Insperity - 10-Q quarterly report FY Q1

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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	March 31, 2023
	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 April 19, 2023, 38,215,060 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	9
	Notes to Consolidated Financial Statements	10
Part I, Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Part I, Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Part I, Item 4.	Controls and Procedures	31
Part II, Item 1.	Legal Proceedings	32
Part II, Item 1A.	Risk Factors	32
Part II, Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Part II, Item 6.	Exhibits	34


FORWARD LOOKING STATEMENTS

The statements contained herein that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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;

•labor shortages and increasing competition for highly skilled workers;

•impact of inflation;

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

•failure to comply with covenants under our credit facility;

•our liability for WSEE payroll, payroll taxes and benefits costs, or other liabilities associated with actions of our client companies or WSEEs, including if our clients fail to pay us;

•bank failures or other events affecting financial institutions;

•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;

•an adverse determination regarding our status as the employer of our WSEEs for tax and benefit purposes and an inability to offer alternative benefit plans following such a determination;

•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 professional employer organization (or PEO) industry, on our growth and/or profitability;

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

•disruptions of our information technology systems or failure to enhance our service and technology offerings to address new regulations or client expectations;


Insperity \| 2023 First Quarter Form 10-Q			4


FORWARD LOOKING STATEMENTS

•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, such as financial institutions, data centers or cloud service providers; and

•our ability to integrate or realize expected returns on future product offerings, including through acquisition and investment.

These factors are discussed in further detail in our Annual Report on Form 10-K for the year ended December 31, 2022 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 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 \| 2023 First Quarter Form 10-Q			5


FINANCIAL STATEMENTS (Unaudited)

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	696,588	$	732,828
Restricted cash	48,113		49,779
Marketable securities	35,535		33,068
Accounts receivable, net	607,313		622,764
Prepaid insurance	50,665		11,706


Other current assets	79,860		61,728
Total current assets	1,518,074		1,511,873
Property and equipment, net of accumulated depreciation	196,382		199,992
Right-of-use (“ROU”) leased assets	53,303		56,532
Prepaid health insurance	9,000		9,000
Deposits – health insurance	7,900		7,900
Deposits – workers’ compensation	211,226		196,370
Goodwill and other intangible assets, net	12,707		12,707
Deferred income taxes, net	—		15,533
Other assets	31,381		29,354
Total assets	$	2,039,973	$	2,039,261
Liabilities and stockholders' equity
Accounts payable	$	9,491	$	7,732
Payroll taxes and other payroll deductions payable	495,585		556,085
Accrued worksite employee payroll costs	525,312		513,397
Accrued health insurance costs	78,722		53,402
Accrued workers’ compensation costs	51,878		53,485
Accrued corporate payroll and commissions	48,365		89,147
Income taxes payable	13,813		6,949
Other accrued liabilities	79,793		73,173
Total current liabilities	1,302,959		1,353,370
Accrued workers’ compensation costs, net of current	181,364		179,629
Long-term debt	369,400		369,400
Operating lease liabilities, net of current	51,622		55,587
Deferred income taxes, net	1,196		—

Total noncurrent liabilities	603,582		604,616
Commitments and contingencies
Common stock	555		555
Additional paid-in capital	142,002		151,144
Treasury stock, at cost	(735,219)		(725,532)
Retained earnings	726,094		655,108
Total stockholders’ equity	133,432		81,275
Total liabilities and stockholders’ equity	$	2,039,973	$	2,039,261

See accompanying notes.


Insperity \| 2023 First Quarter Form 10-Q			6


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31,
(in thousands, except per share amounts)	2023		2022

Revenues(1)	$	1,769,652	$	1,577,837
Payroll taxes, benefits and workers’ compensation costs	1,437,506		1,292,063
Gross profit	332,146		285,774
Salaries, wages and payroll taxes	124,541		107,439
Stock-based compensation	11,110		9,846
Commissions	11,017		10,310
Advertising	5,940		8,595
General and administrative expenses	48,034		41,005
Depreciation and amortization	10,497		10,184
Total operating expenses	211,139		187,379
Operating income	121,007		98,395
Other income (expense):
Interest income	8,777		148
Interest expense	(6,205)		(1,925)
Income before income tax expense	123,579		96,618
Income tax expense	28,984		26,734
Net income	$	94,595	$	69,884

Net income per share of common stock
Basic	$	2.49	$	1.82
Diluted	$	2.45	$	1.80

____________________________________

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


	Three Months Ended March 31,
(in thousands)	2023		2022

Gross billings	$	11,451,262	$	10,357,905
Less: WSEE payroll cost	9,681,610		8,780,068
Revenues	$	1,769,652	$	1,577,837

See accompanying notes.


Insperity \| 2023 First Quarter Form 10-Q			7


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(in thousands)	2023		2022

Cash flows from operating activities
Net income	$	94,595	$	69,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,497		10,184
Stock-based compensation	11,110		9,846
Deferred income taxes	16,729		10,006
Changes in operating assets and liabilities:
Accounts receivable	15,451		(156,917)
Prepaid insurance	(38,959)		(11,431)
Other current assets	(11,522)		(26,970)
Other assets and ROU assets	1,656		(1,588)
Accounts payable	1,759		1,414
Payroll taxes and other payroll deductions payable	(60,500)		(83,125)
Accrued worksite employee payroll costs	11,915		235,970
Accrued health insurance costs	25,320		11,398
Accrued workers’ compensation costs	128		(7,050)
Accrued corporate payroll, commissions and other accrued liabilities	(45,691)		(18,971)
Income taxes payable/receivable	6,864		16,197
Total adjustments	(55,243)		(11,037)
Net cash provided by operating activities	39,352		58,847

Cash flows from investing activities
Marketable securities:
Purchases	(14,206)		(6,964)
Proceeds from maturities	12,110		5,760

Property and equipment:
Purchases	(6,849)		(4,686)
Net cash used in investing activities	(8,945)		(5,890)

Cash flows from financing activities
Purchase of treasury stock	(34,622)		(27,441)
Dividends paid	(19,896)		(17,244)
Other	7,671		799
Net cash used in financing activities	(46,847)		(43,886)
Net increase (decrease) in cash, cash equivalents, restricted cash and funds held for clients	(16,440)		9,071
Cash, cash equivalents, restricted cash and funds held for clients beginning of period	1,013,919		807,768
Cash, cash equivalents, restricted cash and funds held for clients end of period	$	997,479	$	816,839


Supplemental operating lease cash flow information:
ROU assets obtained in exchange for lease obligations	$	971	$	775

See accompanying notes.


Insperity \| 2023 First Quarter Form 10-Q			8


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2023 and 2022


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

Balance at December 31, 2022	55,489	$	555	$	151,144	$	(725,532)	$	655,108	$	81,275
Purchase of treasury stock, at cost	—	—		—		(34,622)		—		(34,622)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(21,103)		24,875		(3,772)		—
Stock-based compensation expense	—	—		11,398		(288)		—		11,110
Other	—	—		563		348		—		911
Dividends paid	—	—		—		—		(19,896)		(19,896)
Unrealized gain on marketable securities, net of tax	—	—		—		—		59		59
Net income	—	—		—		—		94,595		94,595
Balance at March 31, 2023	55,489	$	555	$	142,002	$	(735,219)	$	726,094	$	133,432

Balance at December 31, 2021	55,489	$	555	$	109,179	$	(665,089)	$	553,581	$	(1,774)
Purchase of treasury stock, at cost	—	—		—		(27,441)		—		(27,441)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(9,214)		10,365		(1,151)		—
Stock-based compensation expense	—	—		9,575		271		—		9,846
Other	—	—		513		269		—		782
Dividends paid	—	—		—		—		(17,244)		(17,244)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(92)		(92)
Net income	—	—		—		—		69,884		69,884
Balance at March 31, 2022	55,489	$	555	$	110,053	$	(681,625)	$	604,978	$	33,961


Insperity \| 2023 First Quarter Form 10-Q			9


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 our 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 our Workforce AccelerationTM solution (our “Traditional Payroll Solution”). We also offer a number of other business performance solutions, including Recruiting Services, Employment Screening, Retirement Services, and Insurance Services. These other products or services are offered separately or with our other solutions.

The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements at and for the year ended December 31, 2022. Our Condensed Consolidated Balance Sheet at December 31, 2022 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 March 31, 2023 and our Consolidated Statements of Operations for the three month periods ended March 31, 2023 and 2022, our Consolidated Statements of Cash Flows for the three month periods ended March 31, 2023 and 2022 and our Consolidated Statements of Stockholders’ Equity for the three month periods ended March 31, 2023 and 2022, have been prepared by us without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows have been made, and all such adjustments are of a normal recurring nature.

The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.


2.			Accounting Policies

Health Insurance Costs

We provide group health insurance coverage under a single-employer plan that covers both our WSEEs in our PEO HR Outsourcing Solutions and our corporate employees and utilizes a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts, all of which provide fully insured policies or service contracts.

Approximately 87% of our costs related to health insurance coverage are provided under our policy with United. While the policy with United is a fully insured plan, as a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Effective January 1, 2020, under the amended agreement with United, we no longer have financial responsibilities for a participant’s annual claim costs that exceed $1 million. Accordingly, we record the cost of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”) as benefits expense, which is a component of direct costs, in our Consolidated Statements of Operations. The estimated incurred but not reported claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under the plan; and (3) the number of participants in the plan, including both active and COBRA


Insperity \| 2023 First Quarter Form 10-Q			10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 health insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $6.5 million at March 31, 2023, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of March 31, 2023, Plan Costs were less than the net premiums paid and owed to United by $41.5 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $32.5 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 March 31, 2023 were $71.1 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 three months of 2023 included a decrease of $9.0 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in the first three months of 2022 included an increase of $0.8 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 three months ended March 31, 2023 and 2022, we reduced accrued workers’ compensation costs by $7.6 million and $14.9 million, respectively, for changes in estimated losses related to prior periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in the 2023 period was 4.0% and in the 2022 period was 1.5%) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.


Insperity \| 2023 First Quarter Form 10-Q			11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


	Three Months Ended March 31,
(in thousands)	2023		2022

Beginning balance, January 1,	$	229,408	$	239,623
Accrued claims	15,981		8,373
Present value discount, net of accretion	(3,209)		(1,309)
Paid claims	(12,704)		(14,370)
Ending balance	$	229,476	$	232,317

Current portion of accrued claims	$	48,112	$	49,429
Long-term portion of accrued claims	181,364		182,888
Total accrued claims	$	229,476	$	232,317

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at March 31, 2023 includes $3.8 million of workers’ compensation administrative fees.

The undiscounted accrued workers’ compensation costs were $252.6 million as of March 31, 2023 and $248.0 million as of March 31, 2022.

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 March 31, 2023, we had restricted cash of $48.1 million and deposits – workers’ compensation of $211.2 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. Our payment terms typically require payment concurrently with the invoicing of our PEO services. We do not have significant financing components or significant payment terms.

Our revenue is generally recognized ratably over the payroll period as WSEEs perform their service at the client worksite in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but not invoiced represent unbilled accounts receivable of $582.8 million and $600.4 million at March 31, 2023 and December 31, 2022, and are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Pursuant to the “practical expedients” provided under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, we expense sales commissions when incurred because the terms of our contracts are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Operations.


Insperity \| 2023 First Quarter Form 10-Q			12


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 March 31,
(in thousands)		2023		2022		% Change

Northeast		$	492,290	$	449,925	9.4	%
Southeast		238,607		202,201		18.0	%
Central		318,792		271,310		17.5	%
Southwest		340,412		308,838		10.2	%
West		362,980		330,771		9.7	%
		1,753,081		1,563,045		12.2	%
Other revenue		16,571		14,792		12.0	%
Total revenue		$	1,769,652	$	1,577,837	12.2	%


3.			Other Balance Sheet Information

Cash, Cash Equivalents and Marketable Securities

The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments:


	March 31, 2023						December 31, 2022
(in thousands)	Cash & Cash Equivalents		Marketable Securities		Total		Cash & Cash Equivalents		Marketable Securities		Total

Overnight holdings	$	635,931	$	—	$	635,931	$	678,512	$	—	$	678,512
Investment holdings	55,546		35,535		91,081		56,963		33,068		90,031
Total financial assets	691,477		35,535		727,012		735,475		33,068		768,543
Cash in demand accounts	21,072		—		21,072		41,047		—		41,047
Outstanding checks	(15,961)		—		(15,961)		(43,694)		—		(43,694)
Total	$	696,588	$	35,535	$	732,123	$	732,828	$	33,068	$	765,896

Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at March 31, 2023 and December 31, 2022 included $457.8 million and $504.8 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $42.9 million and $36.8 million, respectively, in client prepayments.


Insperity \| 2023 First Quarter Form 10-Q			13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Cash, Cash Equivalents, Restricted Cash and Funds Held for Clients

The following table summarizes our cash, cash equivalents, restricted cash and funds held for clients as reported in our Consolidated Statements of Cash Flows:


	Three Months Ended March 31,
(in thousands)	2023			2022

Supplemental schedule of cash and cash equivalents, restricted cash and funds held for clients
Cash and cash equivalents	$	732,828		$	575,812
Restricted cash	49,779			46,929
Other current assets - funds held for clients(1)	34,942		(2)	—		(2)
Deposits – workers’ compensation	196,370			185,027
Cash, cash equivalents, restricted cash and funds held for clients beginning of period	$	1,013,919		$	807,768

Cash and cash equivalents	$	696,588		$	576,654
Restricted cash	48,113			49,429
Other current assets - funds held for clients(1)	41,552		(2)	—		(2)
Deposits – workers’ compensation	211,226			190,756
Cash, cash equivalents, restricted cash and funds held for clients end of period	$	997,479		$	816,839

____________________________________

(1)Funds held for clients represent amounts held on behalf of our Traditional Payroll Solution customers that are restricted for the purpose of satisfying obligations to remit funds to clients’ employees and various tax authorities.

(2)Beginning in the third quarter of 2022, we adjusted the presentation of our Consolidated Statements of Cash Flows to include changes in funds held for clients as a financing activity and to include funds held for clients in both the beginning and ending period amounts in our totals of cash, cash equivalents, restricted cash and funds held for clients. Prior period amounts have not been adjusted to this presentation as the amounts are immaterial to our consolidated financial statements. Previously, the changes in funds held for clients and the related client fund liabilities were presented within operating activities in our Consolidated Statements of Cash Flows. Funds held for clients are held in a trust separate from our company funds and we do not use these funds held for clients for any corporate activity.

Please read Note 2. “Accounting Policies,” for a discussion of our accounting policies for deposits – workers’ compensation and restricted cash.


4.			Fair Value Measurements

We account for our financial assets in accordance with 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 \| 2023 First Quarter Form 10-Q			14


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:


	March 31, 2023						December 31, 2022
(in thousands)	Total		Level 1		Level 2		Total		Level 1		Level 2

Money market funds	$	691,477	$	691,477	$	—	$	735,475	$	735,475	$	—
U.S. Treasury bills	35,535		35,535		—		29,703		29,703		—
Municipal bonds	—		—		—		3,365		—		3,365
Total financial assets	$	727,012	$	727,012	$	—	$	768,543	$	765,178	$	3,365

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

March 31, 2023
U.S. Treasury bills	$	35,558	$	19	$	(42)	$	35,535


December 31, 2022
U.S. Treasury bills	$	29,782	$	—	$	(79)	$	29,703
Municipal bonds	3,369		—		(4)		3,365

As of March 31, 2023, the contractual maturities of the marketable securities in our portfolio were less than one year.

Fair Value of Other Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, deposits and accounts payable approximate their fair values due to the short-term maturities of these instruments.

As of March 31, 2023, the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy. Please read Note 5, “Long-Term Debt,” for additional information.


5.			Long-Term Debt

We have a revolving credit facility (the “Facility”) with a borrowing capacity of up to $650 million. The Facility may be further increased to $700 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (as amended, the “Credit Agreement”). The Facility is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit. Our obligations under the Facility are secured by 65% of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries other than certain excluded subsidiaries. At March 31, 2023, 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 $279.6 million.

The Facility matures on June 30, 2027. Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate or Adjusted Term SOFR for term SOFR loans, in either case plus an applicable margin. Adjusted


Insperity \| 2023 First Quarter Form 10-Q			15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Term SOFR is a forward-looking term rate based on the secured overnight financing rate plus a spread adjustment, which ranges from 0.10% to 0.25% depending on the interest period and type of loan. Depending on our leverage ratio, the applicable margin varies (1) in the case of SOFR loans, from 1.50% to 2.25% and (2) in the case of alternate base rate loans, from 0.00% to 0.50%. The alternate base rate is the highest of (1) the prime rate most recently published in The Wall Street Journal, (2) the federal funds rate plus 0.50%; and (3) the Adjusted Term SOFR rate plus 2.00%. We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25% per year. The average interest rate for the three month period ended March 31, 2023 was 6.35%. Interest expense and unused commitment fees are recorded in other income (expense).

The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio, and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at March 31, 2023.


6.			Stockholders' Equity

During the first three months of 2023, we repurchased or withheld an aggregate of 288,502 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 three months ended March 31, 2023, 93,387 shares were repurchased under the Repurchase Program. As of March 31, 2023, we were authorized to repurchase an additional 938,773 shares under the Repurchase Program.

Withheld Shares

During the three months ended March 31, 2023, we withheld 195,115 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards.

Dividends

The Board declared quarterly dividends as follows:


(amounts per share)	2023		2022

First quarter	$	0.52	$	0.45

During the three months ended March 31, 2023 and 2022, we paid dividends totaling $19.9 million and $17.2 million, respectively.


7.			Earnings Per Share

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period, plus the dilutive effect of time-vested and performance-based restricted stock units (“RSUs”).


Insperity \| 2023 First Quarter Form 10-Q			16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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


	Three Months Ended March 31,
(in thousands)		2023		2022

Net income		$	94,595	$	69,884
Less distributed and undistributed earnings allocated to participating securities		—		(47)
Net income allocated to common shares		$	94,595	$	69,837

Weighted average common shares outstanding		37,990		38,288
Incremental shares from assumed time-vested and performance-based RSU awards		683		405
Adjusted weighted average common shares outstanding		38,673		38,693

Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect		—		25


8.			Commitments and Contingencies

Litigation

We are a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these cases and is defending them vigorously. While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.


Insperity \| 2023 First Quarter Form 10-Q			17


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, 2022, as well as our Consolidated Financial Statements and notes thereto included in this Quarterly Report on Form 10-Q.

Executive Summary

Overview

Insperity, Inc. (“Insperity,” “we,” “our,” and “us”) provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as our 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.

2023 Highlights

First Quarter 2023 Compared to First Quarter 2022

•Average number of WSEEs paid per month increased 10.1%

•Net income and diluted earnings per share (“diluted EPS”) increased 35.4% and 36.1% to $94.6 million and $2.45, respectively

•Adjusted EPS increased 34.2% to $2.67

•Adjusted EBITDA increased 28.5% to $152.4 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 \| 2023 First Quarter Form 10-Q			18


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 March 31,
		2023		2022		% Change

Financial data:
Revenues		$	1,769,652	$	1,577,837	12.2	%
Gross profit		332,146		285,774		16.2	%
Operating expenses		211,139		187,379		12.7	%
Operating income		121,007		98,395		23.0	%
Other income (expense), net		2,572		(1,777)		—
Net income		94,595		69,884		35.4	%
Diluted EPS		2.45		1.80		36.1	%

Non-GAAP financial measures(1):
Adjusted net income		$	103,099	$	77,006	33.9	%
Adjusted EBITDA		152,413		118,573		28.5	%
Adjusted EPS		2.67		1.99		34.2	%

Average WSEEs paid		306,691		278,660		10.1	%

Statistical data (per WSEE per month):
Revenues(2)		$	1,923	$	1,887	1.9	%
Gross profit		361		342		5.6	%
Operating expenses		229		224		2.2	%
Operating income		132		118		11.9	%
Net income		103		84		22.6	%

____________________________________

(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 March 31,
(per WSEE per month)		2023		2022
Gross billings		$	12,446	$	12,390
Less: WSEE payroll cost		10,523		10,503
Revenues		$	1,923	$	1,887


Insperity \| 2023 First Quarter Form 10-Q			19


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 Q1 2023, WSEEs paid increased 10.1% compared to Q1 2022. The number of WSEEs paid from new client sales remained consistent when compared to Q1 2022, while the net gain in our client base and client retention declined compared to Q1 2022.

Average WSEEs Paid and

Year-over-Year Growth Percentage


Insperity \| 2023 First Quarter Form 10-Q			20


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 \| 2023 First Quarter Form 10-Q			21


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

Revenue and

Year-over-Year Growth Percentage

(in thousands)

First Quarter 2023 Compared to First Quarter 2022

Our revenues for Q1 2023 were $1.8 billion, an increase of 12.2%, primarily due to the following:

•Average WSEEs paid increased 10.1%.

•Revenues per WSEE per month increased 1.9%, or $36.

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.


Insperity \| 2023 First Quarter Form 10-Q			22


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

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

Significant Markets

The middle market sector, which we generally define as those companies with approximately 150 to 5,000 WSEEs, includes smaller clients whose number of WSEEs have grown to approximately 150 or more WSEEs. Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector. Our average number of WSEEs per month in our middle market sector increased 19.7% during Q1 2023 compared to Q1 2022, representing approximately 26.1% and 24.0% of our total average paid WSEEs during Q1 2023 and Q1 2022, respectively.

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.


Insperity \| 2023 First Quarter Form 10-Q			23


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

First Quarter 2023 Compared to First Quarter 2022


Gross Profit and Year-over-Year Growth Percentage (in thousands)


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

Gross profit for Q1 2023 increased 16.2% to $332.1 million compared to $285.8 million in Q1 2022. Gross profit per WSEE per month for Q1 2023 increased $19 to $361 compared to $342 in Q1 2022 due primarily to higher average pricing, offset in part by higher direct costs, 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 $36 due to higher average pricing.

The net decrease in direct costs between Q1 2023 and Q1 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $2.5 million as discussed below. The $17 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows:


Insperity \| 2023 First Quarter Form 10-Q			24


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

Benefits costs

•The cost of group health insurance and related employee benefits increased $5 per WSEE per month and increased 2.1% on a cost per covered employee basis in Q1 2023 as compared to Q1 2022.

•The percentage of WSEEs covered under our health insurance plans was 65.4% in Q1 2023 compared to 66.3% in Q1 2022.

•Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $9.0 million, or $10 per WSEE per month, in Q1 2023 compared to an increase in costs of $0.8 million, or $1 per WSEE per month, in Q1 2022.

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

Workers’ compensation costs

Our continued discipline around our client selection, workplace safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

•Workers’ compensation costs increased $5 per WSEE per month in Q1 2023 compared to Q1 2022 on a 13.0% increase in non-bonus payroll costs.

•As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.25% in Q1 2023 and 0.20% in Q1 2022.

•We recorded a reduction in workers’ compensation costs of $7.6 million, or 0.10% of non-bonus payroll costs in Q1 2023, as a result of closing out claims at lower than expected costs. In Q1 2022, we recorded a reduction of $14.9 million, or 0.22% of non-bonus payroll 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 11.2% on a 10.3% increase in payroll costs, or $8 per WSEE per month.

•Payroll taxes as a percentage of payroll costs increased to 7.6% in Q1 2023 compared to 7.5% in Q1 2022.

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


Insperity \| 2023 First Quarter Form 10-Q			25


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

◦employee travel and training expenses

◦facility costs, including repairs and maintenance

◦technology costs, including software-as-a-service (“SaaS”) subscription costs and amortization of SaaS implementation 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.

First Quarter 2023 Compared to First Quarter 2022

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


	Three Months Ended March 31,
							per WSEE
(in thousands, except per WSEE)	2023		2022		% Change		2023		2022		% Change

Salaries	$	124,541	$	107,439	15.9	%	$	135	$	129	4.7	%
Stock-based compensation	11,110		9,846		12.8	%	12		12		—
Commissions	11,017		10,310		6.9	%	12		12		—
Advertising	5,940		8,595		(30.9	%)	6		10		(40.0	%)
General and administrative	48,034		41,005		17.1	%	53		49		8.2	%
Depreciation and amortization	10,497		10,184		3.1	%	11		12		(8.3	%)
Total operating expenses	$	211,139	$	187,379	12.7	%	$	229	$	224	2.2	%

•Operating expenses for Q1 2023 increased 12.7% to $211.1 million compared to $187.4 million in Q1 2022. Operating expenses per WSEE per month for Q1 2023 increased 2.2% to $229 compared to $224 in Q1 2022.

•Salaries of corporate and sales staff for Q1 2023 increased 15.9% to $124.5 million, or $6 per WSEE per month, compared to Q1 2022, primarily due to an increase in the number of service and support personnel as well as in the number of Business Performance Advisors.

•Stock-based compensation expense for Q1 2023 increased 12.8% to $11.1 million, but remained flat on a per WSEE per month basis, compared to Q1 2022. The increase was primarily due to awards issued under our restricted stock program.

•Commissions expense for Q1 2023 increased 6.9% to $11.0 million, but remained flat on a per WSEE per month basis, compared to Q1 2022.

•Advertising expense for Q1 2023 decreased 30.9% to $5.9 million, or $4 per WSEE per month, compared to Q1 2022. This decrease was primarily due to a change in the timing associated with advertising.

•General and administrative expenses for Q1 2023 increased 17.1% to $48.0 million, or $4 per WSEE per month, compared to Q1 2022. The increase was primarily due to increased travel and event costs, software licensing costs, and amortization of SaaS implementation costs.

Other Income (Expense)

Interest income increased $8.6 million in Q1 2023 compared to Q1 2022 due to increases in interest rates earned on investments in marketable securities and workers’ compensation deposits. Interest expense increased $4.3 million in Q1 2023 compared to Q1 2022 due to increases in interest rates charged on borrowings under our credit facility.


Insperity \| 2023 First Quarter Form 10-Q			26


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

Income Tax Expense


	Three months ended March 31,
		2023	2022

Effective income tax rate		23.5%	27.7%

For the three months ended March 31, 2023, 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 three months of 2023 and 2022, we recognized an income tax benefit of $4.9 million and $0.5 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, • depreciation and amortization expense, and • amortization of SaaS implementation costs.

Adjusted EBITDA	Represents EBITDA plus: • non-cash stock based compensation.

Adjusted net income	Represents net income computed in accordance with GAAP, excluding: • non-cash stock-based compensation.

Adjusted EPS	Represents diluted net income per share computed in accordance with GAAP, excluding: • non-cash stock based-compensation.


Insperity \| 2023 First Quarter Form 10-Q			27


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 March 31,
	2023						2022
				Per WSEE						Per WSEE

Payroll cost	$	9,681,610		$	10,523		$	8,780,068		$	10,503
Less: Bonus payroll cost	2,002,043			2,176			1,983,853			2,373
Non-bonus payroll cost	$	7,679,567		$	8,347		$	6,796,215		$	8,130
% Change period over period	13.0		%	2.7		%	27.2		%	6.4		%

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


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

Cash, cash equivalents and marketable securities	$	732,123	$	765,896
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions	457,778		504,817
Client prepayments	42,907		36,800
Adjusted cash, cash equivalents and marketable securities	$	231,438	$	224,279

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


	Three Months Ended March 31,
(in thousands, except per WSEE per month)	2023						2022
				Per WSEE						Per WSEE

Net income	$	94,595		$	103		$	69,884		$	84
Income tax expense	28,984			32			26,734			32
Interest expense	6,205			7			1,925			2
Amortization of SaaS implementation costs	1,022			1			—			—
Depreciation and amortization	10,497			11			10,184			12
EBITDA	141,303			154			108,727			130
Stock-based compensation	11,110			12			9,846			12
Adjusted EBITDA	$	152,413		$	166		$	118,573		$	142
% Change period over period	28.5		%	16.9		%	13.8		%	(4.7		%)


Insperity \| 2023 First Quarter Form 10-Q			28


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 March 31,
(in thousands)	2023			2022

Net income	$	94,595		$	69,884
Non-GAAP adjustments:
Stock-based compensation	11,110			9,846
Tax effect	(2,606)			(2,724)
Total non-GAAP adjustments, net	8,504			7,122
Adjusted net income	$	103,099		$	77,006
% Change period over period	33.9		%	8.8		%

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


	Three Months Ended March 31,
(amounts per share)	2023			2022

Diluted EPS	$	2.45		$	1.80
Non-GAAP adjustments:
Stock-based compensation	0.29			0.25
Tax effect	(0.07)			(0.06)
Total non-GAAP adjustments, net	0.22			0.19
Adjusted EPS	$	2.67		$	1.99
% Change period over period	34.2		%	9.3		%

Liquidity and Capital Resources

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, stock repurchases, potential acquisitions, debt service requirements and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct costs and operating expenses, we rely primarily on cash from operations. Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity. We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a borrowing capacity of $650 million. The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

We had $732.1 million in cash, cash equivalents and marketable securities at March 31, 2023, of which approximately $457.8 million was payable in early April 2023 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $42.9 million represented client prepayments that were payable in April 2023. At March 31, 2023, we had working capital of $215.1 million compared to $158.5 million at December 31, 2022. 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 2023. We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

As of March 31, 2023, 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 \| 2023 First Quarter Form 10-Q			29


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 three months of 2023 was $39.4 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 March 31, 2023, the last business day of the reporting period was a Friday, client prepayments were $42.9 million and employment taxes and other deductions were $457.8 million. In the period ended March 31, 2022, the last business day of the reporting period was a Thursday, client prepayments were $117.8 million and employment taxes and other deductions were $338.3 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 March 31, 2023, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $41.5 million surplus, $32.5 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 March 31, 2023 were $71.1 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets.

•Operating results – Our adjusted net income has a significant impact on our operating cash flows. Our adjusted net income increased 33.9% to $103.1 million in the three months ended March 31, 2023, compared to $77.0 million in the three months ended March 31, 2022. Please read “Results of Operations – First Quarter 2023 Compared to First Q uarter 2022.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $8.9 million for the three months ended March 31, 2023, primarily due to property and equipment purchases of $6.8 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $46.8 million for the three months ended March 31, 2023. We paid $19.9 million in dividends and repurchased or withheld $34.6 million in stock.


Insperity \| 2023 First Quarter Form 10-Q			30


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 March 31, 2023, 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 March 31, 2023.

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Insperity \| 2023 First Quarter Form 10-Q			31


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, 2022 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, except as noted below:

Bank failures or other events affecting financial institutions could have a material adverse effect on our business, results of operations or financial condition, or have other adverse consequences.

We use a U.S.-based global systemically important bank (or G-SIB) for our PEO operations, including our cash balances associated with that portion of our business. All of our cash deposits are held by Federal Deposit Insurance Corporation (“FDIC”) insured banks, which amounts exceed the FDIC insurance limits. Through various overnight “sweep account” programs, we also invest a significant portion of our cash balances in U.S. Treasury-based funds, which are invested through brokerage firms affiliated with the banks at which our deposits are held. The failure of a bank or related brokerage firm that we use, or events involving limited liquidity, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, may lead to disruptions in access to our cash balances, adversely impact our liquidity, including our ability to borrow under our credit facility, or limit our ability to process transactions related to our clients. In the event of a failure of a bank or other financial institution that holds our cash deposits, there can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be recoverable or, even if ultimately recoverable, there may be significant delays in our ability to access those funds. Furthermore, bank failures, non-performance, or other adverse developments that affect financial institutions could impair the ability of one or more of the banks participating in our credit facility from honoring their commitments. Such events could have a material adverse effect on our financial condition or results of operations.

Similarly, our clients may be adversely affected by any bank failure or other event affecting financial institutions. For example, some of our clients had deposits with banks that were recently placed into receivership. If those clients had been unable, or if our clients in the future are unable, to meet their obligations to us as a result of a bank failure or other event affecting financial institutions, we may be exposed to potential risks that could impact our financial condition or results of operations. If we were to fail to pay the liabilities that we have assumed associated with our WSEEs, we may be subject to fines or other penalties. See “Item 1.A. Risk Factors – PEO HR Outsourcing Risks – “We assume liability for WSEE payroll, payroll taxes, benefits costs and workers’ compensation costs and are responsible for their payment regardless of the amount billed to or paid by our clients.” in our Form 10-K for the year ended December 31, 2022. Furthermore, a significant change in the liquidity or financial position of our clients could cause unfavorable trends in cash collections, which could have a material adverse effect on our financial condition or results of operations.

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 March 31, 2023 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)
01/01/2023 — 01/31/2023	38,030	$	108.83	38,000	994,160
02/01/2023 — 02/28/2023	—	—		—	994,160
03/01/2023 — 03/31/2023	250,472	121.70		55,387	938,773
Total	288,502	$	120.01	93,387


Insperity \| 2023 First Quarter Form 10-Q			32


OTHER INFORMATION

____________________________________

(1)During the three months ended March 31, 2023, 195,115 shares of stock were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock units and long-term incentive compensation 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 March 31, 2023, we were authorized to repurchase an additional 938,773 shares under the program. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.


Insperity \| 2023 First Quarter Form 10-Q			33


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 \| 2023 First Quarter Form 10-Q			34

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: April 26, 2023	By:	/s/ Douglas S. Sharp
		Douglas S. Sharp
		Executive Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)


Insperity \| 2023 First Quarter Form 10-Q			35

Insperity - 10-Q quarterly report FY Q1

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