Insperity - 10-Q quarterly report FY2021 Q3

INSPERITY, INC.0001000753--12-312021Q3FALSE38,501,746Greater than 1 yearGreater than 1 year00010007532021-01-012021-09-300001000753us-gaap:CommonStockMember2021-01-012021-09-30xbrli:shares00010007532021-10-25iso4217:USD00010007532021-09-3000010007532020-12-3100010007532021-07-012021-09-3000010007532020-07-012020-09-3000010007532020-01-012020-09-30iso4217:USDxbrli:shares00010007532019-12-3100010007532020-09-300001000753us-gaap:CommonStockMember2020-12-310001000753us-gaap:AdditionalPaidInCapitalMember2020-12-310001000753us-gaap:TreasuryStockMember2020-12-310001000753us-gaap:RetainedEarningsMember2020-12-310001000753us-gaap:CommonStockMember2021-01-012021-09-300001000753us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-300001000753us-gaap:TreasuryStockMember2021-01-012021-09-300001000753us-gaap:RetainedEarningsMember2021-01-012021-09-300001000753us-gaap:CommonStockMember2021-09-300001000753us-gaap:AdditionalPaidInCapitalMember2021-09-300001000753us-gaap:TreasuryStockMember2021-09-300001000753us-gaap:RetainedEarningsMember2021-09-300001000753us-gaap:CommonStockMember2019-12-310001000753us-gaap:AdditionalPaidInCapitalMember2019-12-310001000753us-gaap:TreasuryStockMember2019-12-310001000753us-gaap:RetainedEarningsMember2019-12-310001000753us-gaap:CommonStockMember2020-01-012020-09-300001000753us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001000753us-gaap:TreasuryStockMember2020-01-012020-09-300001000753us-gaap:RetainedEarningsMember2020-01-012020-09-300001000753us-gaap:CommonStockMember2020-09-300001000753us-gaap:AdditionalPaidInCapitalMember2020-09-300001000753us-gaap:TreasuryStockMember2020-09-300001000753us-gaap:RetainedEarningsMember2020-09-300001000753us-gaap:CommonStockMember2021-06-300001000753us-gaap:AdditionalPaidInCapitalMember2021-06-300001000753us-gaap:TreasuryStockMember2021-06-300001000753us-gaap:RetainedEarningsMember2021-06-3000010007532021-06-300001000753us-gaap:CommonStockMember2021-07-012021-09-300001000753us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001000753us-gaap:TreasuryStockMember2021-07-012021-09-300001000753us-gaap:RetainedEarningsMember2021-07-012021-09-300001000753us-gaap:CommonStockMember2020-06-300001000753us-gaap:AdditionalPaidInCapitalMember2020-06-300001000753us-gaap:TreasuryStockMember2020-06-300001000753us-gaap:RetainedEarningsMember2020-06-3000010007532020-06-300001000753us-gaap:CommonStockMember2020-07-012020-09-300001000753us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001000753us-gaap:TreasuryStockMember2020-07-012020-09-300001000753us-gaap:RetainedEarningsMember2020-07-012020-09-30xbrli:pure00010007532019-10-010001000753nsp:NortheastMember2021-07-012021-09-300001000753nsp:NortheastMember2020-07-012020-09-300001000753nsp:NortheastMember2021-01-012021-09-300001000753nsp:NortheastMember2020-01-012020-09-300001000753nsp:SoutheastMember2021-07-012021-09-300001000753nsp:SoutheastMember2020-07-012020-09-300001000753nsp:SoutheastMember2021-01-012021-09-300001000753nsp:SoutheastMember2020-01-012020-09-300001000753nsp:CentralMember2021-07-012021-09-300001000753nsp:CentralMember2020-07-012020-09-300001000753nsp:CentralMember2021-01-012021-09-300001000753nsp:CentralMember2020-01-012020-09-300001000753nsp:SouthwestMember2021-07-012021-09-300001000753nsp:SouthwestMember2020-07-012020-09-300001000753nsp:SouthwestMember2021-01-012021-09-300001000753nsp:SouthwestMember2020-01-012020-09-300001000753nsp:WestMember2021-07-012021-09-300001000753nsp:WestMember2020-07-012020-09-300001000753nsp:WestMember2021-01-012021-09-300001000753nsp:WestMember2020-01-012020-09-300001000753nsp:OtherRevenuesMember2021-07-012021-09-300001000753nsp:OtherRevenuesMember2020-07-012020-09-300001000753nsp:OtherRevenuesMember2021-01-012021-09-300001000753nsp:OtherRevenuesMember2020-01-012020-09-300001000753us-gaap:CashAndCashEquivalentsMember2021-09-300001000753us-gaap:MoneyMarketFundsMember2021-09-300001000753us-gaap:CashAndCashEquivalentsMember2020-12-310001000753us-gaap:MoneyMarketFundsMember2020-12-310001000753us-gaap:FairValueInputsLevel1Member2021-09-300001000753us-gaap:FairValueInputsLevel2Member2021-09-300001000753us-gaap:FairValueInputsLevel1Member2020-12-310001000753us-gaap:FairValueInputsLevel2Member2020-12-310001000753us-gaap:USTreasurySecuritiesMember2021-09-300001000753us-gaap:MunicipalBondsMember2021-09-300001000753us-gaap:USTreasurySecuritiesMember2020-12-310001000753us-gaap:MunicipalBondsMember2020-12-310001000753srt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2021-01-012021-09-300001000753us-gaap:LondonInterbankOfferedRateLIBORMembersrt:MaximumMember2021-01-012021-09-300001000753us-gaap:BaseRateMembersrt:MinimumMember2021-01-012021-09-300001000753us-gaap:BaseRateMembersrt:MaximumMember2021-01-012021-09-3000010007532021-01-012021-03-3100010007532020-01-012020-03-3100010007532021-04-012021-06-3000010007532020-04-012020-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


	For the quarterly period ended	September 30, 2021
	or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from _______________ to _______________

Commission File No. 1-13998

Insperity, Inc.

(Exact name of registrant as specified in its charter)


Delaware						76-0479645
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


19001 Crescent Springs Drive
Kingwood,	Texas	77339
(Address of principal executive offices)

(Registrant’s Telephone Number, Including Area Code): (281) 358-8986


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	NSP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐
Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 25, 2021, 38,501,746 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.


TABLE OF CONTENTS


		Page

	Forward Looking Statements	4
Part I, Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets	6
	Consolidated Statements of Operations	7
	Consolidated Statements of Cash Flows	8
	Consolidated Statements of Stockholders’ Equity	10
	Notes to Consolidated Financial Statements	12
Part I, Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Part I, Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Part I, Item 4.	Controls and Procedures	36
Part II, Item 1.	Legal Proceedings	37
Part II, Item 1A.	Risk Factors	37
Part II, Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Part II, Item 6.	Exhibits	38


FORWARD LOOKING STATEMENTS

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act). You can identify such forward-looking statements by the words “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “could,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, in an effort to help keep our stockholders and the public informed about our operations, from time to time, we may issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies; projected or anticipated benefits or other consequences of such plans or strategies; or projections involving anticipated revenues, earnings, average number of worksite employees (“WSEEs”), benefits and workers’ compensation costs, or other operating results. We base the forward-looking statements on our current expectations, estimates and projections. We caution you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are:

•adverse economic conditions;

•impact of the COVID-19 pandemic, or other future pandemics, including the scope, severity and duration of the pandemic; government responses; regulatory developments; and the related disruptions and economic impact to our business and the small and medium-sized businesses that we serve;

•vulnerability to regional economic factors because of our geographic market concentration;

•failure to comply with covenants under our credit facility;

•our liability for worksite employee payroll, payroll taxes and benefits costs;

•increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers, other insurers or financial institutions, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims;

•cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients;

•the ability to secure competitive replacement contracts for health insurance and workers’ compensation insurance at expiration of current contracts;

•regulatory and tax developments and possible adverse application of various federal, state and local regulations;

•failure to manage growth of our operations and the effectiveness of our sales and marketing efforts;

•the impact of the competitive environment and other developments in the human resources services industry, including the PEO industry, on our growth and/or profitability;

•an adverse final judgment or settlement of claims against Insperity;

•disruptions of our information technology systems;

•our liability or damage to our reputation relating to disclosure of sensitive or private information as a result of data theft, cyberattacks or security vulnerabilities;

•failure of third-party providers, data centers or cloud service providers; and

•our ability to integrate or realize expected returns on our acquisitions.

These factors are discussed in further detail in our Annual Report on Form 10-K for the year ended December 31, 2020 under “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, and elsewhere in this report. Any of these factors, or a combination of


Insperity \| 2021 Third Quarter Form 10-Q			4


FORWARD LOOKING STATEMENTS

such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

Any forward-looking statements are made only as of the date hereof and, unless otherwise required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Insperity \| 2021 Third Quarter Form 10-Q			5


FINANCIAL STATEMENTS (Unaudited)

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	467,921	$	554,846
Restricted cash	47,813		45,522
Marketable securities	32,697		34,529
Accounts receivable, net	579,503		392,746
Prepaid insurance	19,657		10,164
Other current assets	53,293		39,461
Income taxes receivable	5,584		—
Total current assets	1,206,468		1,077,268
Property and equipment, net of accumulated depreciation	212,322		216,256
Right-of-use (“ROU”) leased assets	63,673		60,663
Prepaid health insurance	9,000		9,000
Deposits – health insurance	7,900		7,900
Deposits – workers’ compensation	208,236		186,331
Goodwill and other intangible assets, net	12,707		12,707
Deferred income taxes, net	1,653		9,603
Other assets	12,093		4,548
Total assets	$	1,734,052	$	1,584,276
Liabilities and stockholders' equity
Accounts payable	$	4,250	$	6,203
Payroll taxes and other payroll deductions payable	232,862		377,960
Accrued worksite employee payroll cost	534,890		334,836
Accrued health insurance costs	40,366		32,685
Accrued workers’ compensation costs	51,368		48,186
Accrued corporate payroll and commissions	69,621		44,277
Other accrued liabilities	70,824		60,777

Total current liabilities	1,004,181		904,924
Accrued workers’ compensation cost, net of current	191,193		195,239
Long-term debt	369,400		369,400
Operating lease liabilities, net of current	65,979		64,289

Other accrued liabilities, net of current	6,293		6,292
Total noncurrent liabilities	632,865		635,220
Commitments and contingencies
Common stock	555		555
Additional paid-in capital	104,587		95,528
Treasury stock, at cost	(645,993)		(626,984)
Retained earnings	637,857		575,033
Total stockholders’ equity	97,006		44,132
Total liabilities and stockholders’ equity	$	1,734,052	$	1,584,276

See accompanying notes.


Insperity \| 2021 Third Quarter Form 10-Q			6


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2021		2020		2021		2020

Revenues(1)	$	1,209,628	$	1,007,820	$	3,681,834	$	3,230,669
Payroll taxes, benefits and workers’ compensation costs	1,011,149		822,787		3,032,356		2,591,365
Gross profit	198,479		185,033		649,478		639,304
Salaries, wages and payroll taxes	89,232		89,429		286,669		266,640
Stock-based compensation	10,362		20,864		35,965		38,110
Commissions	8,724		7,722		24,694		23,657
Advertising	9,507		4,781		23,804		15,334
General and administrative expenses	31,134		25,646		91,981		85,254
Depreciation and amortization	9,917		7,819		27,715		23,329
Total operating expenses	158,876		156,261		490,828		452,324
Operating income	39,603		28,772		158,650		186,980
Other income (expense):
Interest income	251		103		2,230		2,351
Interest expense	(1,963)		(1,731)		(5,537)		(6,312)
Income before income tax expense	37,891		27,144		155,343		183,019
Income tax expense	10,595		7,135		40,971		49,067
Net income	$	27,296	$	20,009	$	114,372	$	133,952
Less distributed and undistributed earnings allocated to participating securities	(39)		(104)		(219)		(792)
Net income allocated to common shares	$	27,257	$	19,905	$	114,153	$	133,160

Net income per share of common stock
Basic	$	0.71	$	0.52	$	2.97	$	3.45
Diluted	$	0.70	$	0.51	$	2.94	$	3.43

____________________________________

(1)Revenues are comprised of gross billings less WSEE payroll costs as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Gross billings	$	7,994,006	$	6,563,727	$	23,682,279	$	20,356,164
Less: WSEE payroll cost	6,784,378		5,555,907		20,000,445		17,125,495
Revenues	$	1,209,628	$	1,007,820	$	3,681,834	$	3,230,669

See accompanying notes.


Insperity \| 2021 Third Quarter Form 10-Q			7


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(in thousands)	2021		2020

Cash flows from operating activities
Net income	$	114,372	$	133,952
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,715		23,329
Stock-based compensation	35,965		38,110
Deferred income taxes	7,950		6,757
Changes in operating assets and liabilities:
Accounts receivable	(186,757)		(62,933)
Prepaid insurance	(9,493)		(24,341)
Other current assets	(13,832)		9,721
Other assets and ROU assets	4,153		10,862
Accounts payable	(1,953)		1,451
Payroll taxes and other payroll deductions payable	(145,098)		(99,196)
Accrued worksite employee payroll expense	200,054		69,937
Accrued health insurance costs	7,681		23,459
Accrued workers’ compensation costs	(864)		(2,273)
Accrued corporate payroll, commissions and other accrued liabilities	22,428		(32,238)
Income taxes payable/receivable	(7,478)		9,977
Total adjustments	(59,529)		(27,378)
Net cash provided by operating activities	54,843		106,574

Cash flows from investing activities
Marketable securities:
Purchases	(41,413)		(42,007)
Proceeds from dispositions	—		484
Proceeds from maturities	42,600		41,860
Property and equipment:
Purchases	(23,603)		(68,770)
Net cash used in investing activities	(22,416)		(68,433)

Cash flows from financing activities
Purchase of treasury stock	(49,770)		(91,216)
Dividends paid	(50,198)		(46,522)
Borrowings under revolving line of credit	—		100,000
Other	4,812		6,302
Net cash used in financing activities	(95,156)		(31,436)
Net increase (decrease) in cash, cash equivalents and restricted cash	(62,729)		6,705
Cash, cash equivalents and restricted cash beginning of period	786,699		592,550
Cash, cash equivalents and restricted cash end of period	$	723,970	$	599,255


Insperity \| 2021 Third Quarter Form 10-Q			8


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


	Nine Months Ended September 30,
(in thousands)	2021		2020

Supplemental schedule of cash and cash equivalents and restricted cash
Cash and cash equivalents	$	554,846	$	367,342
Restricted cash	45,522		49,295
Deposits – workers’ compensation	186,331		175,913
Cash, cash equivalents and restricted cash beginning of period	$	786,699	$	592,550

Cash and cash equivalents	$	467,921	$	372,356
Restricted cash	47,813		45,265
Deposits – workers’ compensation	208,236		181,634
Cash, cash equivalents and restricted cash end of period	$	723,970	$	599,255

Supplemental operating lease cash flow information:
ROU assets obtained in exchange for lease obligations	$	16,275	$	18,364

See accompanying notes.


Insperity \| 2021 Third Quarter Form 10-Q			9


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2021 and 2020


	Common Stock Issued			Additional Paid-In Capital		Treasury Stock		Retained Earnings and AOCI		Total
(in thousands)	Shares	Amount

Balance at December 31, 2020	55,489	$	555	$	95,528	$	(626,984)	$	575,033	$	44,132
Purchase of treasury stock, at cost	—	—		—		(49,770)		—		(49,770)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(25,112)		26,449		(1,337)		—
Stock-based compensation expense	—	—		33,266		2,699		—		35,965
Exercise of stock options	—	—		(329)		569		—		240
Other	—	—		1,234		1,044		—		2,278
Dividends paid	—	—		—		—		(50,198)		(50,198)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(13)		(13)
Net income	—	—		—		—		114,372		114,372
Balance at September 30, 2021	55,489	$	555	$	104,587	$	(645,993)	$	637,857	$	97,006

Balance at December 31, 2019	55,489	$	555	$	48,141	$	(544,102)	$	499,485	$	4,079
Purchase of treasury stock, at cost	—	—		—		(91,216)		—		(91,216)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(7,088)		7,898		(810)		—
Stock-based compensation expense	—	—		32,893		5,217		—		38,110
Other	—	—		652		1,565		—		2,217
Dividends paid	—	—		—		—		(46,522)		(46,522)
Unrealized gain on marketable securities, net of tax	—	—		—		—		19		19
Net income	—	—		—		—		133,952		133,952
Balance at September 30, 2020	55,489	$	555	$	74,598	$	(620,638)	$	586,124	$	40,639


Insperity \| 2021 Third Quarter Form 10-Q			10


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

For the Three Months Ended September 30, 2021 and 2020


	Common Stock Issued			Additional Paid-In Capital		Treasury Stock		Retained Earnings and AOCI		Total
(in thousands)	Shares	Amount

Balance at June 30, 2021	55,489	$	555	$	94,396	$	(635,627)	$	627,938	$	87,262
Purchase of treasury stock, at cost	—	—		—		(11,234)		—		(11,234)
Issuance of equity based incentive awards and dividend equivalents	—	—		(27)		28		(1)		—
Stock-based compensation expense	—	—		9,827		535		—		10,362

Other	—	—		391		305		—		696
Dividends paid	—	—		—		—		(17,369)		(17,369)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(7)		(7)
Net income	—	—		—		—		27,296		27,296
Balance at September 30, 2021	55,489	$	555	$	104,587	$	(645,993)	$	637,857	$	97,006

Balance at June 30, 2020	55,489	$	555	$	54,783	$	(592,313)	$	581,613	$	44,638
Purchase of treasury stock, at cost	—	—		—		(29,986)		—		(29,986)

Stock-based compensation expense	—	—		19,552		1,312		—		20,864
Other	—	—		263		349		—		612
Dividends paid	—	—		—		—		(15,448)		(15,448)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(50)		(50)
Net income	—	—		—		—		20,009		20,009
Balance at September 30, 2020	55,489	$	555	$	74,598	$	(620,638)	$	586,124	$	40,639

See accompanying notes.


Insperity \| 2021 Third Quarter Form 10-Q			11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


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 Workforce Optimization® and Workforce SynchronizationTM 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 PremierTM platform.

In addition to our PEO HR Outsourcing solutions, we offer a comprehensive traditional payroll and human capital management solution, known as Workforce AccelerationTM. We also offer a number of other business performance solutions, including Comprehensive Traditional Payroll and Human Capital Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services and Insurance Services, many of which are offered as a cloud-based software solution. 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, 2020. Our Condensed Consolidated Balance Sheet at December 31, 2020 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, 2021 and our Consolidated Statements of Operations for the three and nine month periods ended September 30, 2021 and 2020, our Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2021 and 2020 and our Consolidated Statements of Stockholders’ Equity for the three and nine month periods ended September 30, 2021 and 2020, 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 to our WSEEs in our PEO HR Outsourcing solutions through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts, all of which provide fully insured policies or service contracts.

The policy with United provides approximately 87% of our participants’ health insurance coverage. 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. 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, which is a component of direct costs, in our Consolidated Statements of Operations. The estimated incurred claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under


Insperity \| 2021 Third Quarter Form 10-Q			12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $6.5 million at September 30, 2021, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of September 30, 2021, Plan Costs were less than the net premiums paid and owed to United by $15.3 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $6.3 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, 2021 were $33.7 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 2021 included an increase of $4.5 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in the first nine months of 2020 included a reduction of $1.9 million for changes in estimated run-off related to prior periods.

Workers’ Compensation Costs

Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing solutions has been provided through an arrangement 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, 2021 and 2020, we reduced accrued workers’ compensation costs by $31.4 million and $32.4 million, respectively, for changes in estimated losses related to prior reporting 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 2021 period was 0.5% and in the 2020 period was 0.7%) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.


Insperity \| 2021 Third Quarter Form 10-Q			13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:


	Nine Months Ended September 30,
(in thousands)	2021		2020

Beginning balance, January 1,	$	240,761	$	242,904
Accrued claims	34,349		33,397
Present value discount, net of accretion	476		(500)
Paid claims	(36,580)		(34,289)
Ending balance	$	239,006	$	241,512

Current portion of accrued claims	$	47,813	$	45,265
Long-term portion of accrued claims	191,193		196,247
Total accrued claims	$	239,006	$	241,512

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at September 30, 2021 includes $3.6 million of workers’ compensation administrative fees.

As of September 30, 2021 and 2020, the undiscounted accrued workers’ compensation costs were $254.5 million and $259.4 million, respectively.

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, 2021, we had restricted cash of $47.8 million and deposits – workers’ compensation of $208.2 million.

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.

Revenue and Direct Cost Recognition

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. Payment terms are typically due 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. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but unbilled of $564.6 million and $380.8 million at September 30, 2021 and December 31, 2020, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Pursuant to the “practical expedients” provided under Accounting Standards Update No 2014-09, we expense sales commissions when incurred because the terms of our contracts generally are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Operations.


Insperity \| 2021 Third Quarter Form 10-Q			14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 thousands)	2021		2020		% Change		2021		2020		% Change

Northeast	$	332,587	$	278,712	19.3	%	$	1,035,233	$	896,113	15.5	%
Southeast	155,555		121,439		28.1	%	462,625		379,614		21.9	%
Central	211,315		182,245		16.0	%	643,100		570,559		12.7	%
Southwest	241,473		217,527		11.0	%	736,820		712,185		3.5	%
West	253,562		195,412		29.8	%	762,100		634,533		20.1	%
	1,194,492		995,335		20.0	%	3,639,878		3,193,004		14.0	%
Other revenue	15,136		12,485		21.2	%	41,956		37,665		11.4	%
Total revenue	$	1,209,628	$	1,007,820	20.0	%	$	3,681,834	$	3,230,669	14.0	%


3.			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, 2021						December 31, 2020
(in thousands)	Cash & Cash Equivalents		Marketable Securities		Total		Cash & Cash Equivalents		Marketable Securities		Total

Overnight holdings	$	404,564	$	—	$	404,564	$	503,221	$	—	$	503,221
Investment holdings	49,913		32,697		82,610		47,992		34,529		82,521
Cash in demand accounts	30,377		—		30,377		33,692		—		33,692
Outstanding checks	(16,933)		—		(16,933)		(30,059)		—		(30,059)
Total	$	467,921	$	32,697	$	500,618	$	554,846	$	34,529	$	589,375

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, 2021 and December 31, 2020 included $198.4 million and $342.0 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes and other payroll deductions, as well as $74.6 million and $35.3 million, respectively, in client prepayments.


4.			Fair Value Measurements

We account for our financial assets in accordance with Accounting Standard Codification 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 \| 2021 Third Quarter Form 10-Q			15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2021						December 31, 2020
(in thousands)	Total		Level 1		Level 2		Total		Level 1		Level 2

Money market funds	$	454,477	$	454,477	$	—	$	551,213	$	551,213	$	—
U.S. Treasury bills	11,074		11,074		—		10,531		10,531		—
Municipal bonds	21,623		—		21,623		23,998		—		23,998
Total	$	487,174	$	465,551	$	21,623	$	585,742	$	561,744	$	23,998

The municipal bond securities valued as Level 2 are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. government securities. 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 thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

September 30, 2021
U.S. Treasury bills	$	11,074	$	—	$	—	$	11,074
Municipal bonds	21,631		—		(8)		21,623
Total	$	32,705	$	—	$	(8)	$	32,697

December 31, 2020
U.S. Treasury bills	$	10,530	$	1	$	—	$	10,531
Municipal bonds	23,994		8		(4)		23,998
Total	$	34,524	$	9	$	(4)	$	34,529

As of September 30, 2021, the contractual maturities of our marketable securities were as follows:


(in thousands)	Amortized Cost		Estimated Fair Value

Less than one year	$	31,573	$	31,566
One to five years	1,132		1,131
Total	$	32,705	$	32,697

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, 2021, 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.


Insperity \| 2021 Third Quarter Form 10-Q			16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


5.			Long-Term Debt

We have a revolving credit facility (the “Facility”) with borrowing capacity of up to $500 million. The Facility may be further increased to $550 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 65% of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries other than certain excluded subsidiaries. At September 30, 2021, our outstanding balance on the Facility was $369.4 million, and we had an outstanding $1.0 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $129.6 million.

The Facility matures on September 13, 2024. Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin varies (1) in the case of LIBOR 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 30-day LIBOR 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, 2021 was 1.9%. Interest expense and unused commitment fees are recorded in other income (expense). Following early opt-in by us or our lenders or such other time as LIBOR rates have permanently or indefinitely ceased to be published by the regulatory supervisory authority of LIBOR, then LIBOR will be replaced by a rate per annum equal to the secured overnight financing rate published by the Federal Reserve Bank of New York or such other benchmark as determined in accordance with the Credit Agreement.

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, 2021.


6.			Stockholders' Equity

During the first nine months of 2021, we repurchased or withheld an aggregate of 544,132 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, 2021, 253,309 shares were repurchased under the Repurchase Program. As of September 30, 2021, we were authorized to repurchase an additional 874,828 shares under the Repurchase Program.

Withheld Shares

During the nine months ended September 30, 2021, we withheld 290,823 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards.


Insperity \| 2021 Third Quarter Form 10-Q			17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Dividends

The Board declared quarterly dividends as follows:


(amounts per share)	2021		2020

First quarter	$	0.40	$	0.40
Second quarter	0.45		0.40
Third quarter	0.45		0.40

During the nine months ended September 30, 2021 and 2020, we paid dividends totaling $50.2 million and $46.5 million, respectively.


7.			Net Income Per Share

We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which includes unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares 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”).

The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020

Net income	$	27,296	$	20,009	$	114,372	$	133,952
Less distributed and undistributed earnings allocated to participating securities	(39)		(104)		(219)		(792)
Net income allocated to common shares	$	27,257	$	19,905	$	114,153	$	133,160

Weighted average common shares outstanding	38,524		38,507		38,445		38,625
Incremental shares from assumed time-vested and performance-based RSU awards	357		234		404		193
Adjusted weighted average common shares outstanding	38,881		38,741		38,849		38,818


Insperity \| 2021 Third Quarter Form 10-Q			18


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


8.			Commitments and Contingencies

Securities Class Action Lawsuit

In July 2020, a federal securities class action was filed against us and certain of our officers in the United States District Court for the Southern District of New York. The name of the case is Building Trades Pension Fund of Western Pennsylvania v. Insperity, Inc. et al., Case No. 1:20-cv-05635-NRB. On October 23, 2020, the court issued an order appointing Oakland County Employees’ Retirement System and Oakland County Voluntary Employees’ Beneficiary Association Trust as lead plaintiff (“Lead Plaintiff”). On December 22, 2020, the Lead Plaintiff filed its consolidated complaint alleging that we made materially false and misleading statements regarding our business and operations in violation of the federal securities laws and seeking unspecified damages, attorneys’ fees, costs, equitable/injunctive relief, and such other relief that may be deemed proper. On April 26, 2021, the defendants moved to dismiss the consolidated complaint with prejudice. The Lead Plaintiff filed its opposition to the motion to dismiss on June 10, 2021, and the defendants filed their reply in support of the motion to dismiss on July 12, 2021. We believe the allegations in the action are without merit, and we intend to vigorously defend this litigation. As a result of uncertainty regarding the outcome of this matter, no provision has been made in the accompanying Consolidated Financial Statements.

Other Litigation

We are a defendant in various other 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 \| 2021 Third Quarter Form 10-Q			19


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

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, 2020, 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 Workforce Optimization® and Workforce SynchronizationTM 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 PremierTM platform.

COVID-19 Pandemic

The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in significant changes in U.S. economic activity. As the duration of the pandemic and such economic impacts remain uncertain, we have planned for a range of scenarios and have modified certain business and workforce practices. To conform to government restrictions and best practices, we have taken steps designed to keep our staff safe while continuing to serve clients, including implementing flexible remote working arrangements for our employees and providing extra safety measures at corporate facilities. To serve our clients, we have instituted a number of service offerings and developed COVID-19 resources to assist clients with obtaining government provided tax credits, tax deferrals, loans and loan forgiveness and to provide guidance to assist clients with addressing the challenges faced by employers as a result of the pandemic. These service offerings and guidance to assist clients during the pandemic included additional benefits support, remote workforce transition, monitoring and educating on regulatory changes, including vaccine mandates; return to the workplace and workplace safety.

In the third quarter of 2021 (“Q3 2021”), the average number of WSEEs paid per month increased 11.1% year-over-year as the Q3 2021 increase in WSEEs paid at existing clients combined with WSEEs paid from new sales exceeded the third quarter of 2020 (“Q3 2020”) levels. We expect the average number of paid WSEEs per month to increase between 11.0% and 12.0% in the fourth quarter of 2021 as compared to the fourth quarter of 2020, which, if achieved, would equate to the average number of paid WSEEs per month growing 3.1% to 4.1% sequentially from the third quarter of 2021.

We experienced a 10.3% increase in the year-over-year benefits costs per covered employee during the first nine months of 2021 as compared to the first nine months of 2020, which had substantially lower costs primarily due to the significant decrease in benefits utilization that we experienced during the second quarter of 2020. During the second quarter of 2020, we experienced a 10.7% decrease in benefits costs per covered employee due primarily to lower utilization of medical services by plan participants as a result of the COVID-19 pandemic, including in response to COVID-19 governmental requirements or guidance related to the deferral of non-essential medical procedures and shelter-in-place and similar orders. During the remainder of 2021 and possibly beyond 2021, benefits costs are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and incremental COVID-19 testing, vaccine and treatment costs. This may result in a higher level of healthcare claims costs than our historical claim cost trends. While we have experienced a reduced frequency in workers’ compensation claims during the COVID-19 pandemic, the COVID-19 pandemic has not had a material impact on our workers’ compensation cost estimate; however, the ultimate impact of COVID-19 on our workers’ compensation program remains uncertain.

The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the scope, duration and magnitude of the pandemic, impacts of changes in or variants of the COVID-19 virus, actions by businesses and governments in response to the pandemic, including programs designed to assist small and medium-sized businesses with the economic impact of the pandemic; and the


Insperity \| 2021 Third Quarter Form 10-Q			20


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

speed and effectiveness of responses to combat the virus, including the development, availability and acceptance of therapeutics and vaccines. See Part II, Item 1A. “Risk Factors” for additional information.

2021 Highlights

Third Quarter 2021 Compared to Third Quarter 2020

•Average number of WSEEs paid per month increased 11.1%

•Net income and diluted earnings per share (“diluted EPS”) increased 36.4% and 37.3% to $27.3 million and $0.70, respectively

•Adjusted EPS decreased 2.2% to $0.89

•Adjusted EBITDA increased 4.5% to $60.1 million

First Nine Months 2021 Compared to First Nine Months 2020

•Average number of WSEEs paid per month increased 5.2%

•Net income and diluted EPS decreased 14.6% and 14.3% to $114.4 million and $2.94, respectively

•Adjusted EPS decreased 12.8% to $3.62

•Adjusted EBITDA decreased 10.5% to $224.6 million

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


Insperity \| 2021 Third Quarter Form 10-Q			21


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

Key Financial and Statistical Data


(in thousands, except per share, WSEE and statistical data)	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		% Change		2021		2020		% Change

Financial data:
Revenues	$	1,209,628	$	1,007,820	20.0	%	$	3,681,834	$	3,230,669	14.0	%
Gross profit	198,479		185,033		7.3	%	649,478		639,304		1.6	%
Operating expenses	158,876		156,261		1.7	%	490,828		452,324		8.5	%
Operating income	39,603		28,772		37.6	%	158,650		186,980		(15.2)	%
Other income (expense)	(1,712)		(1,628)		5.2	%	(3,307)		(3,961)		(16.5)	%
Net income	27,296		20,009		36.4	%	114,372		133,952		(14.6)	%
Diluted EPS	0.70		0.51		37.3	%	2.94		3.43		(14.3)	%

Non-GAAP financial measures(1):
Adjusted net income	$	34,793	$	35,389	(1.7)	%	$	140,851	$	161,928	(13.0)	%
Adjusted EBITDA	60,133		57,558		4.5	%	224,560		250,770		(10.5)	%
Adjusted EPS	0.89		0.91		(2.2)	%	3.62		4.15		(12.8)	%

Average WSEEs paid	257,560		231,750		11.1	%	244,667		232,553		5.2	%

Statistical data (per WSEE per month):
Revenues(2)	$	1,565	$	1,450	7.9	%	$	1,672	$	1,544	8.3	%
Gross profit	257		266		(3.4)	%	295		305		(3.3)	%
Operating expenses	206		225		(8.4)	%	223		216		3.2	%
Operating income	51		41		24.4	%	72		89		(19.1)	%
Net income	35		29		20.7	%	52		64		(18.8)	%

____________________________________

(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 September 30,				Nine Months Ended September 30,
(per WSEE per month)	2021		2020		2021		2020
Gross billings	$	10,346	$	9,441	$	10,755	$	9,726
Less: WSEE payroll cost	8,781		7,991		9,083		8,182
Revenues	$	1,565	$	1,450	$	1,672	$	1,544


Insperity \| 2021 Third Quarter Form 10-Q			22


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

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 layoffs.

•During Q3 2021, WSEEs paid increased 11.1% compared to Q3 2020. The number of WSEEs paid from new client sales and client retention improved compared to Q3 2020 and the net gain (loss) in our client base improved compared to Q3 2020 as clients continue to recover from the effects of the pandemic.

•During the first nine months of 2021 (“YTD 2021”), WSEEs paid increased 5.2% compared to the first nine months of 2020 (“YTD 2020”). The number of WSEEs paid from new client sales improved compared to YTD 2020 and the net gain (loss) in our client base improved compared to YTD 2020 as clients continue to recover from the effects of the pandemic. Client retention remained consistent compared to YTD 2020.

Average WSEEs Paid and

Year-over-Year Growth Percentage


Insperity \| 2021 Third Quarter Form 10-Q			23


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


Adjusted EBITDA and Year-over-Year Growth Percentage (in thousands)


Adjusted EPS and Year-over-Year Growth Percentage (amounts per share)

Revenues

Our PEO HR Outsourcing solutions revenues are primarily derived from our gross billings, which are based on (1) the payroll cost of our WSEEs and (2) a monthly markup component .

Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans. Because our monthly markup is computed in part as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.


Insperity \| 2021 Third Quarter Form 10-Q			24


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

Revenue and

Year-over-Year Growth Percentage

(in thousands)

Third Quarter 2021 Compared to Third Quarter 2020

Our revenues for Q3 2021 were $1.2 billion, an increase of 20.0%, primarily due to the following:

•Average WSEEs paid increased 11.1%.

•Revenues per WSEE per month increased 7.9%, or $115, on 3.9% higher average pricing, as well as the non-recurrence of the 2020 FICA deferral credits of $40.2 million.

First Nine Months 2021 Compared to First Nine Months 2020

Our revenues for YTD 2021 were $3.7 billion, an increase of 14.0%, primarily due to the following:

•Average WSEEs paid increased 5.2%.

•Revenues per WSEE per month increased 8.3%, or $128, on 5.2% higher average pricing, as well as the non-recurrence of the 2020 FICA deferral credits of $85.0 million and $11.6 million of comprehensive service fee credits.


Insperity \| 2021 Third Quarter Form 10-Q			25


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. Our PEO HR Outsourcing solutions revenue distribution by region follows:

PEO HR Outsourcing Solutions Revenue by Region

(in thousands)

________________________________________________________

(1)The Southwest region includes Texas.

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

Significant Markets

We believe the middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, has historically been under-served by the PEO industry. 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 2.4% during YTD 2021 compared to YTD 2020, representing approximately 23.7% and 24.4% of our total average paid WSEEs during YTD 2021 and YTD 2020, respectively.


Insperity \| 2021 Third 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. As a result, our operating results are significantly impacted by our ability to accurately estimate, control and manage our direct costs relative to the revenues derived from the markup component of our gross billings.

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. 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 thousands)


Gross Profit per WSEE per Month and Year-over-Year Growth Percentage


Insperity \| 2021 Third Quarter Form 10-Q			27


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

Third Quarter 2021 Compared to Third Quarter 2020

Gross profit for Q3 2021 increased 7.3% to $198.5 million compared to $185.0 million in Q3 2020. Gross profit per WSEE per month for Q3 2021 decreased $9 to $257 compared to $266 in Q3 2020 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 $115 due to higher average pricing, as well as the non-recurrence of the 2020 FICA deferral elections by clients pursuant to the CARES Act.

The net increase in direct costs between Q3 2021 and Q3 2020 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $6.1 million as discussed below. The $124 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Benefits costs

•The cost of group health insurance and related employee benefits increased $27 per WSEE per month and increased 6.0% on a cost per covered employee basis. In Q3 2021, benefits costs continued to reflect the dynamics of the pandemic, including increased utilization of our health plan and COVID-19 related vaccination, testing and treatment costs.

•The percentage of WSEEs covered under our health insurance plans was 66.4% in Q3 2021 compared to 67.9% in Q3 2020.

•Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $3.7 million, or $5 per WSEE per month, in Q3 2021 compared to a reduction in costs of $7.7 million, or $11 per WSEE per month, in Q3 2020.

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

Workers’ compensation costs

Our continued discipline around our client selection, 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 20.5%, or $2 per WSEE per month, in Q3 2021 compared to Q3 2020 on an 18.2% increase in non-bonus payroll costs.

•As a percentage of non-bonus payroll cost, workers’ compensation costs in Q3 2021 were 0.30% in both Q3 2021 and Q3 2020.

•We recorded a reduction in workers’ compensation costs of $9.3 million, or 0.15% of non-bonus payroll costs, in Q3 2021 compared to a reduction of $11.4 million, or 0.22% of non-bonus payroll costs, in Q3 2020, primarily as a result of closing out claims at lower than expected costs.

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

Payroll tax costs

•Payroll taxes increased 35.8% on a 22.1% increase in payroll costs, or $96 per WSEE per month, due primarily to the non-recurrence of $40.2 million of the 2020 FICA deferral elections by clients pursuant to the CARES Act.

•Payroll taxes as a percentage of payroll costs increased to 6.0% in Q3 2021 compared to 5.4% Q3 2020, primarily due to the non-recurrence of the 2020 FICA deferral elections by clients pursuant to the CARES Act.


Insperity \| 2021 Third Quarter Form 10-Q			28


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

First Nine Months 2021 Compared to First Nine Months 2020

Gross profit for YTD 2021 increased 1.6% to $649.5 million compared to $639.3 million in YTD 2020. Gross profit per WSEE per month for YTD 2021 decreased $10 to $295 compared to $305 in YTD 2020 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 $128 due to higher average pricing as well as the non-recurrence of the 2020 FICA deferral elections pursuant to the CARES Act and the comprehensive service fee credits.

The net increase in direct costs between YTD 2021 and YTD 2020 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $7.4 million as discussed below. The $138 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:

Benefits costs

•The cost of group health insurance and related employee benefits increased $60 per WSEE per month and increased 10.3% on a cost per covered employee basis due primarily to an increase in claims in YTD 2021 compared to YTD 2020, which had lower claims as a result of lower utilization and the deferral of non-essential health care procedures, primarily in the second quarter of 2020, in connection with the COVID-19 pandemic and related government requirements or guidance.

•The percentage of WSEEs covered under our health insurance plans was 67.2% in YTD 2021 compared to 68.0% in YTD 2020.

•Reported results include changes in estimated claims run-off related to prior periods which was an increase in costs of $4.5 million, or $2 per WSEE per month, in YTD 2021 compared to a reduction in costs of $1.9 million, or $1 per WSEE per month, in YTD 2020.

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

Workers’ compensation costs

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

•Workers’ compensation costs increased 0.5%, but decreased $1 on a per WSEE per month basis, in YTD 2021 compared to YTD 2020.

•As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2021 were 0.29% compared to 0.33% in YTD 2020.

•We recorded a reduction in workers’ compensation costs of $31.4 million, or 0.18% of non-bonus payroll costs, in YTD 2021 compared to a reduction of $32.4 million, or 0.21% of non-bonus payroll costs, in YTD 2020, primarily as a result of closing out claims at lower than expected costs.

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

Payroll tax costs

•Payroll taxes increased 21.0% on a 16.8% increase in payroll costs, or $79 per WSEE per month, due primarily to the non-recurrence of $85.0 million of client FICA deferral elections pursuant to the CARES Act in YTD 2020, partially offset by the YTD 2021 collection of $16.8 million in federal payroll tax refunds related to prior years.

•Payroll taxes as a percentage of payroll costs increased to 6.7% in YTD 2021 compared to 6.4% in YTD 2020.


Insperity \| 2021 Third 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 incentive compensation.

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

•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

◦technology and facility costs, including repairs, maintenance and software-as-a-service (“SaaS”) licensing costs

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

Third Quarter 2021 Compared to Third Quarter 2020

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


	Three Months Ended September 30,
							per WSEE
(in thousands, except per WSEE)	2021		2020		% Change		2021		2020		% Change

Salaries	$	89,232	$	89,429	(0.2)	%	$	115	$	129	(10.9)	%
Stock-based compensation	10,362		20,864		(50.3)	%	13		30		(56.7)	%
Commissions	8,724		7,722		13.0	%	11		11		—
Advertising	9,507		4,781		98.8	%	12		7		71.4	%
General and administrative	31,134		25,646		21.4	%	42		37		13.5	%
Depreciation and amortization	9,917		7,819		26.8	%	13		11		18.2	%
Total operating expenses	$	158,876	$	156,261	1.7	%	$	206	$	225	(8.4)	%

Operating expenses for Q3 2021 increased 1.7% to $158.9 million compared to $156.3 million in Q3 2020. Operating expenses per WSEE per month for Q3 2021 decreased 8.4% to $206 compared to $225 in Q3 2020.

•Salaries of corporate and sales staff for Q3 2021 decreased 0.2% to $89.2 million, or $14 per WSEE per month, compared to Q3 2020. The decrease was primarily due to lower incentive compensation accruals in Q3 2021.

•Stock-based compensation expense for Q3 2021 decreased 50.3% to $10.4 million, or $17 per WSEE per month, compared to Q3 2020. The decrease was primarily due to the non-recurrence of stock-based compensation expense related to our 2020 short-term performance based awards.


Insperity \| 2021 Third Quarter Form 10-Q			30


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

•Advertising expense for Q3 2021 increased 98.8% to $9.5 million, or $5 per WSEE per month, compared to Q3 2020. The increase was primarily due to increases in television, radio, print and digital advertising and sponsorship costs.

•General and administrative expenses for Q3 2021 increased 21.4% to $31.1 million, or $5 per WSEE per month, compared to Q3 2020. The increase was primarily due to technology SaaS licensing costs, as well as increased travel costs as the COVID-19 pandemic travel restrictions have eased.

•Depreciation and amortization expense for Q3 2021 increased 26.8% to $9.9 million, or $2 per WSEE per month, compared to Q3 2020. The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs.

First Nine Months 2021 Compared to First Nine Months 2020


	Nine Months Ended September 30,
							per WSEE
(in thousands, except per WSEE)	2021		2020		% Change		2021		2020		% Change

Salaries	$	286,669	$	266,640	7.5	%	$	130	$	127	2.4	%
Stock-based compensation	35,965		38,110		(5.6)	%	16		18		(11.1)	%
Commissions	24,694		23,657		4.4	%	11		11		—
Advertising	23,804		15,334		55.2	%	11		7		57.1	%
General and administrative	91,981		85,254		7.9	%	42		42		—
Depreciation and amortization	27,715		23,329		18.8	%	13		11		18.2	%
Total operating expenses	$	490,828	$	452,324	8.5	%	$	223	$	216	3.2	%

Operating expenses for YTD 2021 increased 8.5% to $490.8 million compared to $452.3 million in YTD 2020. Operating expenses per WSEE per month for YTD 2021 increased 3.2% to $223 compared to $216 in YTD 2020.

•Salaries of corporate and sales staff for YTD 2021 increased 7.5% to $286.7 million, or $3 per WSEE per month, compared to YTD 2020. This increase was primarily due to higher incentive compensation accruals in YTD 2021 related to better than expected YTD 2021 operating results, as well as a 1.0% increase in corporate headcount, including a 1.4% increase in total BPAs in YTD 2021 compared to YTD 2020.

•Stock-based compensation expense for YTD 2021 decreased 5.6% to $36.0 million or $2 per WSEE per month, compared to YTD 2020. The decrease was primarily due to the non-recurrence of stock-based compensation expense related to our 2020 short-term performance based awards.

•Advertising expense for YTD 2021 increased 55.2% to $23.8 million, or $4 per WSEE per month, compared to YTD 2020. The increase was primarily due to the resumption of the Insperity Invitational in 2021, which was canceled in 2020 due to the COVID-19 pandemic, as well as increases in television, radio and digital advertising and sponsorship costs.

•General and administrative expenses for YTD 2021 increased 7.9% to $92.0 million, but remained flat on a per WSEE per month basis, compared to YTD 2020. The increase was primarily due to technology SaaS licensing costs and professional services related to implementation of a CRM solution, partially offset by decreases in travel costs.

•Depreciation and amortization expense for YTD 2021 increased 18.8% to $27.7 million, or $2 per WSEE per month, compared to YTD 2020. The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs and sales office expansions.

Other Income (Expense)

Other Income (expense) for Q3 2021 was net expense of $1.7 million compared to net expense of $1.6 million in Q3 2020, and for YTD 2021 was net expense of $3.3 million compared to net expense of $4.0 million in YTD 2020.


Insperity \| 2021 Third Quarter Form 10-Q			31


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

Income Tax Expense


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020

Effective income tax rate	28.0%	26.3%	26.4%	26.8%

For the nine months ended September 30, 2021, our provision for income taxes differed from the U.S. statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards. During the first nine months of 2021 and 2020, we recognized an income tax benefit of $2.2 million and $2.0 million, respectively, related to the vesting of short-term, long-term incentive, and restricted stock awards.

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. Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program.	Our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. 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, and • depreciation and amortization expense.

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 \| 2021 Third Quarter Form 10-Q			32


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

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


(in thousands, except per WSEE per month)	Three Months Ended September 30,												Nine Months Ended September 30,
	2021						2020						2021						2020
				Per WSEE						Per WSEE						Per WSEE						Per WSEE

Payroll cost	$	6,784,378		$	8,781		$	5,555,907		$	7,991		$	20,000,445		$	9,083		$	17,125,495		$	8,182
Less: Bonus payroll cost	726,187			940			431,861			621			2,942,817			1,337			1,935,950			925
Non-bonus payroll cost	$	6,058,191		$	7,841		$	5,124,046		$	7,370		$	17,057,628		$	7,746		$	15,189,545		$	7,257
% Change period over period	18.2		%	6.4		%	0.4		%	4.4		%	12.3		%	6.7		%	3.2		%	3.4		%

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


(in thousands)	September 30, 2021		December 31, 2020

Cash, cash equivalents and marketable securities	$	500,618	$	589,375
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions	198,405		341,988
Client prepayments	74,646		35,328
Adjusted cash, cash equivalents and marketable securities	$	227,567	$	212,059

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


	Three Months Ended September 30,												Nine Months Ended September 30,
(in thousands, except per WSEE per month)	2021						2020						2021						2020
				Per WSEE						Per WSEE						Per WSEE						Per WSEE

Net income	$	27,296		$	35		$	20,009		$	29		$	114,372		$	52		$	133,952		$	64
Income tax expense	10,595			14			7,135			10			40,971			19			49,067			23
Interest expense	1,963			3			1,731			2			5,537			3			6,312			3
Depreciation and amortization	9,917			12			7,819			12			27,715			12			23,329			12
EBITDA	49,771			64			36,694			53			188,595			86			212,660			102
Stock-based compensation	10,362			14			20,864			30			35,965			16			38,110			18

Adjusted EBITDA	$	60,133		$	78		$	57,558		$	83		$	224,560		$	102		$	250,770		$	120
% Change period over period	4.5		%	(6.0)		%	12.5		%	16.9		%	(10.5)		%	(15.0)		%	19.8		%	20.0		%


Insperity \| 2021 Third Quarter Form 10-Q			33


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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2021			2020			2021			2020

Net income	$	27,296		$	20,009		$	114,372		$	133,952
Non-GAAP adjustments:
Stock-based compensation	10,362			20,864			35,965			38,110


Tax effect	(2,865)			(5,484)			(9,486)			(10,134)
Total non-GAAP adjustments, net	7,497			15,380			26,479			27,976
Adjusted net income	$	34,793		$	35,389		$	140,851		$	161,928
% Change period over period	(1.7)		%	15.5		%	(13.0)		%	10.4		%

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(amounts per share)	2021			2020			2021			2020

Diluted EPS	$	0.70		$	0.51		$	2.94		$	3.43
Non-GAAP adjustments:
Stock-based compensation	0.27			0.54			0.92			0.98


Tax effect	(0.08)			(0.14)			(0.24)			(0.26)
Total non-GAAP adjustments, net	0.19			0.40			0.68			0.72
Adjusted EPS	$	0.89		$	0.91		$	3.62		$	4.15
% Change period over period	(2.2)		%	21.3		%	(12.8)		%	16.2		%

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 $500 million revolving credit facility (“Facility”) with a syndicate of financial institutions. 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 $500.6 million in cash, cash equivalents and marketable securities at September 30, 2021, of which approximately $198.4 million was payable in early October 2021 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $74.6 million represented client prepayments that were payable in October 2021. At September 30, 2021, we had working capital of $202.3 million compared to $172.3 million at December 31, 2020. 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 2021. 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, which we continually monitor in light of our strategic goals and the significant uncertainty created by the COVID-19 pandemic.

As of September 30, 2021, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility. Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.


Insperity \| 2021 Third Quarter Form 10-Q			34


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

Cash Flows from Operating Activities

Net cash provided by operating activities in the first nine months of 2021 was $54.8 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 period ended September 30, 2021, the last business day of the reporting period was a Thursday, client prepayments were $74.6 million and employment taxes and other deductions were $198.4 million. In the period ended September 30, 2020, the last business day of the reporting period was a Wednesday, client prepayments were $46.5 million and employment taxes and other deductions were $147.1 million.

•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 September 30, 2021, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $15.3 million surplus, $6.3 million of which is reflected as a current asset, and $9.0 million of which is reflected as a long-term asset on our Condensed Consolidated Balance Sheets. The premiums, including an additional quarterly premium, owed to United at September 30, 2021, were $33.7 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

•Operating results – Our net income has a significant impact on our operating cash flows. Our adjusted net income decreased 13.0% to $140.9 million in the first nine months ended September 30, 2021, compared to $161.9 million in the first nine months ended September 30, 2020. Please read “Results of Operations – First Nine Months 2021 Compared to First Nine Months 2020.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $22.4 million for the nine months ended September 30, 2021, primarily due to property and equipment purchases of $23.6 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $95.2 million for the nine months ended September 30, 2021. We paid $50.2 million in dividends and repurchased or withheld $49.8 million in stock.


Insperity \| 2021 Third Quarter Form 10-Q			35


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cash equivalent short-term investments, our available-for-sale marketable securities and our borrowings under our Facility, which bears interest at a variable market rate. As of September 30, 2021, we had outstanding letters of credit and borrowings totaling $370.4 million under the Facility. Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.

The cash equivalent short-term investments consist primarily of overnight investments, which are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned on these investments. Our available-for-sale marketable securities are subject to interest rate risk because these securities generally include a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates.

We attempt to limit our exposure to interest rate risk primarily through diversification and low investment turnover. Our investment policy is designed to maximize after-tax interest income while preserving our principal investment. As a result, our marketable securities consist of tax-exempt short term and intermediate term debt securities, which are primarily U.S. Government Securities.

Item 4. Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2021.

There has been no change in our internal controls over financial reporting that occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


Insperity \| 2021 Third Quarter Form 10-Q			36


OTHER INFORMATION

PART II

Item 1. Legal Proceedings

Please read Note 8 to the Consolidated Financial Statements, “Commitments and Contingencies,” which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 under “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by Insperity during the three months ended September 30, 2021 of equity securities that are registered by Insperity pursuant to Section 12 of the Exchange Act:


Period	Total Number of Shares Purchased(1)(2)	Average Price Paid per Share		Total Number of Shares Purchased Under Announced Program(2)	Maximum Number of Shares Available for Purchase under Announced Program(2)
07/01/2021 – 07/31/2021	—	$	—	—	980,856
08/01/2021 – 08/31/2021	—	—		—	980,856
09/01/2021 – 09/30/2021	106,229	105.75		106,028	874,828
Total	106,229	$	105.75	106,028

____________________________________

(1)During the three months ended September 30, 2021, 201 shares of stock were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock awards. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date. These shares are not subject to the repurchase program.

(2)As of September 30, 2021, we were authorized to repurchase an additional 874,828 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.


Insperity \| 2021 Third Quarter Form 10-Q			37


OTHER INFORMATION

Item 6. Exhibits


Exhibit No		Exhibit
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	*	Inline XBRL Extension Definition Linkbase Document.
101.LAB	*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (embedded with the Inline XBRL document).


			____________________________________




			*			Filed with this report.

			**			Furnished with this report.


Insperity \| 2021 Third Quarter Form 10-Q			38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INSPERITY, INC.

Date: November 1, 2021	By:	/s/ Douglas S. Sharp
		Douglas S. Sharp
		Senior Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)


Insperity \| 2021 Third Quarter Form 10-Q			39

Insperity - 10-Q quarterly report FY2021 Q3

What is the market capitalization of a company?

DISCLAIMER

Contact

Links