What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-06 · 119 added, 108 removed, 290 unchanged (44% of the section changed)

7 unchanged sentences

2024 Highlights

Second Quarter 2024 Compared to Second Quarter 2023

Third Quarter 2024 Compared to Third Quarter 2023

• Average number of WSEEs paid per month decreased 2%

• Net income and diluted earnings per share (“diluted EPS”) increased 50% and 45% to $18 million and $0.48, respectively

• Adjusted EPS increased 34% to $0.86

• Adjusted EBITDA increased 29% to $66 million

First Six Months 2024 Compared to First Six Months 2023

• Net income and diluted earnings per share (“EPS”) decreased 93% and 94% to $3 million and $0.07, respectively

• Adjusted net income and adjusted EPS both decreased 73% to $15 million and $0.39, respectively

• Adjusted EBITDA decreased 59% to $39 million

First Nine Months 2024 Compared to First Nine Months 2023

• Average number of WSEEs paid per month decreased 1%

• Net income and diluted EPS decreased 34% and 33% to $100 million and $2.63, respectively

• Adjusted EPS decreased 5% to $3.13

• Adjusted EBITDA increased 2% to $208 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 | 2024 Second Quarter Form 10-Q

• Adjusted net income and adjusted EPS decreased 27% and 26% to $134 million and $3.53, respectively

• Adjusted EBITDA decreased 17% to $247 million

Please read “ Non-GAAP Financial Measures ” for a reconciliation of adjusted EBITDA, adjusted net income, 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 | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Key Financial and Statistical Data

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

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

2024 2023 % Change 2024 2023 % Change

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

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

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

(per WSEE per month) 2024 2023 2024 2023

2 unchanged sentences

Revenues $ 1,683 $ 1,639 $ 1,800 $ 1,752

Insperity | 2024 Second Quarter Form 10-Q

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

7 unchanged sentences

• During Q3 2024, average WSEEs paid decreased 2% compared to Q3 2023.

The number of WSEEs paid from new client sales remained consistent with Q2 2023, while the net gain in our client base and client retention declined compared to Q2 2023.

• During the first six months of 2024 (“YTD 2024”), average WSEEs paid decreased 1% compared to the first six months of 2023 (“YTD 2023”).

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

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The number of WSEEs paid from new client sales declined compared with Q3 2023, while client retention and the net change in our client base remained consistent with Q3 2023.

• During the first nine months of 2024 (“YTD 2024”), average WSEEs paid decreased 1% compared to the first nine months of 2023 (“YTD 2023”).

The number of WSEEs paid from new client sales, the net change in our client base, and client retention declined when compared to YTD 2023.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Insperity | 2024 Second Quarter Form 10-Q

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Income and

Year-over-Year Growth Percentage

(in millions)

Adjusted EBITDA and

1 unchanged sentence

(in millions)

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Year-over-Year Growth Percentage

(amounts per share)

Adjusted EPS and

1 unchanged sentence

(amounts per share)

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 monthly markup component.

Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans.

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.

Because our monthly markup is computed in part as a

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

Year-over-Year Growth Percentage

(in millions)

Second Quarter 2024 Compared to Second Quarter 2023

Third Quarter 2024 Compared to Third Quarter 2023

Our revenues for Q3 2024 were $1.6 billion, an increase of 1%, primarily due to the following:

• Revenues per WSEE per month increased 3%, or $44, partially offset by a 2% decrease in average WSEEs paid.

First Six Months 2024 Compared to First Six Months 2023

First Nine Months 2024 Compared to First Nine Months 2023

Our revenues for YTD 2024 were $5.0 billion, an increase of 1%, primarily due to the following:

• Revenues per WSEE per month increased 3%, or $48, partially offset by a 1% decrease in average WSEEs paid.

Insperity | 2024 Second Quarter Form 10-Q

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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(1) The Southwest region includes Texas.

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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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 decreased 4% during YTD 2024 compared to YTD 2023, representing approximately 25% and 26% of our total average paid WSEEs during YTD 2024 and YTD 2023, respectively.

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

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross Profit and

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(in millions)

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross Profit per WSEE per Month and

Year-over-Year Growth Percentage

Second Quarter 2024 Compared to Second Quarter 2023

Gross profit for Q2 2024 increased 16% to $260 million compared to $225 million in Q2 2023.

Gross profit per WSEE per month for Q2 2024 increased $41 to $282 compared to $241 in Q2 2023 due primarily to higher average pricing and lower direct costs, as discussed below.

Third Quarter 2024 Compared to Third Quarter 2023

Gross profit for Q3 2024 decreased 11% to $229 million compared to $258 million in Q3 2023.

Gross profit per WSEE per month for Q3 2024 decreased $26 to $247 compared to $273 in Q3 2023 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 $44 due to higher average pricing of 3%.

The net decrease in direct costs between Q2 2024 and Q2 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $25 million as discussed below.

The $5 per WSEE per month increase in direct costs

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

is due primarily to the direct cost component changes as follows:

The net increase in direct costs between Q3 2024 and Q3 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $14 million as discussed below.

The $70 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Benefits costs

• The cost of group health insurance and related employee benefits decreased $18 per WSEE per month and decreased 0.4% on a cost per covered employee basis in Q2 2024 as compared to Q2 2023.

We did not experience the number and severity of large claims in Q2 2024 as compared to Q2 2023.

• The cost of group health insurance and related employee benefits increased $45 per WSEE per month and increased 7.7% on a cost per covered employee basis in Q3 2024 as compared to Q3 2023.

• The percentage of WSEEs covered under our health insurance plans was 63% in Q3 2024 compared to 65% in Q3 2023.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $25 million, or $27 per WSEE per month, in Q2 2024 compared to an increase in costs of $1 million, or $1 per WSEE per month, in Q2 2023.

• Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $12 million, or $13 per WSEE per month, in Q3 2024 compared to a decrease in costs of $23 million, or $24 per WSEE per month, in Q3 2023.

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 small increase 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 $1 per WSEE per month in Q2 2024 compared to Q2 2023 while non-bonus payroll costs increased 1%.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both Q2 2024 and Q2 2023.

Our continued discipline around our client selection, workplace safety and claims management contributed to the increase 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 $4 per WSEE per month in Q3 2024 compared to Q3 2023 while non-bonus payroll costs remained flat.

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.25% in Q3 2024 compared to 0.21% in Q3 2023.

• We recorded a reduction in workers’ compensation costs of $8 million, or 0.09% of non-bonus payroll costs in Q3 2024, as a result of closing out claims at lower than expected costs.

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Payroll tax costs

• Payroll taxes increased 2%, or $20 per WSEE per month, while payroll costs remained flat.

• Payroll taxes increased 2% on a 3% increase in payroll costs, or $20 per WSEE per month.

• Payroll taxes as a percentage of payroll costs were 6% in both Q3 2024 and Q3 2023.

First Six Months 2024 Compared to First Six Months 2023

First Nine Months 2024 Compared to First Nine Months 2023

Gross profit for YTD 2024 increased 2% to $834 million compared to $815 million in YTD 2023.

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• The cost of group health insurance and related employee benefits increased $16 per WSEE per month, or 3.9% on a cost per covered employee basis.

We did not experience the number and severity of large claims in YTD 2024 as compared to YTD 2023.

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• The percentage of WSEEs covered under our health insurance plans was 64% in YTD 2024 compared to 65% in YTD 2023.

3 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 5%, or $1 per WSEE per month, in YTD 2024 compared to YTD 2023.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in YTD 2024 and 0.24% in YTD 2023.

• Workers’ compensation costs increased 2%, or $1 per WSEE per month, in YTD 2024 compared to YTD 2023.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both YTD 2024 and YTD 2023.

• We recorded a reduction in workers’ compensation costs of $25 million, or 0.11% of non-bonus payroll costs, in YTD 2024 compared to a reduction of $26 million, or 0.11% of non-bonus payroll costs, in YTD 2023, 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 health insurance costs.

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Payroll tax costs

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◦ facility costs, including repairs and maintenance

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ 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.

Second Quarter 2024 Compared to Second Quarter 2023

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Third Quarter 2024 Compared to Third Quarter 2023

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

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except per WSEE)

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Amortization of SaaS implementation costs

3 2 50 % 3 1 200 %

Workday SaaS licensing and implementation expense

8 unchanged sentences

• Salaries of corporate and sales staff for Q3 2024 increased 11% to $127 million, or $17 per WSEE per month, compared to Q3 2023.

The increase was primarily due to a 6% increase in BPA, service and support headcount in Q2 2024 compared to Q2 2023 and higher incentive compensation accruals in Q2 2024.

The increase was primarily due to a 6% increase in BPA, service and support headcount in Q3 2024 compared to Q3 2023.

• Stock-based compensation expense for Q3 2024 increased 6% to $17 million, or $2 per WSEE per month, compared to Q3 2023.

The increase was primarily due to an increase 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 higher than expected operating results in Q2 2024 and time-vested restricted stock unit awards issued under our incentive plan.

• Advertising expense for Q2 2024 decreased 29% to $12 million, or $5 per WSEE per month, compared to Q2 2023 due to a change in timing of advertising spend.

The increase was primarily due to time-vested restricted stock unit awards issued under our incentive plan, partially offset by a decrease in the stock awards anticipated to be earned related to performance-based awards granted under our long-term incentive plans in Q3 2024.

• Advertising expense for Q3 2024 increased 29% to $9 million, or $2 per WSEE per month, compared to Q3 2023 primarily due to an increase in internet and radio advertising.

• General and administrative expenses for Q3 2024 increased 33% to $53 million, or $13 per WSEE per month, compared to Q3 2023.

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

Insperity | 2024 Second Quarter Form 10-Q

The increase was primarily due to increased professional services fees, which includes expenses related to the implementation of our Workday strategic partnership, software licensing and maintenance costs, and amortization of SaaS implementation costs.

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Six Months 2024 Compared to First Six Months 2023

First Nine Months 2024 Compared to First Nine Months 2023

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions, except per WSEE) 2024 2023 % Change 2024 2023 % Change

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• Salaries of corporate and sales staff for YTD 2024 increased 13% to $393 million, or $18 per WSEE per month, compared to YTD 2023.

The increase was primarily due to a 6% increase in BPA, service and support headcount and staff compensation levels, and higher incentive compensation expense in YTD 2024 compared to YTD 2023.

The increase was primarily due to a 6% increase in BPA, service and support headcount and staff compensation levels in YTD 2024 compared to YTD 2023.

• Stock-based compensation expense for YTD 2024 increased 12% to $47 million, or $2 per WSEE per month, compared to YTD 2023.

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• General and administrative expenses for YTD 2024 increased 27% to $167 million, or $13 per WSEE per month, compared to YTD 2023.

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

• Depreciation and amortization expense for YTD 2024 increased 5% to $22 million, or $1 per WSEE per month, compared to YTD 2023.

The increase was primarily due to increased capital expenditures related to computer hardware and software and software development costs.

Income Tax Expense

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

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

2024 2023 2024 2023

Effective income tax rate — 26% 28% 24%

For the six months ended June 30, 2024, our provision for income taxes differed from the U.S.

For the nine months ended September 30, 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.

During the first six months of 2024 we did not recognize an income tax benefit as compared to an income tax benefit of $5 million for the first six months of 2023, related to the vesting of long-term incentive and restricted stock awards.

Insperity | 2024 Second Quarter Form 10-Q

During the first nine months of 2024 we did not recognize an income tax benefit as compared to an income tax benefit of $5 million for the first nine months of 2023, related to the vesting of long-term incentive and restricted stock awards.

During Q3 2024, we recognized a $1 million, or $0.02 per share, tax benefit related to research and development activities pertaining to the 2023 tax year.

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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• non-cash stock-based compensation.

Insperity | 2024 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 millions, except per WSEE per month) Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

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Bonus payroll cost 704 759 529 560 3,411 1,236 3,344 1,195

845 917 814 871 2,707 1,478 2,815 1,519

Non-bonus payroll cost

$ 8,026 $ 8,656 $ 7,987 $ 8,443 $ 23,756 $ 8,608 $ 23,513 $ 8,397

% Change period over period

Payroll cost % change period over period

3 % 5 % 5 % 1 % 1 % 3 % 9 % 2 %

Insperity | 2024 Second Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-bonus payroll cost % change period over period

— 3 % 6 % 2 % 1 % 3 % 10 % 3 %

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

(in millions)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Cash, cash equivalents and marketable securities $ 486 $ 709

2 unchanged sentences

Adjusted cash, cash equivalents and marketable securities $ 212 $ 171

Insperity | 2024 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 EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

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

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

(in millions, except per WSEE per month) 2024 2023 2024 2023

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Adjusted EBITDA $ 39 $ 42 $ 95 $ 100 $ 247 $ 89 $ 298 $ 106

% Change period over period

Net income % change period over period

(93) % (94) % 18 % 15 % (34) % (33) % 8 % —

Adjusted EBITDA % change period over period

(59) % (58) % 18 % 14 % (17) % (16) % 9 % 2 %

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in millions) 2024 2023 2024 2023

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Adjusted net income $ 15 $ 55 $ 134 $ 183

% Change period over period 32 % (45) % (7) % 5 %

Insperity | 2024 Second Quarter Form 10-Q

Net income % change period over period

(93) % 18 % (34) % 8 %

Adjusted net income % change period over period

(73) % 17 % (27) % 8 %

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(amounts per share) 2024 2023 2024 2023

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Adjusted EPS $ 0.39 $ 1.46 $ 3.53 $ 4.76

% Change period over period

34 % (45) % (5) % 5 %

Diluted EPS % change period over period (94) % 18 % (33) % 8 %

Adjusted EPS % change period over period (73) % 19 % (26) % 9 %

Liquidity and Capital Resources

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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 million in cash, cash equivalents and marketable securities at June 30, 2024, of which approximately $459 million was payable in early July 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, approximately $22 million represented client prepayments that were payable in July 2024, and includes $97 million of funds we received in late June 2024 from the Internal Revenue Service related to employee retention tax credits claimed by our PEO clients under the COVID relief programs that were distributed to clients in early July 2024.

At June 30, 2024, we had working capital of $238 million compared to $159 million at December 31, 2023.

We had $486 million in cash, cash equivalents and marketable securities at September 30, 2024, of which approximately $255 million was payable in early October 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, approximately $19 million represented client prepayments that were payable in October 2024.

At September 30, 2024, we had working capital of $200 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 June 30, 2024, we had outstanding letters of credit and borrowings totaling $370 million under the Facility.

As of September 30, 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.

Cash Flows from Operating Activities

Net cash provided by (used in) operating activities in the first six months of 2024 was $51 million.

Net cash used in operating activities in the first nine months of 2024 was $99 million.

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

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

In the six months ended June 30, 2024, the last business day of the reporting period was a Friday, client prepayments were $22 million and employment taxes and other deductions were $459 million, which includes $97 million of funds we received in late June 2024 from the Internal Revenue Service related to employee retention tax credits claimed by our PEO clients under the COVID relief programs that were distributed to clients in early July 2024.

In the six months ended June 30, 2023, the last business day of the

Insperity | 2024 Second Quarter Form 10-Q

In the nine months ended September 30, 2024, the last business day of the reporting period was a Monday, client prepayments were $19 million and employment taxes and other deductions were $255 million.

In the nine months ended September 30, 2023, the last business day of the reporting period was a Friday, client prepayments were $20 million and employment taxes and other deductions were $483 million, which included $149 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that were distributed to clients in early October 2023.

Insperity | 2024 Third Quarter Form 10-Q

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

reporting period was also a Friday, client prepayments were $31 million and employment taxes and other deductions were $366 million.

• Workers’ compensation plan funding — During YTD 2024, we received $38 million for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

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

As of June 30, 2024, Plan Costs were less than the net premiums paid and owed to United by $27 million, which is $18 million in excess of our agreed-upon $9 million surplus maintenance level.

The $18 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 June 30, 2024.

In addition, the premiums owed to United at June 30, 2024, were $35 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheet.

As of September 30, 2024, Plan Costs were less than the net premiums paid and owed to United by $28 million, which is $19 million in excess of our agreed-upon $9 million surplus maintenance level.

The $19 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 September 30, 2024.

In addition, the premiums owed to United at September 30, 2024, were $39 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 decreased 7% to $119 million in the first six months of 2024, compared to $128 million in the first six months of 2023.

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

Our adjusted net income decreased 27% to $134 million in the first nine months of 2024, compared to $183 million in the first nine months of 2023.

Please read “ Results of Operations .”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $11 million for the six months ended June 30, 2024, primarily due to property and equipment purchases of $11 million.

Net cash flows used in investing activities were $25 million for the nine months ended September 30, 2024, primarily due to property and equipment purchases.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $127 million for the six months ended June 30, 2024.

Net cash flows used in financing activities were $163 million for the nine months ended September 30, 2024.

We paid $67 million in dividends and repurchased or withheld $52 million in stock.

In addition, client funds liability and other financing activities decreased by $44 million.

Insperity | 2024 Second Quarter Form 10-Q

Insperity | 2024 Third Quarter Form 10-Q

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

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What changed 10-Q

Item 2. Management’s Discussion and Analysis