What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-09 · 116 added, 114 removed, 386 unchanged (37% of the section changed)

15 unchanged sentences

2024 Highlights

• Average number of WSEEs paid per month increased 5.8% to 312,102.

Revenues increased 9.2% on the 5.8% WSEE growth and a 3.2% increase in revenue per WSEE.

• We ended 2023 averaging 315,072 paid WSEEs in the fourth quarter of 2023, which represents a 2.5% increase over the fourth quarter of 2022.

We expect the average number of paid WSEEs per month to be between 318,350 and 321,500 for the full year 2024, an increase of 2% to 3%.

• Approximately 26.1% and 24.9% of our average paid WSEEs were in our middle market sector for the years ended December 31, 2023 and 2022, respectively, which is generally defined as companies with 150 to 5,000 WSEEs.

• Average number of WSEEs paid per month decreased 2% to 307,261.

Revenues increased 1% on a 3% increase in revenue per WSEE, partially offset by the 2% decrease in average WSEEs paid.

• We ended 2024 averaging 309,093 paid WSEEs in the fourth quarter of 2024 , which represents a 2% decrease over the fourth quarter of 2023.

• Approximately 26% of our average paid WSEEs were in our middle market sector for the years ended December 31, 2024 and 2023, which is generally defined as companies with 150 to 5,000 WSEEs.

• Gross profit increased 1% to $1.1 billion.

The increase was primarily due to the 5.8% growth in the average number of WSEEs paid per month, which was partially offset by a 3.1% decrease in gross profit per WSEE.

The increase was primarily due to a 3% increase in gross profit per WSEE, which was partially offset by a 2% decline in the average number of WSEEs paid per month.

Gross profit per WSEE paid per month reflected, in part, a 3% pricing increase offset by a 3% increase in direct costs per WSEE.

The increase in direct costs per WSEE was primarily attributable to a 4% increase in benefits costs per participant.

• Operating expenses increased 7.5% in 2023 to $818.3 million, and included increases in travel and event costs, salary and wages, and the implementation of a CRM solution.

• Operating expenses increased 14% in 2024 to $935 million, and included increases in travel and event costs, salary and wages, and the implementation of our Workday strategic partnership.

On a per WSEE per month basis, operating expenses increased from $219 in 2023 to $253 in 2024 .

• Net income and diluted earnings per share (“Diluted EPS”) decreased 47% and 46% to $91 million and $2.42, respectively.

• Adjusted EBITDA increased 0.4% to $353.6 million.

• Adjusted net income and adjusted EPS decreased 36% and 35% to $135 million and $3.58, respectively.

• Adjusted EBITDA decreased 24% to $270 million.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Adjusted net income decreased 2.0% to $211.7 million.

• Adjusted EPS decreased 1.3% to $5.52.

• Our net income per WSEE per month decreased 46% from $46 in 2023 to $25 in 2024 .

• Our adjusted EBITDA per WSEE per month decreased 22% from $94 in 2023 to $73 in 2024 .

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Workers’ compensation costs include administrative and risk charges paid to the insurance carrier, and claims costs, which are driven primarily by the frequency and severity of claims.

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

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

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

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Our corporate employees include client services, sales and marketing, benefits, legal, finance, information technology, administrative support personnel and those associated with our other products and services.

• 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 incentive plan awards.

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

• Commissions — Commissions expense consists primarily of amounts paid to sales managers and other sales personnel, including BPAs as well as channel referral fees.

7 unchanged sentences

◦ 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 associated with the development and implementation of the Workday joint solution.

• 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.

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The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and

The preparation of these financial statements requires

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

expenses, and related disclosure of contingent assets and liabilities.

our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate these estimates, including those related to health and workers’ compensation insurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities.

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Actual results may differ from these estimates.

We believe the following accounting policies are critical and/or require significant judgments and estimates used in the preparation of our Consolidated Financial Statements:

• Benefits 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 United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii and Tufts (known as Harvard Pilgrim Health Care (HPHC) beginning in 2024), all of which provide fully insured policies or service contracts.

We believe the following accounting policies are critical and/or require judgments and estimates used in the preparation of our Consolidated Financial Statements:

• Benefits 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 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.

The health insurance contract with United provides the majority of our health insurance coverage.

As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model.

Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense in the Consolidated Statements of Income and Comprehensive Income.

The estimated incurred but not reported claims are based upon:

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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.

Effective January 1, 2020, we entered into an arrangement whereby our financial responsibility is limited to the first $1 million of paid claims per claimant per year.

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 benefits costs.

Our financial responsibility with United is limited to the first $1 million of paid claims per claimant per year.

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.

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As this amount is less than the agreed-upon $9 million surplus maintenance level, the $14 million difference is included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets.

In addition, the premiums owed to United at December 31, 2023, were $6.5 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

In addition, the premiums owed to United at December 31, 2024, were less than $1 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

We believe that recent claim development patterns are representative of incurred but not reported claims costs during the reporting period.

4 unchanged sentences

Benefits Costs

(in thousands)

(2.5)% $ (29,871) $ 22,744

(1.0)% (11,948) 9,098

(in millions)

(2.5)% $ (31) $ 22

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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 was 4.3% in 2023 and 2.9% in 2022) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income and Comprehensive Income.

Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate was 4.3% in both 2024 and 2023) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income.

Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims estimates and record an adjustment to workers’ compensation costs in the period such determination is made.

If we were to experience any significant changes in actuarial assumptions, our loss development rates could increase (or decrease), which would result in an increase (or decrease) in workers’ compensation costs and a resulting decrease (or increase) in net income reported in our Consolidated Statements of Income and Comprehensive Income.

The following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers’ compensation costs totaling $75 million in 2024:

Change in Loss Development Rate Change in Workers’ Compensation Costs

(in thousands)

(5.0)% $ (3,926) $ 2,987

(2.5)% (1,963) 1,494

2.5% 1,963 (1,494)

(in millions)

(5.0)% $ (4) $ 3

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Please read Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.

2023 Form 10-K

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) Year Ended December 31, % Change

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

Year Ended December 31, % Change

2024 2023 2022 2024 v

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Year Ended December 31,

(in thousands) 2023 2022 2021

(in millions)

2024 2023 2022

Gross billings $ 43,752 $ 43,141 $ 40,127

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

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Year Ended December 31,

3 unchanged sentences

Revenues $ 1,785 $ 1,732 $ 1,678

2023 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 2023 , the average number of WSEEs paid from new client sales and the net gain (loss) in our client base declined compared to 2022.

Average client retention also declined from 85% in 2022 to 83% in 2023 .

• During 2024 , the average number of WSEEs paid from new client sales increased 2% from 2023.

Average client retention improved from 82% in 2021 to 85% in 2022, while the net gain in our client base continued, at higher than historical levels, although lower than 2021, a period when many clients were rehiring employees as the pandemic conditions improved.

Average client retention declined from 83% in 2023 to 81% in 2024 , while the net change in our client base remained positive, although lower than 2023.

• During 2023, the average number of WSEEs paid from new client sales and the net change in our client base declined compared to 2022.

Average client retention also declined from 85% in 2022 to 83% in 2023.

Average WSEEs Paid and

Year-over-Year Growth Percentage

(in thousands)

Net Income and

Year-over-Year Growth Percentage

(in millions)

Year-over-Year Growth Percentage

(amounts per share)

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Adjusted EBITDA and

Year-over-Year Growth Percentage

(in thousands)

(in millions)

Adjusted EPS and

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Our revenues for 2024 were $6.6 billion, an increase of 1%, primarily due to the following:

• Average WSEEs paid increased 5.8%.

• Revenues per WSEE per month increased 3.2%, or $54.

2023 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Revenues per WSEE per month increased 3%, or $53, partially offset by a 2% decrease in average WSEEs paid.

2023 Compared to 2022

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• Revenues per WSEE per month increased 3%, or $54.

2024 Form 10-K

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.

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PEO HR Outsourcing Solutions Revenue by Region

(in thousands)

(in millions)

____________________________________

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Significant Markets

2023 Form 10-K

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.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross Profit and

Year-over-Year Growth Percentage

(in thousands)

(in millions)

Gross Profit per WSEE per Month and

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The net decrease in direct costs between 2024 and 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $15 million as discussed below.

The $63 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

The $45 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Benefits costs

1 unchanged sentence

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

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $13.0 million, or $3 per WSEE per month, in 2023 compared to an increase in costs of $12.1 million, or $3 per WSEE per month, in 2022.

Please read “ — Critical Accounting Policies and Estimates — Benef its Costs ” for a discussion of our accounting for health insurance costs.

2023 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $ 29 million, or $8 per WSEE per month, in 2024 compared to a decrease in costs of $ 13 million, or $3 per WSEE per month, in 2023.

Please read “ —Critical Accounting Policies and Estimates—Benefits 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.

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 increased 2%, or $1 per WSEE per month, in 2024 compared to 2023.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both 2023 and 2022.

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

• We recorded a reduction in workers’ compensation costs of $ 32 million, or 0.10% of non-bonus payroll costs, in 2024 compared to a reduction of $33 million, or 0.11% of non-bonus payroll costs, in 2023, primarily as a result of closing out claims at lower than expected costs.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read “ —Critical Accounting Policies and Estimates—Workers' Compensation Costs ” for a discussion of our accounting for workers’ compensation costs.

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2023 Compared to 2022

The net increase in direct costs between 2022 and 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $6.7 million as discussed below.

The net decrease in direct costs between 2023 and 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $16 million as discussed below.

The $63 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 $9 per WSEE per month, but increased 1.2% on a per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65.4% in 2022 compared to 67.0% in 2021.

• Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $ 12.1 million, or $3 per WSEE per month, in 2022 compared to an increase in costs of $4.9 million, or $2 per WSEE per month, in 2021.

• The cost of group health insurance and related employee benefits increased $44 per WSEE per month, or 7% on a cost per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65% in both 2023 and 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $ 13 million, or $3 per WSEE per month, in 2023 compared to an increase in costs of $12 million, or $3 per WSEE per month, in 2022.

Please read “ —Critical Accounting Policies and Estimates—Benefits Costs ” for a discussion of our accounting for health insurance costs.

Workers’ compensation costs

Our continued discipline around our client selection, safety and claims management contributed to the reduction 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 decreased 4.1%, or $4 per WSEE per month, in 2022 compared to 2021.

• As a percentage of non-bonus payroll cost, workers’ compensation costs in 2022 were 0.23% compared to 0.29% in 2021.

• As a result of closing out claims incurred in prior periods at lower than expected costs, we recorded a reduction in workers’ compensation costs of $42.2 million, or 0.14% of non-bonus payroll costs, in 2022 compared to a reduction of $41.7 million, or 0.18% of non-bonus payroll costs, in 2021.

The 2022 period costs include the impact of a 2.9 % discount rate used to accrue workers’ compensation loss claims, compared to a 0.6% discount rate used in the 2021 period.

2023 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Workers’ compensation costs increased 12%, or $1 per WSEE per month, in 2023 compared to 2022.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both 2023 and 2022.

• We recorded a reduction in workers’ compensation costs of $ 33 million, or 0.11% of non-bonus payroll costs, in 2023 compared to a reduction of $42 million, or 0.14% of non-bonus payroll costs, in 2022, primarily as a result of closing out claims at lower than expected costs.

Please read “ —Critical Accounting Policies and Estimates—Workers' Compensation Costs ” for a discussion of our accounting for workers’ compensation costs.

Payroll tax costs

• Payroll taxes increased 23.0% on an 20.6% increase in payroll costs, or $27 per WSEE per month.

• Payroll taxes as a percentage of payroll costs increased to 6.4% in 2022 compared to 6.3% in 2021.

• Payroll taxes increased 9% on a 7% increase in payroll costs, or $18 per WSEE per month.

• Payroll taxes as a percentage of payroll costs were 6% in both 2023 and 2022.

2024 Form 10-K

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Year Ended December 31,

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

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

Salaries $ 521 $ 461 13 % $ 141 $ 123 15 %

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General and administrative:

Amortization of SaaS implementation costs 11 6 83 % 3 2 50 %

Workday SaaS licensing and implementation expenses 29 — — 8 — —

All other general and administrative 184 171 8 % 49 46 7 %

Total general and administrative 224 177 27 % 60 48 25 %

Depreciation and amortization 44 43 2 % 12 11 9 %

3 unchanged sentences

• Salaries of corporate and sales staff for 2024 increased 13% to $521 million, or $18 per WSEE per month, compared to 2023.

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

• Stock-based compensation expense for 2023 increased 5.8% to $53.0 million, but remained flat on a per WSEE per month basis, compared to 2022.

The increase was primarily due to awards issued under our restricted stock unit 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 operating results in 2023.Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• Commissions expense for 2023 increased 2.6% to $46.8 million, but remained flat on a per WSEE per month basis, compared to 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 2023.

The increase was primarily due to a 5% increase in BPA, service, technology and support headcount and staff compensation levels in 2024 compared to 2023.

• Stock-based compensation expense for 2024 increased 15% to $61 million, or $3 per WSEE per month, compared to 2023.

The increase was primarily due to time-based restricted stock unit awards issued under our incentive plan.

Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• General and administrative expenses for 2024 increased 27% to $224 million, or $12 per WSEE per month, compared to 2023.

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

• Depreciation and amortization expense for 2023 increased 5.0% to $42.7 million, but remained flat on a per WSEE per month basis, compared to 2022.

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

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.

2024 Form 10-K

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Year Ended December 31,

(in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change

(in millions, except per WSEE)

2023 2022 % Change 2023 2022 % Change

Salaries $ 461 $ 431 7 % $ 123 $ 122 1 %

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Operating expenses for 2023 increased 7% to $818 million compared to $761 million in 2022.

Operating expenses remained flat on a per WSEE per month basis compared to 2021.

• Salaries of corporate and sales staff for 2022 increased 13.7% to $430.9 million, but decreased $4 on a per WSEE per month basis, compared to 2021 on a 17.7% increase in WSEEs paid per month.

The increase was primarily due to a 7.9% increase in corporate headcount, as well as higher incentive compensation accruals in 2022.

Operating expenses per WSEE per month for 2023 increased 2% to $219 compared to $215 in 2022.

• Salaries of corporate and sales staff for 2023 increased 7% to $461 million, or $1 per WSEE per month, compared to 2022.

• Stock-based compensation expense for 2023 increased 6% to $53 million, but remained flat on a per WSEE per month basis, compared to 2022.

1 unchanged sentence

Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• Commissions expense for 2022 increased 30.8% to $45.7 million, or $1 per WSEE per month, compared to 2021.

The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers, as well as an increase in the amount of sales channel referral fees paid during 2022.

• Advertising expense for 2022 increased 28.9% to $37.5 million, or $1 per WSEE per month, compared to 2021.

The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs.

• Commissions expense for 2023 increased 2% to $47 million, but remained flat on a per WSEE per month basis, compared to 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 2023.

• General and administrative expenses for 2023 increased 13% to $177 million, or $4 per WSEE per month, compared to 2022.

The increase was primarily due to increased travel, event and software licensing costs.

• Depreciation and amortization expense for 2022 increased 5.5% to $40.7 million, but decreased $2 on a per WSEE per month basis, compared to 2021.

The increase was primarily due to the completion of a new facility on our corporate campus during 2021 and increased capital expenditures related to software development costs.

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

• Depreciation and amortization expense for 2023 increased 5% to $43 million, but remained flat on a per WSEE per month basis, compared to 2022.

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

Other Income (Expense)

Other income (expense) was a net income of $6.5 million in 2023 and net expense of $4.8 million and $5.0 million in 2022 and 2021, respectively.

Other income (expense) was net income of $9 million and $6 million in 2024 and 2023, respectively, and net expense of $5 million in 2022.

In 2024 and 2023, the increase in other income was due to an increase in interest rates on our marketable securities investments and workers’ compensation deposits, which was partially offset by an increase in interest expense related to higher average interest rates on borrowings under our credit facility.

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Our provision for income taxes differed from the U.S.

statutory rate of 21% primarily due to state income taxes and non-deductible expenses, offset by

statutory rate of 21% primarily due to state income taxes and non-deductible expenses, offset by excess tax benefits associated with the vesting of equity compensation of less than $1 million, $5 million and less than $1 million, in 2024, 2023 and 2022, respectively.

Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional information.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

excess tax benefits associated with the vesting of equity compensation of $4.9 million, $0.2 million and $2.6 million, in 2023, 2022 and 2021, respectively.

Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional information.

Non-GAAP Financial Measures

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

(in thousands, except per WSEE per month) Year Ended December 31,

(in millions, except per WSEE per month)

Year Ended December 31,

2024 2023 2022

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$ 32,070 $ 8,698 $ 31,677 $ 8,458 $ 29,228 $ 8,256

% Change year over year 8.4 % 2.4 % 23.7 % 5.1 % 14.5 % 6.9 %

Payroll cost % change year over year 1 % 3 % 7 % 1 % 21 % 3 %

Non-bonus payroll cost % change year over year 1 % 3 % 8 % 2 % 24 % 5 %

2024 Form 10-K

1 unchanged sentence

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

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

(in millions)

December 31, 2024 December 31, 2023

Cash, cash equivalents and marketable securities $ 1,055 $ 709

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

510,092 504,817

Client prepayments

27,592 36,800

Adjusted cash, cash equivalents and marketable securities $ 134 $ 171

1 unchanged sentence

Year Ended December 31,

(in thousands, except per WSEE per month) 2023 2022 2021

(in millions, except per WSEE per month)

2024 2023 2022

Per WSEE Per WSEE Per WSEE

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Adjusted EBITDA $ 270 $ 73 $ 354 $ 94 $ 352 $ 100

% Change year over year 0.4 % (6.0) % 38.2 % 17.6 % (11.7) % (17.5) %

Net income % change year over year (47) % (46) % (4) % (10) % 44 % 24 %

Adjusted EBITDA % change year over year (24) % (22) % 1 % (6) % 38 % 18 %

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

Year Ended December 31,

(in thousands) 2023 2022 2021

(in millions)

2024 2023 2022

Net income $ 91 $ 171 $ 179

4 unchanged sentences

Adjusted net income $ 135 $ 212 $ 216

% Change year over year (2.0) % 40.2 % (15.1) %

Net income % change year over year (47) % (4) % 44 %

Adjusted net income % change year over year (36) % (2) % 40 %

2024 Form 10-K

9 unchanged sentences

Adjusted EPS $ 3.58 $ 5.52 $ 5.59

% Change year over year (1.3) % 41.5 % (14.9) %

Diluted EPS % change year over year (46) % (4) % 46 %

Adjusted EPS % change year over year (35) % (1) % 42 %

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 $708.8 million in cash, cash equivalents and marketable securities at December 31, 2023, of which approximately $510.1 million was payable in early January 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $27.6 million represented client prepayments that were payable in January 2024.

We had $1.1 billion in cash, cash equivalents and marketable securities at December 31, 2024, of which approximately $390 million was payable in early January 2025 for withheld federal and state income taxes, employment taxes and other payroll deductions, approximately $91 million represented client prepayments that were payable in January 2025, and $440 million of funds we received in late December 2024 from the Internal Revenue Service related to employee retention tax credits claimed by our PEO clients under COVID relief programs that are expected to be distributed to clients in early 2025.

At December 31, 2024, we had working capital of $155 million compared to $159 million at December 31, 2023.

12 unchanged sentences

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

In the year ended December 31, 2024, the last business day of the reporting period was a Tuesday, client prepayments were $91 million and employment taxes and other deductions were $830 million, which included $ 440 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that are expected to be distributed to clients in early 2025.

In the year ended December 31, 2023, the last business day of the reporting period was a Friday, client prepayments were $28 million and employment taxes and other deductions were $510 million.

In the year ended December 31, 2022, the last business day of the reporting period was also a Friday, client prepayments were $36.8 million and employment taxes and other deductions were $504.8 million.

• Workers’ compensation plan funding — During 2023 and 2022, we received $ 46.3 million and $30.2 million, respectively, for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Workers’ compensation plan funding — During 2024 and 2023, we received $39 million and $46 million, respectively, for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

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

2 unchanged sentences

As of December 31, 2024, Plan Costs were more than the net premiums paid and owed to United by $5 million, which is $14 million less than our agreed-upon $9 million surplus maintenance level.

The $32.5 million difference is therefore reflected as a current liability and $9.0 million is reflected as a long-term asset on our Consolidated Balance Sheets at December 31, 2023.

In addition, the premiums owed to United at December 31, 2023, were $6.5 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

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

Our adjusted net income decreased 2.0% to $211.7 million in 2023, compared to $215.9 million in 2022.

The $14 million difference is therefore reflected as a current liability and $9 million is reflected as a long-term asset on our Consolidated Balance Sheet at December 31, 2024.

In addition, the premiums owed to United at December 31, 2024, were less than $1 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheet.

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

Our net income and adjusted net income decreased 47% and 36% to $91 million and $135 million in 2024, respectively, compared to $171 million and $212 million in 2023, respectively.

Please read “ Results of Operations .”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $21.7 million for the year ended December 31, 2023, primarily due to property and equipment purchases of $40.1 million, partially offset by $18.4 million of marketable securities maturities and dispositions, net of purchases.

Net cash flows used in investing activities were $38 million for the year ended December 31, 2024, primarily due to property and equipment purchases.

Cash Flows from Financing Activities

1 unchanged sentence

We paid $89 million in dividends and repurchased or withheld $63 million in stock.

In addition, client funds liability and other financing activities increased by $60.7 million.

In addition, client funds liability and other financing activities decreased by $21 million.

Seasonality, Inflation and Quarterly Fluctuations

13 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis