INSPERITY, INC. 10-Q

Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) September 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 470 $ 693 Restricted cash 67 57 Marketable securities 16 16 Accounts receivable, net 765 694 Prepaid insurance and related assets 31 7 Funds held for clients and other current assets 84 128 Total current assets 1,433 1,595 Property and equipment, net of accumulated depreciation 190 197 Right-of-use (“ROU”) leased assets 66 57 Prepaid health insurance 9 9 Deposits – health insurance 8 8 Deposits – workers’ compensation 175 198 Goodwill and other intangible assets, net 13 13 Deferred income taxes, net 19 20 Other assets 20 23 Total assets $ 1,933 $ 2,120 Liabilities and stockholders' equity Accounts payable $ 6 $ 11 Payroll taxes and other payroll deductions payable 297 566 Accrued worksite employee payroll costs 650 559 Accrued health insurance costs 46 46 Accrued workers’ compensation costs 70 60 Accrued corporate payroll and commissions 79 64 Income taxes payable 8 3 Client funds liability and other accrued liabilities 77 127 Total current liabilities 1,233 1,436 Accrued workers’ compensation costs, net of current 140 163 Long-term debt 369 369 Operating lease liabilities, net of current 66 58 Total noncurrent liabilities 575 590 Commitments and contingencies Common stock 1 1 Additional paid-in capital 208 185 Treasury stock, at cost ( 853 ) ( 831 ) Retained earnings 769 739 Total stockholders' equity 125 94 Total liabilities and stockholders’ equity $ 1,933 $ 2,120 See accompanying notes. Insperity | 2024 Third Quarter Form 10-Q 6 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, Nine Months Ended September 30, (in millions, except per share amounts) 2024 2023 2024 2023 Revenues $ 1,561 $ 1,551 $ 4,968 $ 4,906 Payroll taxes, benefits and workers’ compensation costs 1,332 1,293 4,134 4,091 Gross profit 229 258 834 815 Salaries, wages and payroll taxes 127 114 393 349 Stock-based compensation 17 16 47 42 Commissions 11 11 34 34 Advertising 9 7 28 30 General and administrative expenses 53 40 167 132 Depreciation and amortization 11 11 33 32 Total operating expenses 228 199 702 619 Operating income 1 59 132 196 Other income (expense): Interest income 9 9 28 25 Interest expense ( 7 ) ( 7 ) ( 21 ) ( 20 ) Income before income tax expense 3 61 139 201 Income tax expense — 16 39 49 Net income $ 3 $ 45 $ 100 $ 152 Net income per share of common stock Basic $ 0.07 $ 1.17 $ 2.65 $ 4.00 Diluted $ 0.07 $ 1.16 $ 2.63 $ 3.94 See accompanying notes. Insperity | 2024 Third Quarter Form 10-Q 7 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, (in millions) 2024 2023 Cash flows from operating activities Net income $ 100 $ 152 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 33 32 Stock-based compensation 47 42 Deferred income taxes 1 6 Changes in operating assets and liabilities: Accounts receivable ( 71 ) ( 34 ) Prepaid insurance and related assets ( 24 ) ( 9 ) Other current assets ( 7 ) — Other assets and ROU assets 13 3 Accounts payable ( 5 ) ( 1 ) Payroll taxes and other payroll deductions payable ( 269 ) ( 38 ) Accrued worksite employee payroll costs 91 47 Accrued health insurance costs — ( 2 ) Accrued workers’ compensation costs ( 13 ) ( 7 ) Accrued corporate payroll, commissions and other accrued liabilities — ( 44 ) Income taxes payable/receivable 5 ( 7 ) Total adjustments ( 199 ) ( 12 ) Net cash provided by (used in) operating activities ( 99 ) 140 Cash flows from investing activities Marketable securities: Purchases ( 17 ) ( 40 ) Proceeds from maturities 17 32 Proceeds from dispositions — 28 Property and equipment purchases ( 25 ) ( 22 ) Net cash used in investing activities ( 25 ) ( 2 ) Cash flows from financing activities Purchase of treasury stock ( 52 ) ( 131 ) Dividends paid ( 67 ) ( 63 ) Client funds liability and other ( 44 ) ( 1 ) Net cash used in financing activities ( 163 ) ( 195 ) Net decrease in cash, cash equivalents, restricted cash and funds held for clients ( 287 ) ( 57 ) Cash, cash equivalents, restricted cash and funds held for clients beginning of period 1,035 1,014 Cash, cash equivalents, restricted cash and funds held for clients end of period $ 748 $ 957 Supplemental cash flow information: ROU assets obtained in exchange for lease obligations $ 24 $ 12 Excise tax liability accrued for common stock repurchases — 1 See accompanying notes. Insperity | 2024 Third Quarter Form 10-Q 8 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Nine Months Ended September 30, 2024 and 2023 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in millions) Shares Amount Balance at December 31, 2023 55 $ 1 $ 185 $ ( 831 ) $ 739 $ 94 Purchase of treasury stock, at cost — — — ( 52 ) — ( 52 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 24 ) 27 ( 3 ) — Stock-based compensation expense — — 46 1 — 47 Other — — 1 2 — 3 Dividends paid — — — — ( 67 ) ( 67 ) Net income — — — — 100 100 Balance at September 30, 2024 55 $ 1 $ 208 $ ( 853 ) $ 769 $ 125 Balance at December 31, 2022 55 $ 1 $ 151 $ ( 726 ) $ 655 $ 81 Purchase of treasury stock, at cost — — — ( 132 ) — ( 132 ) Issuance of equity-based incentive awards and dividend equivalents — — ( 21 ) 25 ( 4 ) — Stock-based compensation expense — — 41 1 — 42 Other — — 2 1 — 3 Dividends paid — — — — ( 63 ) ( 63 ) Net income — — — — 152 152 Balance at September 30, 2023 55 $ 1 $ 173 $ ( 831 ) $ 740 $ 83 Insperity | 2024 Third Quarter Form 10-Q 9 FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) For the Three Months Ended September 30, 2024 and 2023 Common Stock Issued Additional Paid-In Capital Treasury Stock Retained Earnings and AOCI Total (in millions) Shares Amount Balance at June 30, 2024 55 $ 1 $ 191 $ ( 838 ) $ 788 $ 142 Purchase of treasury stock, at cost — — — ( 15 ) — ( 15 ) Issuance of equity-based incentive awards and dividend equivalents — — — ( 1 ) 1 — Stock-based compensation expense — — 17 — — 17 Other — — — 1 — 1 Dividends paid — — — — ( 23 ) ( 23 ) Net income — — — — 3 3 Balance at September 30, 2024 55 $ 1 $ 208 $ ( 853 ) $ 769 $ 125 Balance at June 30, 2023 55 $ 1 $ 158 $ ( 745 ) $ 717 $ 131 Purchase of treasury stock, at cost — — — ( 87 ) — ( 87 ) Issuance of equity-based incentive awards and dividend equivalents — — — — — — Stock-based compensation expense — — 15 1 — 16 Other — — — — ( 1 ) ( 1 ) Dividends paid — — — — ( 21 ) ( 21 ) Net income — — — — 45 45 Balance at September 30, 2023 55 $ 1 $ 173 $ ( 831 ) $ 740 $ 83 See accompanying notes. Insperity | 2024 Third Quarter Form 10-Q 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as our Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing Solutions”), which we provide by entering into a co-employment relationship with our clients. Our PEO HR Outsourcing Solutions encompass a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management solution, the Insperity Premier TM platform. In addition to our PEO HR Outsourcing Solutions, we offer a comprehensive traditional payroll and human capital management solution, known as our Workforce Acceleration TM solution (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 or services are offered separately or with our other solutions. The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements at and for the year ended December 31, 2023. Our Condensed Consolidated Balance Sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements. Our Condensed Consolidated Balance Sheet at September 30, 2024 and our Consolidated Statements of Income for the three and nine month periods ended September 30, 2024 and 2023, our Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2024 and 2023 and our Consolidated Statements of Stockholders' Equity for the three and nine month periods ended September 30, 2024 and 2023, have been prepared by us without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows have been made, and all such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations. 2. Accounting Policies Health Insurance Costs We provide group health insurance coverage 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 Harvard Pilgrim Health Care, formerly known as Tufts, 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 (“Individual Claims 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. 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 Insperity | 2024 Third Quarter Form 10-Q 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Condensed Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Condensed Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $ 9 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 $ 7 million at September 30, 2024, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of September 30, 2024, Plan Costs were less than the net premiums paid and owed to United by $ 28 million. As this amount is in excess of the agreed-upon $ 9 million surplus maintenance level, the $ 19 million difference is included in prepaid insurance, a current asset, in our Condensed Consolidated Balance Sheets. The premiums, including the additional quarterly premiums, owed to United at September 30, 2024 were $ 39 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets. Our benefits costs incurred in the first nine months of 2024 included a decrease of $ 32 million for changes in estimated run-off related to prior periods, net of Individual Claims Limit. Our benefits costs incurred in the first nine months of 2023 included a decrease of $ 14 million for changes in estimated run-off related to prior periods, net of Individual Claims Limit. Workers’ Compensation Costs Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing Solutions has been provided through arrangements 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. 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 nine months ended September 30, 2024 and 2023, we reduced accrued workers’ compensation costs by $ 25 million and $ 26 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 the 2024 period was 4.3 % and in the 2023 period was 4.2 %) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income. Insperity | 2024 Third Quarter Form 10-Q 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides the activity and balances related to incurred but not paid workers’ compensation claims: Nine Months Ended September 30, (in millions) 2024 2023 Beginning balance, January 1, $ 220 $ 229 Accrued claims 48 44 Present value discount, net of accretion ( 10 ) ( 10 ) Paid claims ( 51 ) ( 41 ) Ending balance $ 207 $ 222 Current portion of accrued claims $ 67 $ 51 Long-term portion of accrued claims 140 171 Total accrued claims $ 207 $ 222 The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at September 30, 2024 and 2023 includes $ 3 million and $ 4 million, respectively, of workers’ compensation administrative fees. The undiscounted accrued workers’ compensation costs were $ 242 million as of September 30, 2024 and $ 250 million as of September 30, 2023. At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated WSEE payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits – workers’ compensation, a long-term asset in our Condensed Consolidated Balance Sheets. At September 30, 2024, we had restricted cash of $ 67 million and deposits – workers’ compensation of $ 175 million, of which $ 233 million was held in a trust account. Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our Condensed Consolidated Balance Sheets. Revenues 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 represent unbilled accounts receivable of $ 754 million and $ 669 million at September 30, 2024 and December 31, 2023, respectively, and are included in accounts receivable, net on our Condensed 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. Insperity | 2024 Third Quarter Form 10-Q 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our revenue for our PEO HR Outsourcing Solutions by geographic region and for our other products and services offerings are as follows: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2024 2023 % Change 2024 2023 % Change Northeast $ 419 $ 415 1 % $ 1,365 $ 1,333 2 % Southeast 223 222 — 694 682 2 % Central 286 282 1 % 902 886 2 % Southwest 294 295 — 938 943 (1) % West 321 321 — 1,016 1,014 — 1,543 1,535 1 % 4,915 4,858 1 % Other revenue 18 16 13 % 53 48 10 % Total revenue $ 1,561 $ 1,551 1 % $ 4,968 $ 4,906 1 % 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: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2024 2023 2024 2023 Gross billings $ 10,291 $ 10,067 $ 32,135 $ 31,763 Less: WSEE payroll cost 8,730 8,516 27,167 26,857 Revenues $ 1,561 $ 1,551 $ 4,968 $ 4,906 3. 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: September 30, 2024 December 31, 2023 (in millions) Cash & Cash Equivalents Marketable Securities Total Cash & Cash Equivalents Marketable Securities Total Overnight holdings $ 365 $ — $ 365 $ 611 $ — $ 611 Investment holdings 110 16 126 119 16 135 475 16 491 730 16 746 Cash in demand accounts 11 — 11 27 — 27 Outstanding checks ( 16 ) — ( 16 ) ( 64 ) — ( 64 ) Total $ 470 $ 16 $ 486 $ 693 $ 16 $ 709 Insperity | 2024 Third Quarter Form 10-Q 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at September 30, 2024 and December 31, 2023 included $ 255 million and $ 510 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $ 19 million and $ 28 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, funds held for clients, and deposits - workers’ compensation as reported in our Consolidated Statements of Cash Flows: Nine Months Ended September 30, (in millions) 2024 2023 Supplemental schedule of cash and cash equivalents, restricted cash and funds held for clients Cash and cash equivalents $ 693 $ 733 Restricted cash 57 50 Other current assets – funds held for clients (1) 87 35 Deposits – workers’ compensation 198 196 Cash, cash equivalents, restricted cash and funds held for clients beginning of period $ 1,035 $ 1,014 Cash and cash equivalents $ 470 $ 679 Restricted cash 67 51 Other current assets – funds held for clients (1) 36 30 Deposits – workers’ compensation 175 197 Cash, cash equivalents, restricted cash and funds held for clients end of period $ 748 $ 957 ____________________________________ (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. Please read Note 2. “ Accounting Policies ,” for a discussion of our accounting policies for deposits – workers’ compensation and restricted cash. 4. 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 Insperity | 2024 Third Quarter Form 10-Q 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value of Instruments Measured and Recognized at Fair Value The following table summarizes the levels of fair value measurements of our financial assets: September 30, 2024 December 31, 2023 (in millions) Total Level 1 Level 2 Total Level 1 Level 2 Money market funds $ 475 $ 475 $ — $ 730 $ 730 $ — U.S. Treasury bills 16 16 — 16 16 — 491 491 — 746 746 — Deposits - money market funds 226 226 — 22 22 — Total $ 717 $ 717 $ — $ 768 $ 768 $ — Please read Note 3. “ Other Balance Sheet Information ,” for additional information. During Q3 2024, we transferred $ 158 million of claim funds previously held with Chubb to a trust account and those funds were subsequently invested in money market funds. Both before and after the transfer, these funds were included in restricted cash and deposits - workers’ compensation on our Condensed Consolidated Balance Sheet. 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 millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value September 30, 2024 U.S. Treasury bills $ 16 $ — $ — $ 16 December 31, 2023 U.S. Treasury bills $ 16 $ — $ — $ 16 As of September 30, 2024, the contractual maturities of all marketable securities in our portfolio were less than one year. Fair Value of Other Financial Instruments The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, deposits and accounts payable approximate their fair values due to the short-term maturities of these instruments. As of September 30, 2024, the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy. Please read Note 5, “ Long-Term Debt ,” for additional information. 5. Long-Term Debt We have a revolving credit facility (the “Facility”) 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 September 30, 2024, our outstanding balance on the Facility was $ 369 million, and we had an outstanding $ 1 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $ 280 million. Insperity | 2024 Third Quarter Form 10-Q 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 the nine month period ended September 30, 2024 was 7.2 %. Interest expense and unused commitment fees are recorded in other income (expense). The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio, and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at September 30, 2024. 6. Stockholders' Equity During the nine months ended September 30, 2024, we repurchased or withheld an aggregate of 551,264 shares of our common stock, as described below. Repurchase Program Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases may be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors. During the nine months ended September 30, 2024, 371,003 shares were repurchased under the Repurchase Program. As of September 30, 2024, we were authorized to repurchase an additional 1,598,559 shares under the Repurchase Program. Withheld Shares During the nine months ended September 30, 2024, we withheld 180,261 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) 2024 2023 First quarter $ 0.57 $ 0.52 Second quarter 0.60 0.57 Third quarter 0.60 0.57 During the nine months ended September 30, 2024 and 2023, we declared and paid dividends totaling $ 67 million and $ 63 million, respectively. 7. 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”). Insperity | 2024 Third Quarter Form 10-Q 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the net income and the basic and diluted shares used in the earnings per share computations: Three Months Ended September 30, Nine Months Ended September 30, (in millions) 2024 2023 2024 2023 Net income $ 3 $ 45 $ 100 $ 152 Weighted average common shares outstanding 38 38 38 38 Incremental shares from assumed time-vested and performance-based RSU awards — — — — Adjusted weighted average common shares outstanding 38 38 38 38 An insignificant number of shares of time-vested and performance-based RSU awards were excluded from the calculation of diluted earnings per share due to anti-dilution during each of the three and nine month periods ended September 30, 2024 and 2023, respectively. 8. Commitments and Contingencies Litigation We are a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations. Insperity | 2024 Third Quarter Form 10-Q 18 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS