notes. F-7 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND (DEFICIT) Common Stock Issued Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total (in thousands) Shares Amount Balance at December 31, 2020 55,489 $ 555 $ 95,528 $ ( 626,984 ) $ 5 $ 575,028 $ 44,132 Purchase of treasury stock, at cost — — — ( 69,725 ) — — ( 69,725 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 25,140 ) 26,479 — ( 1,339 ) — Stock-based compensation expense — — 37,381 3,242 — — 40,623 Exercise of stock options — — ( 329 ) 569 — — 240 Other — — 1,739 1,330 — — 3,069 Dividends paid — — — — — ( 144,179 ) ( 144,179 ) Unrealized loss on marketable securities, net of tax — — — — ( 14 ) — ( 14 ) Net income — — — — — 124,080 124,080 Balance at December 31, 2021 55,489 $ 555 $ 109,179 $ ( 665,089 ) $ ( 9 ) $ 553,590 $ ( 1,774 ) Purchase of treasury stock, at cost — — — ( 73,285 ) — — ( 73,285 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 9,285 ) 10,443 — ( 1,158 ) — Stock-based compensation expense — — 49,124 956 — — 50,080 Other — — 2,126 1,443 — — 3,569 Dividends paid — — — — — ( 76,592 ) ( 76,592 ) Unrealized loss on marketable securities, net of tax — — — — ( 73 ) — ( 73 ) Net income — — — — — 179,350 179,350 Balance at December 31, 2022 55,489 $ 555 $ 151,144 $ ( 725,532 ) $ ( 82 ) $ 655,190 $ 81,275 Purchase of treasury stock, at cost — — — ( 132,063 ) — — ( 132,063 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 21,285 ) 25,085 — ( 3,800 ) — Stock-based compensation expense — — 52,678 318 — — 52,996 Other — — 2,494 1,668 — — 4,162 Dividends paid — — — — — ( 84,219 ) ( 84,219 ) Unrealized gain on marketable securities, net of tax — — — — 91 — 91 Net income — — — — — 171,382 171,382 Balance at December 31, 2023 55,489 $ 555 $ 185,031 $ ( 830,524 ) $ 9 $ 738,553 $ 93,624 See accompanying notes. F-8 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2023 2022 2021 Cash flows from operating activities Net income $ 171,382 $ 179,350 $ 124,080 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,708 40,660 38,547 Stock-based compensation 52,996 50,080 40,623 Deferred income taxes ( 4,814 ) ( 10,641 ) 4,711 Changes in operating assets and liabilities: Accounts receivable ( 71,114 ) ( 109,458 ) ( 120,560 ) Prepaid insurance and related assets 4,693 ( 421 ) ( 1,121 ) Other current assets ( 14,215 ) ( 5,206 ) ( 13,851 ) Other assets and ROU assets 23,523 2,600 5,240 Accounts payable 2,961 1,320 209 Payroll taxes and other payroll deductions payable 10,288 88,193 89,932 Accrued worksite employee payroll costs 45,797 103,744 74,817 Accrued health insurance costs ( 6,942 ) 3,401 17,316 Accrued workers’ compensation costs ( 9,787 ) ( 10,114 ) ( 197 ) Accrued corporate payroll, commissions and other accrued liabilities ( 44,620 ) ( 5,179 ) 14,716 Income taxes payable/receivable ( 4,368 ) 19,362 ( 14,307 ) Total adjustments 27,106 168,341 136,075 Net cash provided by operating activities 198,488 347,691 260,155 Cash flows from investing activities Marketable securities: Purchases ( 47,983 ) ( 46,748 ) ( 58,202 ) Proceeds from maturities 38,635 44,955 60,045 Proceeds from dispositions 27,735 — — Property and equipment purchases ( 40,117 ) ( 30,329 ) ( 32,856 ) Net cash used in investing activities ( 21,730 ) ( 32,122 ) ( 31,013 ) Cash flows from financing activities Purchase of treasury stock ( 131,519 ) ( 73,285 ) ( 69,725 ) Dividends paid ( 84,219 ) ( 76,592 ) ( 144,179 ) Client funds liability and other 60,726 8,727 5,831 Net cash used in financing activities ( 155,012 ) ( 141,150 ) ( 208,073 ) Net increase in cash, cash equivalents, restricted cash and funds held for clients 21,746 174,419 21,069 Cash, cash equivalents, restricted cash and funds held for clients beginning of year 1,013,919 839,500 786,699 Cash, cash equivalents, restricted cash and funds held for clients end of year $ 1,035,665 $ 1,013,919 $ 807,768 See accompanying notes. F-9 2023 Form 10-K CONSOLIDATED FINANCIAL STATEMENTS INSPERITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Year Ended December 31, (in thousands) 2023 2022 2021 Supplemental cash flow information: Income taxes, net $ 62,879 $ 57,354 $ 53,835 Cash paid for interest 22,067 13,402 7,268 ROU assets obtained in exchange for lease obligations 22,177 9,736 19,572 Excise tax liability accrued for common stock repurchases 544 — — See accompanying notes. F-10 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies Description of Business Insperity, Inc. (“Insperity” or “we”, “our”, and “us”) provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Since our formation in 1986, we have evolved from being solely a professional employer organization (“PEO”), an industry we pioneered, to our current position as a comprehensive business performance solutions provider. We were organized as a corporation in 1986 and have provided PEO services since inception. Our most comprehensive HR services offerings are provided through our Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing Solutions”), which encompass a broad range of human resources 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 platform, known as Insperity Premier TM . 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 (our “Traditional Payroll Solution”). We also offer a number of other business performance solutions, including Recruiting Services, Employment Screening, Retirement Services, and Insurance Services. These other products and services generally are offered only with our other solutions. We provide our PEO HR Outsourcing Solutions by entering into a co-employment relationship with our clients, under which Insperity and its clients each take responsibility for certain portions of the employer-employee relationship. Insperity and its clients designate each party’s responsibilities through its Client Service Agreement (“CSA”), under which Insperity becomes an employer of the employees who work at the client’s location (“WSEE”) for most administrative and regulatory purposes. As a co-employer of our WSEEs, we assume many of the rights and obligations associated with being an employer. We enter into an employment agreement with each WSEE, thereby maintaining a variety of employer rights, including the right to hire or terminate employees, the right to evaluate employee qualifications or performance, and the right to establish employee compensation levels. Typically, Insperity only exercises these rights in consultation with its clients or when necessary to ensure regulatory compliance. The responsibilities associated with our role as employer include the following obligations with regard to our WSEEs: (1) to compensate our WSEEs through wages and salaries; (2) to pay the employer portion of payroll-related taxes; (3) to withhold and remit (where applicable) the employee portion of payroll-related taxes; (4) to provide employee benefit programs; and (5) to provide workers’ compensation insurance coverage. In addition to our assumption of employer status for our WSEEs, our PEO HR Outsourcing Solutions also includes other human resources functions for our clients to support the effective and efficient use of personnel in their business operations. To provide these functions, we maintain a significant staff of professionals trained in a wide variety of HR functions, including employee training, employee recruiting, employee performance management, employee compensation and employer liability management. These professionals interact and consult with clients on a daily basis to help identify each client’s service requirements and to ensure that we are providing appropriate and timely human capital management services. 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. Our payment terms typically require payment 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 in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers . Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but not invoiced F-11 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS represent unbilled accounts receivable of $ 668.9 million and $ 600.4 million at December 31, 2023 and December 31, 2022, and are included in accounts receivable, net on our Consolidated Balance Sheets. Pursuant to the “practical expedients” provided under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers , we expense sales commissions when incurred because the terms of our contracts are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Income and Comprehensive Income. Our revenue for our PEO HR Outsourcing Solutions by geographic region and for our other products and services offerings are as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Northeast $ 1,756,884 $ 1,624,556 $ 1,390,156 Southeast 906,712 796,219 630,342 Central 1,170,491 1,045,043 867,914 Southwest 1,249,922 1,163,088 993,747 West 1,337,294 1,251,186 1,033,996 6,421,303 5,880,092 4,916,155 Other revenue 64,568 58,726 56,915 Total revenue $ 6,485,871 $ 5,938,818 $ 4,973,070 Our PEO HR Outsourcing Solutions revenues are primarily derived from our gross billings, which are based on (1) the payroll cost of our WSEEs; and (2) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of our WSEEs. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite. 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 our direct costs relative to the revenues derived from the markup component of our gross billings. Revenues are comprised of gross billings less WSEE payroll costs as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Gross billings $ 43,141,366 $ 40,126,910 $ 33,318,693 Less: WSEE payroll cost 36,655,495 34,188,092 28,345,623 Revenues $ 6,485,871 $ 5,938,818 $ 4,973,070 Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our WSEEs. Our direct costs associated with our revenue generating activities are primarily comprised of all other costs related to our WSEEs, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs. Segment Reporting We operate one reportable segment under ASC 280, Segment Reporting . F-12 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Principles of Consolidation The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles (“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. Concentrations of Credit Risk Financial instruments that could potentially subject us to concentration of credit risk include accounts receivable and marketable securities. Cash, Cash Equivalents and Marketable Securities We invest our excess cash in federal government and municipal-based money market funds and debt instruments of U.S. municipalities. All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents. Liquid investments with stated maturities of greater than three months are classified as marketable securities in current assets. We account for marketable securities in accordance with ASC 320, Investments — Debt and Equity Securities . We determine the appropriate classification of all marketable securities as held-to-maturity, available-for-sale or trading at the time of purchase, and re-evaluate such classification as of each balance sheet date. At December 31, 2023 and 2022, all of our investments in marketable securities were classified as available-for-sale, and as a result, were reported at fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity. Such amortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments. We use the specific identification method of determining the cost basis in computing realized gains and losses on the sale of our available-for-sale securities. Realized gains and losses are included in other income. Property and Equipment Property and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-line method. Property and equipment, net consisted of the following: (in thousands) December 31, 2023 December 31, 2022 Land $ 6,215 $ 6,215 Buildings and improvements 217,274 207,740 Computer hardware and software 145,206 141,856 Software development costs 137,337 123,967 Furniture, fixtures and other 51,849 50,835 Property and equipment, gross 557,881 530,613 Accumulated depreciation and amortization ( 360,457 ) ( 330,621 ) Property and equipment, net $ 197,424 $ 199,992 F-13 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated useful lives of property and equipment for purposes of computing depreciation are as follows: Useful Life Buildings and improvements 5 — 30 years Computer hardware and software 2 — 5 years Software development costs 3 — 5 years Furniture, fixtures and other 5 — 7 years Software development costs relate primarily to software code development, systems integration and testing of our proprietary professional employer information systems and are accounted for in accordance with ASC 350-40, Internal Use Software . Capitalized software development costs are amortized using the straight-line method over the estimated useful lives of the software, generally three years. We recognized $ 13.8 million, $ 13.2 million and $ 10.9 million in amortization of capitalized software development costs in 2023 , 2022 and 2021, respectively. Unamortized software development costs were $ 33.3 million and $ 33.7 million at December 31, 2023 and 2022, respectively. We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment. ASC 360-10 requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, we would assess recoverability based on the estimated undiscounted future cash flows to be generated from the applicable asset or asset group. In addition, we may record an impairment loss to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. Cloud Computing Arrangements We incur costs to implement cloud computing arrangements that are hosted by third party vendors. SaaS implementation costs associated with cloud computing arrangements are capitalized when incurred during the application development phase. The capitalized costs are recorded in our short-term and long-term other assets on our Consolidated Balance Sheets. Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement, typically a two to five year period. We recognized $5.7 million and $1.9 million in amortization of SaaS implementation costs in 2023 and 2022, respectively. Unamortized SaaS implementation costs were $23.7 million and $20.2 million at December 31, 2023 and 2022, respectively. Leases We determine if an arrangement is a lease at inception of a contract in accordance with ASC 842, Leases, as well as the Financial Accounting Standards Board issued Accounting Standards Updates clarifying the lease guidance. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. We have lease agreements which require payments for lease and non-lease components and have elected to account for these as a single lease component related to our other operating facilities. Please read Note 11, “Leases,” for additional information. Goodwill and Other Intangible Assets Our goodwill is not amortized, but is tested for impairment on an annual basis or when there is an indication that there has been a potential decline in the fair value of a reporting unit. Annually, we perform a qualitative analysis to determine if it is more likely than not that the fair value has declined below its carrying value. This analysis considers various qualitative factors. Due to the nature of our business, all of our goodwill is associated with one reporting unit. We perform our annual impairment testing during the fourth quarter. Based on the results of our analysis, no impairment loss was recognized in 2023 , 2022 or 2021 . F-14 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Health Insurance Costs We provide group health insurance coverage under a single-employer plan that covers both our WSEEs in our PEO HR Outsourcing Solutions and our corporate employees and utilizes a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts (known as Harvard Pilgrim Health Care (HPHC) beginning in 2024), all of which provide fully insured policies or service contracts. Approximately 87 % of our costs related to health insurance coverage are provided under our policy with United. 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 (“Pooling Limit”). Accordingly, we record the cost 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 Income and Comprehensive Income. The estimated incurred but not reported claims are based upon: (1) the level of claims processed during each 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 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 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 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 health insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $ 6.5 million at December 31, 2023, and is included in deposits - health insurance as a long-term asset on our Consolidated Balance Sheets. As of December 31, 2023, Plan Costs were more than the net premiums paid and owed to United by $ 23.5 million. As this amount is less than the agreed-upon $ 9.0 million surplus maintenance level, the $ 32.5 million difference is included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets. The premiums, including the additional quarterly premiums, owed to United at December 31, 2023 were $ 6.5 million, which is included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets. Our benefits costs incurred in 2023 included a decrease of $ 13.0 million for changes in estimated run-off related to prior periods, net of Pooling Limit. Our benefits costs incurred in 2022 included an increase of $ 12.1 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in 2021 included an increase of $4.9 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 has been provided through an arrangement with the Chubb Group of Insurance Companies or its predecessors (the “Chubb Program”) since 2007. 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. F-15 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 years ended December 31, 2023, 2022, and 2021, we reduced accrued workers’ compensation costs by $ 33.5 million, $ 42.2 million and $ 41.7 million, respectively, for changes in estimated losses related to prior 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 2023 was 4.3 % and in 2022 was 2.9 %) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income and Comprehensive Income. The following table provides the activity and balances related to incurred but not paid workers’ compensation claims: Year Ended December 31, (in thousands) 2023 2022 Beginning balance, January 1, $ 229,408 $ 239,623 Accrued claims 61,720 49,121 Present value discount, net of accretion ( 13,430 ) ( 9,517 ) Paid claims ( 57,443 ) ( 49,819 ) Ending balance $ 220,255 $ 229,408 Current portion of accrued claims $ 57,403 $ 49,779 Long-term portion of accrued claims 162,852 179,629 Total accrued claims $ 220,255 $ 229,408 The current portion of accrued workers’ compensation costs on our Consolidated Balance Sheets at December 31, 2023 and 2022 includes $ 3.1 million and $ 3.7 million, respectively, of workers’ compensation administrative fees. The undiscounted accrued workers’ compensation costs were $ 250.0 million as of December 31, 2023 and $ 250.5 million as of December 31, 2022. 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 Consolidated Balance Sheets. During 2023, we received $ 46.3 million for the return of excess claim funds related to the workers’ compensation program, which resulted in a decrease to deposits – workers’ compensation. At December 31, 2023, we had restricted cash of $ 57.4 million and deposits – workers’ compensation of $ 198.2 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 Consolidated Balance Sheets. Stock-Based Compensation At December 31, 2023, we have one stock-based employee compensation plan under which we may issue awards. We account for this plan under the recognition and measurement principles of ASC 718, Compensation — Stock Compensation , which requires all share-based payments to employees to be recognized in the income statement based on their fair values. We generally make annual grants of unrestricted stock under our stock-based incentive compensation plan to our non-employee directors, and grants of restricted stock units to our officers and certain other employees. Restricted stock unit grants to officers and other employees generally vest over a period of three years from the date of grant. Restricted stock units are valued based on the fair value on date of grant and the associated expense, net of estimated forfeitures, and are F-16 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recognized over the requisite service period. Stock grants issued to non-employee directors are 100% vested on the grant date. Our Insperity Long-Term Incentive Program (the “LTIP”) provides for performance based long-term compensation awards in the form of performance units to certain employees based on the achievement of pre-established performance goals. Each performance unit represents the right to receive one common share at a future date based on our performance against certain targets. Performance units have a vesting schedule of three years. A portion of the LTIP grant to employees was considered a market-based performance award that cliff vests at the end of three years assuming continued employment and achievement of market-based performance goals. The fair value of each performance unit is the market price of our common stock on the date of grant. The fair value of each market-based performance unit was determined through use of the Monte Carlo simulation method. The compensation expense for such awards is recognized on a straight-line basis over the vesting term. Over the performance period the number of shares expected to be issued is adjusted upward or downward based on the probability of achievement of the performance target. Company-Sponsored 401(k) Retirement Plans Under our 401(k) retirement plan for corporate employees (the “Corporate Plan”), we matched 100 % of eligible corporate employees’ contributions, up to 6 % of the employees’ eligible compensation in 2023 and 2022, and ranging from up to 3% to up to 6 % of the employees’ eligible compensation in 2021. Matching contributions under the Corporate Plan are immediately vested. During 2023 , 2022 and 2021, we made matching contributions on behalf of corporate employees to the Corporate Plan of $ 16.9 million, $ 14.4 million, and $ 8.2 million, respectively, and are included in salaries, wages and payroll taxes in our Consolidated Statements of Income and Comprehensive Income. Under our separate 401(k) retirement plan for WSEEs (the “Worksite Employee Plan”), the match percentage for WSEEs ranges from 0 % to 6 %, as determined by each client company. Matching contributions under the Worksite Employee Plan are immediately vested. During 2023 , 2022 and 2021, we made matching contributions on behalf of WSEEs to the Worksite Employee Plan of $ 374.5 million, $ 328.5 million, and $ 244.1 million, respectively. Advertising We expense all advertising costs as incurred. Income Taxes We use the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. Please read Note 7, “Income Taxes,” for additional information . Recent Accounting Pronouncements In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 14, 2024, with early adoption permitted. We are currently evaluating the guidance and have not determined the impact this standard may have on our Consolidated Financial Statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures. ASU2023-09 expands the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. We are currently evaluating the guidance and have not determined the impact this standard may have on our Consolidated Financial Statements. F-17 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Other Balance Sheet Information 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: December 31, 2023 December 31, 2022 (in thousands) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total Overnight holdings $ 611,100 $ — $ 611,100 $ 678,512 $ — $ 678,512 Investment holdings 119,408 15,905 135,313 56,963 33,068 90,031 730,508 15,905 746,413 735,475 33,068 768,543 Cash in demand accounts 26,931 — 26,931 41,047 — 41,047 Outstanding checks ( 64,566 ) — ( 64,566 ) ( 43,694 ) — ( 43,694 ) Total $ 692,873 $ 15,905 $ 708,778 $ 732,828 $ 33,068 $ 765,896 Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at December 31, 2023 and December 31, 2022 included $ 510.1 million and $ 504.8 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $ 27.6 million and $ 36.8 million, respectively, in client prepayments. Cash, Cash Equivalents, Restricted Cash and Funds Held for Clients The following table summarizes our cash, cash equivalents, restricted cash and funds held for clients as reported in our Consolidated Statements of Cash Flows: Year Ended December 31, (in thousands) 2023 2022 2021 Supplemental schedule of cash and cash equivalents, restricted cash and funds held for clients Cash and cash equivalents $ 732,828 $ 575,812 $ 554,846 Restricted cash 49,779 46,929 45,522 Other current assets - funds held for clients (1) 34,942 (2) 31,732 (2) — (2) Deposits – workers’ compensation 196,370 185,027 186,331 Cash, cash equivalents, restricted cash and funds held for clients beginning of year $ 1,013,919 $ 839,500 $ 786,699 Cash and cash equivalents $ 692,873 $ 732,828 $ 575,812 Restricted cash 57,403 49,779 46,929 Other current assets - funds held for clients (1) 87,219 (2) 34,942 (2) — (2) Deposits – workers’ compensation 198,170 196,370 185,027 Cash, cash equivalents, restricted cash and funds held for clients end of year $ 1,035,665 $ 1,013,919 $ 807,768 ____________________________________ (1) Funds held for clients represent amounts held on behalf of our Traditional Payroll Solution customers that are restricted for the purpose of satisfying obligations to remit funds to clients’ employees and various tax authorities. (2) Beginning in the third quarter of 2022, we adjusted the presentation of our Consolidated Statements of Cash Flows to include changes in funds held for clients as a financing activity and to include funds held for clients in both the beginning and ending period amounts in our totals of cash, cash equivalents, restricted cash and funds held for clients. Prior period amounts have not been adjusted to this presentation as the amounts are immaterial to our Consolidated Financial Statements. Previously, the changes in funds held for clients and the related client fund liabilities were F-18 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented within operating activities in our Consolidated Statements of Cash Flows. Funds held for clients are held in a trust separate from our company funds and we do not use these funds held for clients for any corporate activity. Please read Note 1. “ Accounting Policies ,” for a discussion of our accounting policies for deposits — workers’ compensation and restricted cash. 3. Fair Value Measurements We account for our financial assets in accordance with ASC 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 Fair Value of Instruments Measured and Recognized at Fair Value The following table summarizes the levels of fair value measurements of our financial assets: December 31, 2023 December 31, 2022 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Money market funds $ 730,508 $ 730,508 $ — $ 735,475 $ 735,475 $ — U.S. Treasury bills 15,905 15,905 — 29,703 29,703 — Municipal bonds — — — 3,365 — 3,365 746,413 746,413 — 768,543 765,178 3,365 Deposits - money market funds 22,292 22,292 — — — — Total $ 768,705 $ 768,705 $ — $ 768,543 $ 765,178 $ 3,365 Please read Note 2 “ Other Balance Sheet Informat i o n ,” for additional information. 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 December 31, 2023 U.S. Treasury bills $ 15,896 $ 9 $ — $ 15,905 December 31, 2022 U.S. Treasury bills $ 29,782 $ — $ ( 79 ) $ 29,703 Municipal bonds 3,369 — ( 4 ) 3,365 As of December 31, 2023, the contractual maturities of all marketable securities in our portfolio were less than one year. F-19 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 December 31, 2023, 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 6, “ Long-Term Debt ,” for additional information. 4. Accounts Receivable Accounts receivable, net consisted of the following: December 31, (in thousands) 2023 2022 Trade, net $ 15,772 $ 13,934 Unbilled 668,920 600,446 Other 9,186 8,384 Accounts receivable, net $ 693,878 $ 622,764 Our accounts receivable is primarily composed of trade receivables and unbilled receivables. Our trade receivables, which represent outstanding gross billings to clients, are reported net of allowance for doubtful accounts of $ 1.1 million and $ 1.0 million as of December 31, 2023 and 2022, respectively. We establish an allowance for doubtful accounts based on management’s assessment of the collectability of specific accounts and by making a general provision for other potentially uncollectible amounts. We make an accrual at the end of each accounting period for our obligations associated with the earned but unpaid wages of our WSEEs and for the accrued gross billings associated with such wages. These accruals are included in accrued worksite employee payroll cost and unbilled accounts receivable; however, these amounts are presented net in the Consolidated Statements of Income and Comprehensive Income. We generally require clients to pay invoices for service fees no later than the same day as the applicable payroll date. As such, we generally do not require collateral. Client prepayments directly attributable to accrued worksite employee payroll costs and unbilled revenues have been netted as we have the legal right of offset for these amounts. Unbilled accounts receivable consisted of the following: December 31, (in thousands) 2023 2022 Accrued worksite employee payroll cost $ 559,194 $ 513,397 Unbilled revenues 137,318 123,849 Client prepayments ( 27,592 ) ( 36,800 ) Unbilled accounts receivable $ 668,920 $ 600,446 5. Deposits and Prepaid Health Insurance Deposits and prepaid health insurance consisted of the following: December 31, (in thousands) 2023 2022 Prepaid health insurance $ 9,000 $ 9,000 Deposits — health insurance 7,900 7,900 Deposits — workers’ compensation 198,170 196,370 Deposits and prepaid health insurance $ 215,070 $ 213,270 F-20 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The contractual arrangement with United for health insurance coverage requires us to maintain an accumulated cash surplus in the plan of $ 9.0 million, which is reported as deposits and prepaid health insurance in our Consolidated Balance Sheets. Please read Note 1, “Accounting Policies,” for a discussion of our accounting policies for health insurance costs and workers’ compensation costs . 6. Long-Term Debt We have a revolving credit facility (the “Facility”) with a borrowing capacity of up 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 100 % of the stock of our captive insurance subsidiary and are guaranteed by all of our subsidiaries other than our captive insurance subsidiary and certain other excluded subsidiaries. At December 31, 2023, 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. The Facility matures on June 30, 2027 . Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate 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 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 2023 was 6.88 %. 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 December 31, 2023. F-21 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of the net deferred tax assets as reflected on the Consolidated Balance Sheets are as follows: December 31, (in thousands) 2023 2022 Deferred tax liabilities Prepaid assets $ ( 4,191 ) $ ( 5,395 ) Depreciation ( 6,477 ) ( 7,448 ) Software development costs — ( 2,598 ) Tenant improvements ( 3,380 ) ( 3,139 ) Right-of-use leased assets ( 16,624 ) ( 16,371 ) Intangibles ( 2,595 ) ( 2,247 ) Total deferred tax liabilities ( 33,267 ) ( 37,198 ) Deferred tax assets Accrued incentive compensation 8,553 13,116 Net operating loss carryforward 332 407 Workers’ compensation accruals 4,588 5,358 Accrued rent 1,781 1,790 Software development costs 3,717 — Stock-based compensation 14,332 12,255 Operating lease liabilities 20,007 19,508 Other 1,010 972 Total deferred tax assets 54,320 53,406 Valuation allowance ( 706 ) ( 675 ) Total net deferred tax assets 53,614 52,731 Net deferred tax assets $ 20,347 $ 15,533 F-22 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of income tax expense are as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Current income tax expense Federal $ 49,058 $ 61,649 $ 30,887 State 9,452 15,067 8,640 Total current income tax expense 58,510 76,716 39,527 Deferred income tax (benefit) expense Federal ( 3,887 ) ( 8,844 ) 4,562 State ( 927 ) ( 1,797 ) 149 Total deferred income tax (benefit) expense ( 4,814 ) ( 10,641 ) 4,711 Total income tax expense $ 53,696 $ 66,075 $ 44,238 The reconciliation of income tax expense computed at U.S. federal statutory tax rates to the reported income tax expense from continuing operations is as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Expected income tax expense at 21 % $ 47,266 $ 51,539 $ 35,347 State income taxes, net of federal benefit 6,540 10,106 6,974 Nondeductible expenses 5,455 4,338 7,362 Equity compensation, net ( 4,386 ) 1,345 ( 4,427 ) Research and development credit ( 1,183 ) ( 1,241 ) ( 1,018 ) Other, net 4 ( 12 ) — Reported total income tax expense $ 53,696 $ 66,075 $ 44,238 At December 31, 2023, we have net operating loss carryforwards totaling $ 1.3 million that expire from 2025 to 2030 related to an acquisition that occurred in 2010. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, 2022 and 2021, we have no uncertain tax positions, and as a result, have made no provisions for interest or penalties related to uncertain tax positions. The tax years 2020 through 2022 remain open to examination by the Internal Revenue Service of the United States. The tax years 2019 through 2022 remain open to examination by various state tax authorities. 8. Stockholders' Equity During 2023, we repurchased or withheld an aggregate of 1,259,109 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 2023, 1,062,598 shares were repurchased under the Repurchase Program. On August 1, 2023, we announced that our Board authorized an increase of 2,000,000 shares that may be repurchased under the Repurchase Program. As of December 31, 2023, we were authorized to repurchase an additional 1,969,562 shares under the Repurchase Program. The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposes a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. During 2023, we recorded the applicable excise tax in treasury stock as part of the cost basis of stock repurchased and recorded a corresponding F-23 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS liability for the excise tax payable in other accrued liabilities in our Consolidated Balance Sheets. Withheld Shares During 2023, we withheld 196,511 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock unit awards. Dividends The Board declared and paid quarterly dividends as follows: (amounts per share) 2023 2022 First quarter $ 0.52 $ 0.45 Second quarter 0.57 0.52 Third quarter 0.57 0.52 Fourth quarter 0.57 0.52 During 2023 and 2022, we declared and paid dividends totaling $ 84.2 million and $ 76.6 million, respectively. Preferred Stock At December 31, 2023, 20 million shares of preferred stock were authorized. 9. Incentive Plans The Insperity, Inc. Incentive Plan, as amended, provides for options and other stock-based awards that have been and may be granted to eligible employees and non-employee directors of Insperity or its subsidiaries. The Incentive Plan permits stock options, including nonqualified stock options and options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, stock awards, phantom stock awards, stock appreciation rights, performance units, and other stock-based awards and cash awards, all of which may or may not be subject to the achievement of one or more performance objectives. The purpose of the Incentive Plan generally is to retain and attract persons of training, experience and ability to serve as employees of Insperity and its subsidiaries and to serve as non-employee directors of Insperity, to encourage the sense of proprietorship of such persons and to stimulate the active interest of such persons in the development and financial success of Insperity and its subsidiaries. The Incentive Plan is administered by the Compensation Committee of the Board (the “Committee”). The Committee has the power to determine which eligible employees will receive awards, the timing and manner of the grant of such awards, the exercise price of stock options (which may not be less than market value on the date of grant), the number of shares and all of the terms of the awards. The Board may at any time amend or terminate the Incentive Plan. However, no amendment that would impair the rights of any participant, with respect to outstanding grants, can be made without the participant’s prior consent. Stockholder approval of amendments to the Incentive Plan is necessary only when required by applicable law or stock exchange rules. Assuming all outstanding performance-based awards are paid at maximum achievement of pre-established performance goals, at December 31, 2023, 1,837,540 shares of common stock were available for future grants under the Incentive Plan. We also maintain the Insperity, Inc. Long-Term Incentive Plan (“LTIP”) under the Incentive Plan. The LTIP provides for performance-based long-term compensation awards in the form of performance units to certain employees based on the achievement of pre-established performance goals. We granted performance units under the LTIP to our named executive officers and certain other officers in 2023 , 2022 and 2021. Employees who attain a minimum age of 62 and have provided 15 years or more of continuous service may continue to vest in awards following a qualifying retirement as defined under the Incentive Plan award agreement, as though they were still an employee, provided the grant date of the award is six months or more before the employee’s last day of employment, the employee provides the Company with six months advance notice of retirement, the employee continues to work full-time during such six (6) month period, and the employee signs a waiver and release of claims. In addition, in order to avoid forfeiting any outstanding award, a retired employee must refrain from providing any services, including but not limited to, as an employee, director, advisor, or independent contractor to a business engaged in providing any F-24 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS services offered by the Company and its subsidiaries and affiliates at the time of the employee’s retirement, including but not limited to PEO services, payroll services, retirement services or insurances services. For a termination following a qualifying retirement, time-vested awards will continue to vest in the normal course. For a termination following a qualifying retirement, performance-based awards with completed or in-process performance periods are adjusted for achievement of the performance criteria, prorated through the date of termination and paid in the normal course, while performance-based awards for performance periods that have not started are forfeited. Stock-based compensation expense related to time-vested and performance-based awards is accelerated over the requisite service period for employees who meet the requirements for continued vesting. Stock-based compensation expense and other disclosures for stock-based awards follows: Year Ended December 31, (in thousands) 2023 2022 2021 Stock-based compensation expense recognized $ 52,996 $ 50,080 $ 40,623 Income tax benefit realized from stock-based compensation expense 12,643 13,483 10,677 Time-Based Restricted Stock Units Time-based restricted stock units (“RSUs”), under equity plan accounting, are generally measured at fair value on the date of grant based on the number of shares granted, estimated forfeitures and the quoted price of the common stock. Such value is recognized as compensation expense over the corresponding vesting period, generally three years to five years for awards currently outstanding. However, for some RSUs currently outstanding, compensation expense is accelerated over the shortened requisite service period for employees who meet the requirements for continued vesting. The following is a summary of time-based RSUs award activity for 2023 : Total Awards (in thousands) Weighted Average Grant Date Fair Value Non-vested — December 31, 2022 987 $ 86.34 Granted 556 123.66 Vested ( 480 ) 83.54 Canceled ( 25 ) 104.82 Non-vested — December 31, 2023 1,038 $ 106.98 Additional disclosures for time-based RSUs: Year Ended December 31, 2023 2022 2021 Weighted average grant date fair value of awards granted $ 123.66 $ 90.06 $ 88.84 Fair value of awards vested during the year (in millions) 58.7 30.4 28.7 As of December 31, 2023, unrecognized compensation expense associated with the unvested RSUs outstanding was $ 59.3 million and is expected to be recognized over a weighted average period of 22 months. Long-Term Incentive Program Awards Each performance unit represents the right to receive common shares at a future date based on our performance against specified targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets, which can range from 0% to 200% of the targeted amounts. A performance unit may be comprised of either a performance-based award or a market-based award. For performance-based awards, performance units have a vesting schedule of three years and compensation expense is recognized based on the number of common shares expected to be issued and the market price per common share on F-25 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the date of grant. Over the performance period, the number of shares expected to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. For market-based awards, performance units vest at the end of a three-year period assuming continued employment and achievement of market-based performance goals. The fair value of market-based performance awards was determined through the use of the Monte Carlo simulation method. The compensation expense for the LTIP awards is recognized on a straight-line basis over the vesting terms. The following is a summary of LTIP award activity, at 100% of targeted amount, for 2023 : Number of Performance Units Weighted Average Grant Date Fair Value (in thousands) Non-vested — December 31, 2022 272 $ 85.37 Granted 67 133.08 Vested ( 107 ) 70.05 Canceled ( 5 ) 114.34 Non-vested — December 31, 2023 227 $ 105.92 As of December 31, 2023, we estimate that approximately 91,000 , 83,000 and 57,000 shares will vest with $ 0.1 million, $ 1.6 million and $ 4.2 million in unamortized compensation expense related to the 2021, 2022 and 2023 LTIP grants, respectively. Employee Stock Purchase Plan Our employee stock purchase plan (the “ESPP”) enables employees to purchase shares of Insperity stock at a 5 % discount from the stock price at the end of the offering period. The ESPP is a non-compensatory plan under GAAP for stock-based compensation. As a result, no compensation expense is recognized in conjunction with this plan. Approximately 39,000 , 36,000 and 36,000 shares were issued from treasury under the ESPP during fiscal years 2023 , 2022 and 2021, respectively. 10. Earnings Per Share Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income 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 and the basic and diluted shares used in the earnings per share computations: Year Ended December 31, (in thousands) 2023 2022 2021 Net income $ 171,382 $ 179,350 $ 124,080 Weighted average common shares outstanding 37,807 38,115 38,431 Incremental shares from assumed time-vested and performance-based RSU awards 535 501 471 Adjusted weighted average common shares outstanding 38,342 38,616 38,902 Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect 6 10 — F-26 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Leases We have operating leases for office space, other operating facilities, vehicles and office equipment. Our fixed operating lease costs for 2023 , 2022 and 2021 were $ 19.5 million, $ 18.7 million, and $ 18.2 million, respectively, and are included in general and administrative expenses on our Consolidated Statements of Income and Comprehensive Income. During 2023 , cash paid for amounts included in the measurement of operating lease liabilities was $ 22.9 million. The following table presents the lease balances within our Consolidated Balance Sheets, weighted average lease term and weighted average discount rates related to our operating leases: (dollars in thousands) Classification in Consolidated Balance Sheets December 31, 2023 Lease liabilities: Current operating lease liabilities Other accrued liabilities $ 19,816 Long-term operating lease liabilities Operating lease liabilities, net of current 57,494 Total operating lease liabilities 77,310 Less: Landlord funded tenant improvements 13,004 Deferred rent 6,868 Operating lease ROU assets Right-of-use leased assets $ 57,438 Weighted average remaining lease term 5 years Weighted average discount rate 4.2 % The following presents the maturity of our operating leases liabilities as of December 31, 2023 : (in thousands) Operating Leases 2024 $ 22,604 2025 18,915 2026 15,317 2027 12,679 2028 8,841 Thereafter 7,152 Total remaining obligation 85,508 Less imputed interest 8,198 Present value of lease liabilities $ 77,310 As of December 31, 2023 , we have additional operating leases that have not yet commenced of $ 29.7 million with lease terms between three and eleven years . 12. Commitments and Contingencies We enter into fixed purchase and service obligations in the ordinary course of business. These arrangements primarily consist of advertising commitments and service contracts. At December 31, 2023, future purchase and service obligations greater than $100,000 and one year were as follows: F-27 2023 Form 10-K NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 2024 $ 33,472 2025 21,622 2026 7,552 2027 3,113 2028 3,159 Thereafter — Total obligations $ 68,918 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. F-28 2023 Form 10-K