INSPERITY, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, as well as our Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q. Executive Summary Overview Insperity, Inc. (“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 Insperity ® HR 360 solution (formerly our Workforce Optimization ® solution) and Insperity ® HR 360 Select Edition (formerly our Workforce Synchronization TM solution) (together, our “PEO HR Solutions”), which we provide by entering into a co-employment relationship with our clients. Our PEO HR 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. 2025 Highlights Second Quarter 2025 Compared to Second Quarter 2024 • Average number of WSEEs paid per month increased 1% • Net income (loss) and diluted earnings per share (“EPS”) decreased 128% and 129% to $(5) million and $(0.14), respectively • Adjusted net income and adjusted EPS both decreased 70% to $10 million and $0.26, respectively • Adjusted EBITDA decreased 52% to $32 million First Six Months 2025 Compared to First Six Months 2024 • Average number of WSEEs paid per month increased 1% • Net income and diluted EPS decreased 53% and 52% to $46 million and $1.22, respectively • Adjusted net income and adjusted EPS both decreased 42% to $69 million and $1.83, respectively • Adjusted EBITDA decreased 36% to $134 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 | 2025 Second Quarter Form 10-Q 20 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Key Financial and Statistical Data (in millions, except per share, WSEE and statistical data) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 % Change 2025 2024 % Change Financial data: Revenues $ 1,658 $ 1,605 3 % $ 3,521 $ 3,407 3 % Gross profit 223 260 (14) % 533 605 (12) % Operating expenses 230 237 (3) % 472 474 — Operating income (loss) (7) 23 (130) % 61 131 (53) % Other income (expense), net 1 2 (50) % 5 5 — Net income (loss) (5) 18 (128) % 46 97 (53) % Diluted EPS (0.14) 0.48 (129) % 1.22 2.56 (52) % Non-GAAP financial measures (1) : Adjusted net income $ 10 $ 33 (70) % $ 69 $ 119 (42) % Adjusted EBITDA 32 66 (52) % 134 208 (36) % Adjusted EPS 0.26 0.86 (70) % 1.83 3.13 (42) % Average WSEEs paid 309,115 306,958 1 % 307,569 305,431 1 % Statistical data (per WSEE per month) : Revenues (2) $ 1,788 $ 1,743 3 % $ 1,908 $ 1,859 3 % Gross profit 240 282 (15) % 289 330 (12) % Operating expenses 248 257 (4) % 256 259 (1) % Operating income (loss) (8) 25 (132) % 33 71 (54) % Net income (loss) (5) 20 (125) % 25 53 (53) % ____________________________________ (1) Please read “ Non-GAAP Financial Measures ” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP. (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, (per WSEE per month) 2025 2024 2025 2024 Gross billings $ 11,385 $ 11,251 $ 12,302 $ 11,920 Less: WSEE payroll cost 9,597 9,508 10,394 10,061 Revenues $ 1,788 $ 1,743 $ 1,908 $ 1,859 Insperity | 2025 Second Quarter Form 10-Q 21 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Key Operating Metrics We monitor certain key metrics to measure our performance, including: • WSEEs • Adjusted EBITDA • Adjusted EPS Our growth in the number of WSEEs paid is affected by three primary sources: new client sales, client retention and the net change in WSEEs paid at existing clients through new hires and employee terminations. • During Q2 2025, average WSEEs paid increased 1% compared to Q2 2024. The number of WSEEs paid from new client sales and the net change in our client base increased compared with Q2 2024, while client retention remained consistent with Q2 2024. • During the first six months of 2025 (“YTD 2025”), average WSEEs paid increased 1% compared to the first six months of 2024 (“YTD 2024”). The number of WSEEs paid from new client sales, client retention, and the net change in our client base increased when compared to YTD 2024. Average WSEEs Paid and Year-over-Year Growth Percentage Insperity | 2025 Second Quarter Form 10-Q 22 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Income (Loss) and Year-over-Year Growth Percentage (in millions) Adjusted EBITDA and Year-over-Year Growth Percentage (in millions) Insperity | 2025 Second Quarter Form 10-Q 23 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EPS and Year-over-Year Growth Percentage (amounts per share) Adjusted EPS and Year-over-Year Growth Percentage (amounts per share) Insperity | 2025 Second Quarter Form 10-Q 24 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenues Our PEO HR 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. Revenue and Year-over-Year Growth Percentage (in millions) Second Quarter 2025 Compared to Second Quarter 2024 Our revenues for Q2 2025 were $1.7 billion, an increase of 3%, primarily due to the following: • Average WSEEs paid increased 1%. • Revenues per WSEE per month increased 3%, or $45. First Six Months 2025 Compared to First Six Months 2024 Our revenues for YTD 2025 were $3.5 billion, an increase of 3%, primarily due to the following: • Average WSEEs paid increased 1%. • Revenues per WSEE per month increased 3%, or $49. We provide our PEO HR Solutions to small and medium-sized businesses throughout the United States. Our PEO HR Solutions revenue distribution by region follows: PEO HR Solutions Revenue by Region Insperity | 2025 Second Quarter Form 10-Q 25 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in millions) ________________________________________________________ (1) The Southwest region includes Texas. The percentage of total PEO HR Solutions revenue in our significant markets includes the following: Significant Markets We generally define the middle market sector as those companies with approximately 150 to 5,000 WSEEs. Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector. Our average number of WSEEs per month in our middle market sector increased 3% during YTD 2025 compared to YTD 2024, representing approximately 26% and 25% of our total average paid WSEEs in YTD 2025 and YTD 2024, respectively. Insperity | 2025 Second Quarter Form 10-Q 26 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Gross Profit 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. Our gross profit per WSEE and operating results are significantly impacted 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 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. Gross Profit and Year-over-Year Growth Percentage (in millions) Insperity | 2025 Second Quarter Form 10-Q 27 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 2025 Compared to Second Quarter 2024 Gross profit for Q2 2025 decreased 14% to $223 million compared to $260 million in Q2 2024. Gross profit per WSEE per month for Q2 2025 decreased $42 to $240 compared to $282 in Q2 2024 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 $45 due to higher average pricing of 3%. The net increase in direct costs between Q2 2025 and Q2 2024 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $24 million as discussed below. The $87 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 increased $65 per WSEE per month and increased 9.6% on a cost per covered employee basis driven by continued elevated pharmacy trends and frequency of large claim activity in Q2 2025 as compared to Q2 2024. • The percentage of WSEEs covered under our health insurance plans was 63% in Q2 2025 compared to 64% in Q2 2024. • Reported results include changes in estimated claims run-off related to prior periods, which did not impact costs in Q2 2025 compared to a decrease in costs of $25 million, or $27 per WSEE per month, in Q2 2024. 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 • Workers’ compensation costs increased 4%, or $1 per WSEE per month, in Q2 2025 compared to Q2 2024. • As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both Q2 2025 and Q2 2024. • Our continued discipline around our client selection, workplace safely and claims management has allowed for claims to be closed out at amounts below our original cost estimates, resulting in a reduction in workers’ Insperity | 2025 Second Quarter Form 10-Q 28 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS compensation costs of $8 million, or 0.09% of non-bonus payroll costs in Q2 2025, compared to a reduction of $7 million, or 0.09% of non-bonus payroll costs in Q2 2024. Please read Note 2 to the Consolidated Financial Statements, “ Accounting Policies – Workers’ Compensation Costs ,” for a discussion of our accounting for workers’ compensation costs. Payroll tax costs • Payroll taxes increased 4% on a 2% increase in payroll costs, or $21 per WSEE per month. • Payroll taxes as a percentage of payroll costs were 7% in both Q2 2025 and Q2 2024. First Six Months 2025 Compared to First Six Months 2024 Gross profit for YTD 2025 decreased 12% to $533 million compared to $605 million in YTD 2024. Gross profit per WSEE per month for YTD 2025 decreased $41 to $289 compared to $330 in YTD 2024 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 $49 due to higher average pricing of 3%. The net increase in direct costs between YTD 2025 and YTD 2024 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $40 million as discussed below. The $90 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 increased $60 per WSEE per month, or 9.0% on a cost per covered employee basis driven by continued elevated inpatient, outpatient, and pharmacy trends and frequency of large claim activity in YTD 2025 as compared to YTD 2024. • The percentage of WSEEs covered under our health insurance plans was 63% in YTD 2025 compared to 64% in YTD 2024. • Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $11 million, or $6 per WSEE per month, in YTD 2025 compared to a decrease in costs of $26 million, or $14 per WSEE per month, in YTD 2024. 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 • Workers’ compensation costs increased 8%, or $1 per WSEE per month, in YTD 2025 compared to YTD 2024. • As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.24% in YTD 2025 and 0.23% in YTD 2024. • Our continued discipline around our client selection, workplace safely and claims management has allowed for claims to be closed out at amounts below our original cost estimates, resulting in a reduction in workers’ compensation costs of $14 million, or 0.09% of non-bonus payroll costs, in YTD 2025 compared to a reduction of $17 million, or 0.11% of non-bonus payroll costs, in YTD 2024. Please read Note 2 to the Consolidated Financial Statements, “ Accounting Policies – Workers' Compensation Costs ,” for a discussion of our accounting for workers’ compensation costs. Payroll tax costs • Payroll taxes increased 4% on a 4% increase in payroll costs, or $27 per WSEE per month. • Payroll taxes as a percentage of payroll costs were 7% in both YTD 2025 and YTD 2024. Insperity | 2025 Second Quarter Form 10-Q 29 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Expenses • Salaries, wages and payroll taxes — Salaries, wages and payroll taxes (“Salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional cash incentive compensation. • Stock-based compensation — Our stock-based compensation relates to the recognition of non-cash compensation expense over the requisite service period of time-based and performance-based awards. • Commissions — Commissions expense consists primarily of amounts paid to sales managers and other sales personnel, including business performance advisors (“BPAs”), as well as channel referral fees. Commissions are based on new accounts sold and a percentage of revenue generated by such personnel. • Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets. • General and administrative expenses — Our general and administrative expenses primarily include: ◦ rent expenses related to our service centers and sales offices ◦ outside professional service fees related to legal, consulting and accounting services ◦ administrative costs, such as postage, printing and supplies ◦ employee travel and training expenses ◦ facility costs, including repairs and maintenance ◦ technology costs, including software-as-a-service (“SaaS”) subscription costs, amortization of SaaS implementation costs and third-party 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. Insperity | 2025 Second Quarter Form 10-Q 30 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Second Quarter 2025 Compared to Second Quarter 2024 The following table presents certain information related to our operating expenses: Three Months Ended June 30, per WSEE (in millions, except per WSEE) 2025 2024 % Change 2025 2024 % Change Salaries $ 129 $ 126 2 % $ 139 $ 137 1 % Stock-based compensation 20 20 — 22 22 — Commissions 10 11 (9) % 11 12 (8) % Advertising 11 12 (8) % 12 13 (8) % General and administrative: Amortization of SaaS implementation costs 1 3 (67) % 1 3 (67) % Workday SaaS licensing and implementation expense 7 8 (13) % 8 9 (11) % All other general and administrative 41 46 (11) % 43 49 (12) % Total general and administrative 49 57 (14) % 52 61 (15) % Depreciation and amortization 11 11 — 12 12 — Total operating expenses $ 230 $ 237 (3) % $ 248 $ 257 (4) % Operating expenses for Q2 2025 decreased 3% to $230 million compared to $237 million in Q2 2024. Operating expenses per WSEE per month for Q2 2025 decreased 4% to $248 compared to $257 in Q2 2024. • General and administrative expenses for Q2 2025 decreased 14% to $49 million, or $9 per WSEE per month, compared to Q2 2024. The decrease was primarily due to decreased professional services fees, travel and training expenses, and amortization of SaaS implementation costs, partially offset by increases in software licensing and maintenance costs. First Six Months 2025 Compared to First Six Months 2024 The following table presents certain information related to our operating expenses: Six Months Ended June 30, per WSEE (in millions, except per WSEE) 2025 2024 % Change 2025 2024 % Change Salaries $ 271 $ 266 2 % $ 147 $ 145 1 % Stock-based compensation 31 30 3 % 17 16 6 % Commissions 21 23 (9) % 11 13 (15) % Advertising 18 19 (5) % 10 10 — General and administrative: Amortization of SaaS implementation costs 3 6 (50) % 2 3 (33) % Workday SaaS licensing and implementation expense 13 12 8 7 7 — All other general and administrative 93 96 (3) % 50 53 (6) % Total general and administrative 109 114 (4) % 59 63 (6) % Depreciation and amortization 22 22 — 12 12 — Total operating expenses $ 472 $ 474 — $ 256 $ 259 (1) % Operating expenses for YTD 2025 decreased to $472 million compared to $474 million in YTD 2024. Operating expenses per WSEE per month for YTD 2025 decreased 1% to $256 compared to $259 in YTD 2024. Insperity | 2025 Second Quarter Form 10-Q 31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other Income (Expense) Interest income decreased $2 million in YTD 2025 compared to YTD 2024 due to interest rate decreases on overnight, investment and deposit holdings. Interest expense decreased $2 million in YTD 2025 compared to YTD 2024 due to decreases in interest rates charged on borrowings under our credit facility. Income Tax Expense Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Effective income tax rate 17% 28% 30% 29% For the six months ended June 30, 2025, 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 2025 we recognized a $1 million income tax expense related to the vesting of long-term incentive and restricted stock awards. During the first six months of 2024 we did not recognize an income tax benefit or expense related to the vesting of long-term incentive and restricted stock awards. On July 4, 2025, H.R.1, which is known as the “One Big Beautiful Bill Act,” was signed into federal law. This law includes significant changes to federal tax law and other regulatory provisions that may impact us. ASC 740, “Income Taxes”, requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. We are currently evaluating the provisions of H.R.1 and the potential effects on our financial position, results of operations, and cash flows. As of the date of these financial statements, we have not completed our assessment, and therefore no adjustments have been made. Additional disclosures of any material impact will be provided in future periods as the effect of the legislation is determined. Insperity | 2025 Second Quarter Form 10-Q 32 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-GAAP Financial Measures Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the tables below. Non-GAAP Measure Definition Benefit of Non-GAAP Measure Non-bonus payroll cost Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our WSEEs. Our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program. We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program. Adjusted cash, cash equivalents and marketable securities Excludes funds associated with: • federal and state income tax withholdings, • employment taxes, • other payroll deductions, and • client prepayments. We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. Adjusted EBITDA is used by our lenders to assess our leverage and ability to make interest payments. EBITDA Represents net income computed in accordance with GAAP, plus: • interest expense, • income tax expense, • depreciation and amortization expense, and • amortization of SaaS implementation costs. Adjusted EBITDA Represents EBITDA plus: • non-cash stock-based compensation. Adjusted net income Represents net income computed in accordance with GAAP, excluding: • non-cash stock-based compensation. Adjusted EPS Represents diluted net income per share computed in accordance with GAAP, excluding: • non-cash stock-based compensation. Insperity | 2025 Second Quarter Form 10-Q 33 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, 2025 2024 2025 2024 Per WSEE Per WSEE Per WSEE Per WSEE Payroll cost $ 8,900 $ 9,597 $ 8,756 $ 9,508 $ 19,181 $ 10,394 $ 18,437 $ 10,061 Less: Bonus payroll cost 705 760 845 917 2,948 1,598 2,707 1,478 Non-bonus payroll cost $ 8,195 $ 8,837 $ 7,911 $ 8,591 $ 16,233 $ 8,796 $ 15,730 $ 8,583 Payroll cost % change period over period 2 % 1 % 1 % 3 % 4 % 3 % 1 % 2 % Non-bonus payroll cost % change period over period 4 % 3 % 1 % 2 % 3 % 2 % 1 % 2 % 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, 2025 December 31, 2024 Cash, cash equivalents and marketable securities $ 456 $ 1,055 Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions 316 830 Client prepayments 26 91 Adjusted cash, cash equivalents and marketable securities $ 114 $ 134 Insperity | 2025 Second Quarter Form 10-Q 34 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following is a reconciliation of net income (loss) (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP): Three Months Ended June 30, Six Months Ended June 30, (in millions, except per WSEE per month) 2025 2024 2025 2024 Per WSEE Per WSEE Per WSEE Per WSEE Net income (loss) $ (5) $ (5) $ 18 $ 20 $ 46 $ 25 $ 97 $ 53 Income tax (benefit) expense (1) (1) 7 7 20 10 39 22 Interest expense 6 6 7 8 12 7 14 8 Amortization of SaaS implementation costs 1 1 3 3 3 2 6 3 Depreciation and amortization 11 12 11 12 22 12 22 12 EBITDA 12 13 46 50 103 56 178 98 Stock-based compensation 20 22 20 22 31 17 30 16 Adjusted EBITDA $ 32 $ 35 $ 66 $ 72 $ 134 $ 73 $ 208 $ 114 Net income (loss) % change period over period (128) % (125) % 50 % 43 % (53) % (53) % (9) % (9) % Adjusted EBITDA % change period over period (52) % (51) % 29 % 33 % (36) % (36) % 2 % 4 % Following is a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP): Three Months Ended June 30, Six Months Ended June 30, (in millions) 2025 2024 2025 2024 Net income (loss) $ (5) $ 18 $ 46 $ 97 Non-GAAP adjustments: Stock-based compensation 20 20 31 30 Tax effect (5) (5) (8) (8) Total non-GAAP adjustments, net 15 15 23 22 Adjusted net income $ 10 $ 33 $ 69 $ 119 Net income (loss) % change period over period (128) % 50 % (53) % (9) % Adjusted net income % change period over period (70) % 32 % (42) % (7) % Insperity | 2025 Second Quarter Form 10-Q 35 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP): Three Months Ended June 30, Six Months Ended June 30, (amounts per share) 2025 2024 2025 2024 Diluted EPS $ (0.14) $ 0.48 $ 1.22 $ 2.56 Non-GAAP adjustments: Stock-based compensation 0.52 0.53 0.81 0.80 Tax effect (0.12) (0.15) (0.20) (0.23) Total non-GAAP adjustments, net 0.40 0.38 0.61 0.57 Adjusted EPS $ 0.26 $ 0.86 $ 1.83 $ 3.13 Diluted EPS % change period over period (129) % 45 % (52) % (8) % Adjusted EPS % change period over period (70) % 34 % (42) % (5) % Liquidity and Capital Resources We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, stock repurchases, potential acquisitions, debt service requirements and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct costs and operating expenses, we rely primarily on cash from operations. Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity. We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a current borrowing capacity of $650 million. The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases. 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 $456 million in cash, cash equivalents and marketable securities at June 30, 2025, of which approximately $316 million was payable in July 2025 for withheld federal and state income taxes, employment taxes and other payroll deductions. Approximately $26 million represented client prepayments that were invoiced in July 2025. At June 30, 2025, we had working capital of $160 million compared to $155 million at December 31, 2024. 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 2025. 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, 2025, 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 used in operating activities in the first six months of 2025 was $522 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following: • Timing of client payments / payroll taxes — We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients no later than the same day as the payment of WSEE payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday. In the six months ended June 30, 2025, the last business day of the reporting period was a Monday, client prepayments were $26 million and employment taxes and other deductions were $316 million. 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. In addition, $440 million of client employee retention tax credits received on their behalf from the Internal Revenue Service during the fourth quarter of 2024 were distributed to clients in early 2025. Insperity | 2025 Second Quarter Form 10-Q 36 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. 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, 2025, Plan Costs were less than the net premiums paid and owed to United by $35 million, which is $26 million in excess of our agreed-upon $9 million surplus maintenance level. The $26 million difference is therefore reflected as a current asset and $9 million is reflected as a long-term asset on our Condensed Consolidated Balance Sheets at June 30, 2025. In addition, the premiums owed to United at June 30, 2025, were $53 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets. • Operating results — Our adjusted net income has a significant impact on our operating cash flows. Our adjusted net income decreased 42% to $69 million in the first six months of 2025, compared to $119 million in the first six months of 2024. 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, 2025, primarily due to property and equipment purchases. Cash Flows from Financing Activities Net cash flows used in financing activities were $78 million for the six months ended June 30, 2025. We paid $45 million in dividends and repurchased or withheld $19 million in stock. In addition, client funds liability and other financing activities decreased by $14 million. Insperity | 2025 Second Quarter Form 10-Q 37 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES