What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-01 compared with 2023-10-31 · 94 added, 162 removed, 223 unchanged (53% of the section changed)

7 unchanged sentences

2024 Highlights

Third Quarter 2023 Compared to Third Quarter 2022

• Average number of WSEEs paid per month increased 4.0%

• Net income and diluted earnings per share (“diluted EPS”) increased 17.7% and 18.4% to $44.3 million and $1.16, respectively

• Adjusted EPS increased 18.7% to $1.46

• Adjusted EBITDA increased 18.2% to $94.3 million

First Nine Months 2023 Compared to First Nine Months 2022

• Average number of WSEEs paid per month increased 7.0%

• Net income and diluted EPS increased 7.6% and 7.7% to $151.8 million and $3.94, respectively

• Adjusted EPS increased 8.7% to $4.76

• Adjusted EBITDA increased 8.9% to $297.6 million

First Quarter 2024 Compared to First Quarter 2023

• Average number of WSEEs paid per month decreased 1%

• Net income and diluted earnings per share (“diluted EPS”) decreased 17% and 15% to $79 million and $2.08, respectively

• Adjusted EPS decreased 15% to $2.27

• Adjusted EBITDA decreased 7% to $142 million

Please read “ Non-GAAP Financial Measures ” for a reconciliation of adjusted EBITDA and adjusted EPS to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

Insperity | 2023 Third Quarter Form 10-Q

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Key Financial and Statistical Data

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

2023 2022 % Change 2023 2022 % Change

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

Three Months Ended March 31,

2024 2023 % Change

Financial data:

15 unchanged sentences

Operating expenses

210 211 (0.5) % 221 218 1.4 %

Operating income

4 unchanged sentences

(2) Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(per WSEE per month) 2024 2023

2 unchanged sentences

Revenues $ 1,977 $ 1,924

Insperity | 2023 Third Quarter Form 10-Q

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Key Operating Metrics

4 unchanged sentences

new client sales, client retention and the net change in WSEEs paid at existing clients through new hires and employee terminations.

• During Q3 2023, WSEEs paid increased 4.0% compared to Q3 2022.

The net gain in our client base declined when compared to Q3 2022, while client retention and the number of WSEEs paid from new client sales remained consistent compared to Q3 2022.

• During the first nine months of 2023 (“YTD 2023”), WSEEs paid increased 7.0% compared to the first nine months of 2022 (“YTD 2022”).

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

• During Q1 2024, WSEEs paid decreased 1% compared to Q1 2023.

The number of WSEEs paid from new client sales remained consistent compared to Q1 2023, while client retention and the net gain in our client base declined compared to Q1 2023.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2023 Third Quarter Form 10-Q

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

Year-over-Year Growth Percentage

(in thousands)

(in millions)

Adjusted EPS and

4 unchanged sentences

Because our monthly markup is computed in part as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Insperity | 2023 Third Quarter Form 10-Q

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

1 unchanged sentence

Year-over-Year Growth Percentage

(in thousands)

Third Quarter 2023 Compared to Third Quarter 2022

(in millions)

First Quarter 2024 Compared to First Quarter 2023

Our revenues for Q1 2024 were $1.8 billion, an increase of 2%, primarily due to the following:

• Average WSEEs paid increased 4.0%.

• Revenues per WSEE per month increased 3%, or $53.

First Nine Months 2023 Compared to First Nine Months 2022

Our revenues for YTD 2023 were $4.9 billion, an increase of 10.3%, primarily due to the following:

• Average WSEEs paid increased 7.0%.

• Revenues per WSEE per month increased 3.1%, or $52.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We provide our PEO HR Outsourcing Solutions to small and medium-sized businesses throughout the United States.

1 unchanged sentence

PEO HR Outsourcing Solutions Revenue by Region

(in thousands)

(in millions)

________________________________________________________

(1) The Southwest region includes Texas.

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The percentage of total PEO HR Outsourcing Solutions revenue in our significant markets includes the following:

2 unchanged sentences

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

Our average number of WSEEs per month in our middle market sector increased 13.4% during YTD 2023 compared to YTD 2022, representing approximately 26.1% and 24.6% of our total average paid WSEEs during YTD 2023 and YTD 2022, respectively.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our average number of WSEEs per month in our middle market sector decreased 4% during Q1 2024 compared to Q1 2023, representing approximately 25% and 26% of our total average paid WSEEs during Q1 2024 and Q1 2023, respectively.

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

2 unchanged sentences

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

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Quarter 2024 Compared to First Quarter 2023

Gross Profit and

Year-over-Year Growth Percentage

(in thousands)

(in millions)

Gross Profit per WSEE per Month and

Year-over-Year Growth Percentage

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Third Quarter 2023 Compared to Third Quarter 2022

First Quarter 2024 Compared to First Quarter 2023

Gross profit for Q1 2024 increased 4% to $345 million compared to $332 million in Q1 2023.

4 unchanged sentences

The $36 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Benefits costs

5 unchanged sentences

Our continued discipline around our client selection, workplace safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs decreased $3 per WSEE per month in Q3 2023 compared to Q3 2022 on a 6.4% increase in non-bonus payroll costs.

• Workers’ compensation costs decreased $2 per WSEE per month in Q1 2024 compared to Q1 2023 while non-bonus payroll costs increased 2%.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.22% in Q1 2024 and 0.25% in Q1 2023.

3 unchanged sentences

Payroll tax costs

• Payroll taxes increased 7.1% on a 5.3% increase in payroll costs, or $17 per WSEE per month.

• Payroll taxes as a percentage of payroll costs were 6.2% in Q3 2023 and 6.1% in Q3 2022.

First Nine Months 2023 Compared to First Nine Months 2022

Gross profit for YTD 2023 increased 5.8% to $814.7 million compared to $770.2 million in YTD 2022.

Gross profit per WSEE per month for YTD 2023 decreased $3 to $291 compared to $294 in YTD 2022 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

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

Our revenues per WSEE per month increased $52 due to higher average pricing of 3.1%.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The net decrease in direct costs between YTD 2023 and YTD 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $17.6 million as discussed below.

The $55 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Benefits costs

• The cost of group health insurance and related employee benefits increased $37 per WSEE per month and increased 5.8% on a cost per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65.0% in YTD 2023 compared to 65.5% in YTD 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $13.9 million, or $5 per WSEE per month, in YTD 2023 compared to an increase in costs of $12.8 million, or $5 per WSEE per month, in YTD 2022.

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

Workers’ compensation costs

Our continued discipline around our client selection, workplace safety and claims management contributed to the decrease in our cost per WSEE and, as a result, has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs increased 14.3%, or $1 per WSEE per month, in YTD 2023 compared to YTD 2022.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2023 were 0.23% compared to 0.22% in YTD 2022.

• We recorded a reduction in workers’ compensation costs of $26.2 million, or 0.11% of non-bonus payroll costs, in YTD 2023 compared to a reduction of $35.3 million, or 0.16% of non-bonus payroll costs, in YTD 2022, primarily as a result of closing out claims at lower than expected costs.

Please read Note 2 to the Consolidated Financial Statements, “ Accounting Policies – Workers’ Compensation Costs ,” for a discussion of our accounting for workers’ compensation costs.

Payroll tax costs

• Payroll taxes increased 10.0% on an 8.9% increase in payroll costs, or $18 per WSEE per month.

• Payroll taxes as a percentage of payroll costs increased to 6.9% in YTD 2023 compared to 6.8% in YTD 2022.

• Payroll taxes increased 1%, or $18 per WSEE per month, while payroll costs remained flat.

• Payroll taxes as a percentage of payroll costs were 8% in both Q1 2024 and Q1 2023.

Operating Expenses

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

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

4 unchanged sentences

◦ rent expenses related to our service centers and sales offices

Insperity | 2023 Third Quarter Form 10-Q

◦ outside professional service fees related to legal, consulting and accounting services

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ outside professional service fees related to legal, consulting and accounting services

◦ administrative costs, such as postage, printing and supplies

1 unchanged sentence

◦ facility costs, including repairs and maintenance

◦ technology costs, including software-as-a-service (“SaaS”) subscription costs and amortization of SaaS implementation costs

◦ technology costs, including software-as-a-service (“SaaS”) subscription costs, amortization of SaaS implementation costs and costs related to our strategic partnership with Workday, Inc.

• Depreciation and amortization — Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, service centers, sales offices, software development, and technology infrastructure.

Third Quarter 2023 Compared to Third Quarter 2022

First Quarter 2024 Compared to First Quarter 2023

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

Three Months Ended September 30,

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

Three Months Ended March 31,

(in millions, except per WSEE)

2024 2023 % Change 2024 2023 % Change

Salaries $ 140 $ 125 12 % $ 154 $ 136 13 %

3 unchanged sentences

General and administrative:

Amortization of SaaS implementation costs

3 1 200 % 3 1 200 %

Workday SaaS licensing and implementation expense

4 — — % 4 — — %

All other general and administrative

50 47 6 % 55 50 10 %

Total general and administrative

57 48 19 % 62 51 22 %

Depreciation and amortization 11 10 10 % 12 11 9 %

1 unchanged sentence

Operating expenses for Q1 2024 increased 12% to $237 million compared to $211 million in Q1 2023.

Operating expenses per WSEE per month for Q3 2023 decreased 0.5% to $210 compared to $211 in Q3 2022.

• Salaries of corporate and sales staff for Q3 2023 increased 3.2% to $113.1 million, but remained flat on a per WSEE per month basis, compared to Q3 2022.

The increase was primarily due to an increase in BPA, service and support headcount in Q3 2023 compared to Q3 2022, which was partially offset by lower incentive compensation accruals in Q3 2023.

• Stock-based compensation expense for Q3 2023 increased 14.0% to $15.2 million, or $1 per WSEE per month, compared to Q3 2022.

The increase was primarily due to an increase in awards issued under our restricted stock program, partially offset by a decrease in the number of stock awards anticipated to be earned related to performance-based awards granted under our long-term incentive plans based on our lower than expected year-to-date operating results in Q3 2023.

• Advertising expense for Q3 2023 decreased 26.0% to $7.2 million, or $3 per WSEE per month, compared to Q3 2022.

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

Operating expenses per WSEE per month for Q1 2024 increased 14% to $260 compared to $229 in Q1 2023.

• Salaries of corporate and sales staff for Q1 2024 increased 12% to $140 million, or $18 per WSEE per month, compared to Q1 2023.

The increase was primarily due to a 5% increase in BPA, service and support headcount in Q1 2024 compared to Q1 2023 and higher incentive compensation accruals in Q1 2024.

• General and administrative expenses for Q1 2024 increased 19% to $57 million, or $11 per WSEE per month, compared to Q1 2023.

The increase was primarily due to increased software licensing, maintenance costs and professional services fees.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Nine Months 2023 Compared to First Nine Months 2022

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

Nine Months Ended September 30,

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

Salaries $ 348,557 $ 323,486 7.8 % $ 124 $ 123 0.8 %

Stock-based compensation 41,676 38,818 7.4 % 15 15 —

Commissions 33,828 32,121 5.3 % 12 12 —

Advertising 29,775 30,812 (3.4) % 11 12 (8.3) %

General and administrative 132,699 115,215 15.2 % 48 44 9.1 %

Depreciation and amortization 31,903 30,367 5.1 % 11 12 (8.3) %

Total operating expenses $ 618,438 $ 570,819 8.3 % $ 221 $ 218 1.4 %

Operating expenses for YTD 2023 increased 8.3% to $618.4 million compared to $570.8 million in YTD 2022.

Operating expenses per WSEE per month for YTD 2023 increased 1.4% to $221 compared to $218 in YTD 2022.

• Salaries of corporate and sales staff for YTD 2023 increased 7.8% to $348.6 million, or $1 per WSEE per month, compared to YTD 2022.

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

• Stock-based compensation expense for YTD 2023 increased 7.4% to $41.7 million, but remained flat on a per WSEE per month basis, compared to YTD 2022.

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

• Commissions expense for YTD 2023 increased 5.3% to $33.8 million, but remained flat on a per WSEE per month basis, compared to YTD 2022.

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

• Advertising expense for YTD 2023 decreased 3.4% to $29.8 million, or $1 per WSEE per month, compared to YTD 2022.

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

• General and administrative expenses for YTD 2023 increased 15.2% to $132.7 million, or $4 per WSEE per month, compared to YTD 2022.

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

Other Income (Expense)

Interest income increased $20.8 million in YTD 2023 compared to YTD 2022 due to interest rate increases on overnight, investment and deposit holdings.

Interest expense increased $11.2 million in YTD 2023 compared to YTD 2022 due to increases in interest rates charged on borrowings under our credit facility.

The increase was primarily due to increased software licensing, maintenance costs, SaaS implementation expense, travel and training, and professional services fees.

Income Tax Expense

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Effective income tax rate 29% 23%

Insperity | 2023 Third Quarter Form 10-Q

For the three months ended March 31, 2024, our provision for income taxes differed from the U.S.

statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards.

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the nine months ended September 30, 2023, our provision for income taxes differed from the U.S.

statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards.

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

During the first three months of 2024 and 2023, we recognized an income tax benefit of $0 and $5 million, respectively, related to the vesting of long-term incentive and restricted stock awards.

Non-GAAP Financial Measures

26 unchanged sentences

• non-cash stock-based compensation.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

(in thousands, except per WSEE per month) Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Per WSEE Per WSEE Per WSEE Per WSEE

(in millions, except per WSEE per month)

Three Months Ended March 31,

Per WSEE Per WSEE

Payroll cost $ 9,681 $ 10,618 $ 9,681 $ 10,522

5 unchanged sentences

2 % 3 % 13 % 3 %

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

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

(in millions)

March 31, 2024 December 31, 2023

Cash, cash equivalents and marketable securities $ 683 $ 709

Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions

482,654 504,817

Client prepayments

20,172 36,800

Adjusted cash, cash equivalents and marketable securities $ 206 $ 171

Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per WSEE per month) 2023 2022 2023 2022

Per WSEE Per WSEE Per WSEE Per WSEE

Three Months Ended March 31,

(in millions, except per WSEE per month)

Per WSEE Per WSEE

Net income $ 79 $ 87 $ 95 $ 103

3 unchanged sentences

Depreciation and amortization

10,666 11 10,083 11 31,903 11 30,367 12

EBITDA 132 145 141 153

Stock-based compensation

15,210 16 13,341 15 41,676 15 38,818 15

Adjusted EBITDA $ 142 $ 156 $ 152 $ 165

1 unchanged sentence

(7) % (5) % 28 % 16 %

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 2023 2022

(in millions)

Net income $ 79 $ 95

5 unchanged sentences

% Change period over period (17) % 34 %

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

Three Months Ended

September 30, Nine Months Ended

September 30,

(amounts per share) 2024 2023

6 unchanged sentences

% Change period over period

18.7 % 38.2 % 8.7 % 21.0 %

Liquidity and Capital Resources

5 unchanged sentences

We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

We had $692.4 million in cash, cash equivalents and marketable securities at September 30, 2023, of which approximately $482.7 million was payable in early November 2023 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $20.2 million represented client prepayments that were payable in November 2023.

At September 30, 2023, we had working capital of $156.3 million compared to $158.5 million at December 31, 2022.

We had $683 million in cash, cash equivalents and marketable securities at March 31, 2024, of which approximately $443 million was payable in early April 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $34 million represented client prepayments that were payable in April 2024.

At March 31, 2024, we had working capital of $213 million compared to $159 million at December 31, 2023.

We currently believe that our cash on hand, marketable securities, cash flows from operations, and availability under the Facility will be adequate to meet our liquidity requirements for the remainder of 2024.

We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

As of September 30, 2023, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility.

As of March 31, 2024, we had outstanding letters of credit and borrowings totaling $370 million under the Facility.

Please read Note 5 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information.

Insperity | 2023 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flows from Operating Activities

Net cash provided by operating activities in the first nine months of 2023 was $140.3 million.

Net cash provided by operating activities in the first three months of 2024 was $31 million.

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

5 unchanged sentences

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

In the period ended September 30, 2023, the last business day of the reporting period was a Friday, client prepayments were $20.2 million and employment taxes and other deductions were $482.7 million, which includes $149.3 million of funds we received in late September 2023 from the Internal Revenue Service for employee retention tax credits claimed by our PEO clients under the COVID relief programs, that were distributed to clients in early October 2023.

In the period ended September 30, 2022, the last business day of the reporting period was a Friday, client prepayments were $35.8 million and employment taxes and other deductions were $321.9 million.

• Workers’ compensation plan funding — During YTD 2023, we received $43.4 million for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

In the three months ended March 31, 2024, the last business day of the reporting period was a Friday, client prepayments were $34 million and employment taxes and other deductions were $443 million.

In the three months ended March 31, 2023, the last business day of the reporting period was also a Friday, client prepayments were $44 million and employment taxes and other deductions were $458 million.

Insperity | 2024 First Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter.

1 unchanged sentence

In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows.

As of September 30, 2023, Plan Costs were less than the net premiums paid and owed to United by $18.8 million, which is $9.8 million in excess of our agreed-upon $9.0 million surplus maintenance level.

The $9.8 million difference is reflected as a current asset and $9.0 million is reflected as a long-term asset on our Condensed Consolidated Balance Sheets.

The premiums, including an additional quarterly premium, owed to United at September 30, 2023 were $42.9 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets.

As of March 31, 2024, Plan Costs were less than the net premiums paid and owed to United by $33 million, which is $24 million in excess of our agreed-upon $9 million surplus maintenance level.

The $24 million difference is therefore reflected as a current asset and $9 million is reflected as a long-term asset on our Condensed Consolidated Balance Sheet at March 31, 2024.

In addition, the premiums owed to United at March 31, 2024, were $63 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheet.

• Operating results — Our adjusted net income has a significant impact on our operating cash flows.

Our adjusted net income increased 8.3% to $183.3 million in the nine months ended September 30, 2023, compared to $169.3 million in the nine months ended September 30, 2022.

Please read “ Results of Operations .”

Our adjusted net income decreased 17% to $86 million in the first three months of 2024, compared to $103 million in the first three months of 2023.

Please read “ Results of Operations – First Quarter 2024 Compared to First Quarter 2023.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $2.3 million for the nine months ended September 30, 2023, primarily due to property and equipment purchases of $22.5 million, partially offset by $20.2 million of marketable securities maturities and dispositions, net of purchases.

Net cash flows used in investing activities were $5 million for the three months ended March 31, 2024, primarily due to property and equipment purchases of $5 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $194.8 million for the nine months ended September 30, 2023.

Net cash flows used in financing activities were $83 million for the three months ended March 31, 2024.

We paid $21 million in dividends and repurchased or withheld $23 million in stock.

Insperity | 2023 Third Quarter Form 10-Q

In addition, client funds liability and other financing activities decreased by $39 million.

Insperity | 2024 First Quarter Form 10-Q

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis