Quarterly Report (10-q)

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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	September 30, 2022
	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 24, 2022, 37,934,341 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	11
Part I, Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Part I, Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Part I, Item 4.	Controls and Procedures	35
Part II, Item 1.	Legal Proceedings	36
Part II, Item 1A.	Risk Factors	36
Part II, Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Part II, Item 6.	Exhibits	37


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;

•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;

•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;


Insperity \| 2022 Third Quarter Form 10-Q			4


FORWARD LOOKING STATEMENTS

•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, 2021 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 \| 2022 Third Quarter Form 10-Q			5


FINANCIAL STATEMENTS (Unaudited)

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	562,143	$	575,812
Restricted cash	51,829		46,929
Marketable securities	34,493		31,791
Accounts receivable, net	558,700		513,306
Prepaid insurance	30,368		11,285
Other current assets	51,473		53,312
Income taxes receivable	—		12,413
Total current assets	1,289,006		1,244,848
Property and equipment, net of accumulated depreciation	196,601		210,723
Right-of-use (“ROU”) leased assets	56,626		62,830
Prepaid health insurance	9,000		9,000
Deposits – health insurance	7,900		7,900
Deposits – workers’ compensation	179,014		185,027
Goodwill and other intangible assets, net	12,707		12,707
Deferred income taxes, net	748		4,892
Other assets	29,904		15,158
Total assets	$	1,781,506	$	1,753,085
Liabilities and stockholders' equity
Accounts payable	$	5,466	$	6,412
Payroll taxes and other payroll deductions payable	352,129		467,892
Accrued worksite employee payroll cost	494,986		409,653
Accrued health insurance costs	64,858		50,001
Accrued workers’ compensation costs	57,023		50,534
Accrued corporate payroll and commissions	81,278		74,778
Other accrued liabilities	65,053		69,303
Income taxes payable	455		—
Total current liabilities	1,121,248		1,128,573
Accrued workers’ compensation costs, net of current	174,664		192,694
Long-term debt	369,400		369,400
Operating lease liabilities, net of current	55,691		64,192


Total noncurrent liabilities	599,755		626,286
Commitments and contingencies
Common stock	555		555
Additional paid-in capital	139,370		109,179
Treasury stock, at cost	(716,046)		(665,089)
Retained earnings	636,624		553,581
Total stockholders’ equity (deficit)	60,503		(1,774)
Total liabilities and stockholders’ equity	$	1,781,506	$	1,753,085

See accompanying notes.


Insperity \| 2022 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)	2022		2021		2022		2021

Revenues(1)	$	1,439,160	$	1,209,628	$	4,449,104	$	3,681,834
Payroll taxes, benefits and workers’ compensation costs	1,194,607		1,011,149		3,678,909		3,032,356
Gross profit	244,553		198,479		770,195		649,478
Salaries, wages and payroll taxes	109,525		89,232		323,486		286,669
Stock-based compensation	13,341		10,362		38,818		35,965
Commissions	11,068		8,724		32,121		24,694
Advertising	9,790		9,507		30,812		23,804
General and administrative expenses	38,115		31,134		115,215		91,981
Depreciation and amortization	10,083		9,917		30,367		27,715
Total operating expenses	191,922		158,876		570,819		490,828
Operating income	52,631		39,603		199,376		158,650
Other income (expense):
Interest income	2,808		251		3,901		2,230
Interest expense	(4,082)		(1,963)		(8,698)		(5,537)
Income before income tax expense	51,357		37,891		194,579		155,343
Income tax expense	13,688		10,595		53,427		40,971
Net income	$	37,669	$	27,296	$	141,152	$	114,372
Less distributed and undistributed earnings allocated to participating securities	—		(39)		(27)		(219)
Net income allocated to common shares	$	37,669	$	27,257	$	141,125	$	114,153

Net income per share of common stock
Basic	$	0.99	$	0.71	$	3.70	$	2.97
Diluted	$	0.98	$	0.70	$	3.66	$	2.94

____________________________________

(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)	2022		2021		2022		2021

Gross billings	$	9,528,695	$	7,994,006	$	29,111,243	$	23,682,279
Less: WSEE payroll cost	8,089,535		6,784,378		24,662,139		20,000,445
Revenues	$	1,439,160	$	1,209,628	$	4,449,104	$	3,681,834

See accompanying notes.


Insperity \| 2022 Third Quarter Form 10-Q			7


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
(in thousands)	2022		2021

Cash flows from operating activities
Net income	$	141,152	$	114,372
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	30,367		27,715
Stock-based compensation	38,818		35,965
Deferred income taxes	4,144		7,950
Changes in operating assets and liabilities:
Accounts receivable	(45,394)		(186,757)
Prepaid insurance	(19,083)		(9,493)
Other current assets	1,839		(13,832)
Other assets and ROU assets	(1,985)		4,153
Accounts payable	(946)		(1,953)
Payroll taxes and other payroll deductions payable	(115,763)		(145,098)
Accrued worksite employee payroll costs	85,333		200,054
Accrued health insurance costs	14,857		7,681
Accrued workers’ compensation costs	(11,541)		(864)
Accrued corporate payroll, commissions and other accrued liabilities	(12,636)		22,428
Income taxes payable/receivable	12,868		(7,478)
Total adjustments	(19,122)		(59,529)
Net cash provided by operating activities	122,030		54,843

Cash flows from investing activities
Marketable securities:
Purchases	(35,618)		(41,413)

Proceeds from maturities	32,215		42,600
Property and equipment:
Purchases	(16,448)		(23,603)
Net cash used in investing activities	(19,851)		(22,416)

Cash flows from financing activities
Purchase of treasury stock	(63,420)		(49,770)
Dividends paid	(56,866)		(50,198)

Other	(3,130)		4,812
Net cash used in financing activities	(123,416)		(95,156)
Net decrease in cash, cash equivalents, restricted cash and funds held for clients	(21,237)		(62,729)
Cash, cash equivalents, restricted cash and funds held for clients beginning of period	839,500		786,699
Cash, cash equivalents, restricted cash and funds held for clients end of period	$	818,263	$	723,970


Supplemental operating lease cash flow information:
ROU assets obtained in exchange for lease obligations	$	4,513	$	16,275

See accompanying notes.


Insperity \| 2022 Third Quarter Form 10-Q			8


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2022 and 2021


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

Balance at December 31, 2021	55,489	$	555	$	109,179	$	(665,089)	$	553,581	$	(1,774)
Purchase of treasury stock, at cost	—	—		—		(63,420)		—		(63,420)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(9,285)		10,443		(1,158)		—
Stock-based compensation expense	—	—		37,866		952		—		38,818

Other	—	—		1,610		1,068		—		2,678
Dividends paid	—	—		—		—		(56,866)		(56,866)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(85)		(85)
Net income	—	—		—		—		141,152		141,152
Balance at September 30, 2022	55,489	$	555	$	139,370	$	(716,046)	$	636,624	$	60,503

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


Insperity \| 2022 Third Quarter Form 10-Q			9


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

For the Three Months Ended September 30, 2022 and 2021


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

Balance at June 30, 2022	55,489	$	555	$	125,622	$	(709,810)	$	618,765	$	35,132
Purchase of treasury stock, at cost	—	—		—		(6,615)		—		(6,615)
Issuance of equity based incentive awards and dividend equivalents	—	—		(37)		44		(7)		—
Stock-based compensation expense	—	—		13,339		2		—		13,341

Other	—	—		446		333		—		779
Dividends paid	—	—		—		—		(19,769)		(19,769)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(34)		(34)
Net income	—	—		—		—		37,669		37,669
Balance at September 30, 2022	55,489	$	555	$	139,370	$	(716,046)	$	636,624	$	60,503

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 long-term 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

See accompanying notes.


Insperity \| 2022 Third Quarter Form 10-Q			10


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 Organizational Planning, 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, 2021. Our Condensed Consolidated Balance Sheet at December 31, 2021 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, 2022 and our Consolidated Statements of Operations for the three and nine month periods ended September 30, 2022 and 2021, our Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2022 and 2021 and our Consolidated Statements of Stockholders’ Equity for the three and nine month periods ended September 30, 2022 and 2021, 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 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.

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 the plan; and (3) the number of participants in the plan, including both active and COBRA enrollees. Each reporting


Insperity \| 2022 Third Quarter Form 10-Q			11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2022, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of September 30, 2022, Plan Costs were less than the net premiums paid and owed to United by $25.2 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $16.2 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, 2022 were $57.6 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 2022 included an increase of $12.8 million for changes in estimated run-off related to prior periods. 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.

Workers’ Compensation Costs

Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing Solutions is provided through an arrangement with the Chubb Group of Insurance Companies or its predecessors (the “Chubb Program”). 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, 2022 and 2021, we reduced accrued workers’ compensation costs by $35.3 million and $31.4 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 2022 period was 2.5% and in the 2021 period was 0.5%) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.


Insperity \| 2022 Third Quarter Form 10-Q			12


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)	2022		2021

Beginning balance, January 1,	$	239,623	$	240,761
Accrued claims	33,467		34,349
Present value discount, net of accretion	(6,485)		476
Paid claims	(40,112)		(36,580)
Ending balance	$	226,493	$	239,006

Current portion of accrued claims	$	51,829	$	47,813
Long-term portion of accrued claims	174,664		191,193
Total accrued claims	$	226,493	$	239,006

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at September 30, 2022 includes $5.2 million of workers’ compensation administrative fees.

As of September 30, 2022 and 2021, the undiscounted accrued workers’ compensation costs were $245.5 million and $254.5 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. During the first nine months of 2022, we received $30.2 million for the return of excess claim funds related to the workers’ compensation program, which resulted in a decrease to deposits - workers’ compensation. At September 30, 2022, we had restricted cash of $51.8 million and deposits – workers’ compensation of $179.0 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 $547.6 million and $490.5 million at September 30, 2022 and December 31, 2021, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Pursuant to the “practical expedients” provided under Accounting Standards Codification 606, Revenues from Contracts with Customers, 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 \| 2022 Third Quarter Form 10-Q			13


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)	2022		2021		% Change		2022		2021		% Change

Northeast	$	385,541	$	332,587	15.9	%	$	1,224,142	$	1,035,233	18.2	%
Southeast	197,131		155,555		26.7	%	592,116		462,625		28.0	%
Central	256,150		211,315		21.2	%	779,500		643,100		21.2	%
Southwest	280,299		241,473		16.1	%	869,073		736,820		17.9	%
West	305,465		253,562		20.5	%	940,617		762,100		23.4	%
	1,424,586		1,194,492		19.3	%	4,405,448		3,639,878		21.0	%
Other revenue	14,574		15,136		(3.7)	%	43,656		41,956		4.1	%
Total revenue	$	1,439,160	$	1,209,628	19.0	%	$	4,449,104	$	3,681,834	20.8	%


3.			Other Balance Sheet Information

Cash, Cash Equivalents and Marketable Securities

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


	September 30, 2022						December 31, 2021
(in thousands)	Cash & Cash Equivalents		Marketable Securities		Total		Cash & Cash Equivalents		Marketable Securities		Total

Overnight holdings	$	503,228	$	—	$	503,228	$	490,154	$	—	$	490,154
Investment holdings	43,489		34,493		77,982		88,951		31,791		120,742
Cash in demand accounts	31,111		—		31,111		47,331		—		47,331
Outstanding checks	(15,685)		—		(15,685)		(50,624)		—		(50,624)
Total	$	562,143	$	34,493	$	596,636	$	575,812	$	31,791	$	607,603

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, 2022 and December 31, 2021 included $321.9 million and $424.8 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $35.8 million and $20.1 million, respectively, in client prepayments.


Insperity \| 2022 Third Quarter Form 10-Q			14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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


	Nine Months Ended September 30,
(in thousands)	2022			2021

Supplemental schedule of cash and cash equivalents, restricted cash and funds held for clients
Cash and cash equivalents	$	575,812		$	554,846
Restricted cash	46,929			45,522
Other current assets - funds held for clients(1)	31,732		(2)	—		(2)
Deposits – workers’ compensation	185,027			186,331
Cash, cash equivalents, restricted cash and funds held for clients beginning of period	$	839,500		$	786,699

Cash and cash equivalents	$	562,143		$	467,921
Restricted cash	51,829			47,813
Other current assets - funds held for clients(1)	25,277		(2)	—		(2)
Deposits – workers’ compensation	179,014			208,236
Cash, cash equivalents, restricted cash and funds held for clients end of period	$	818,263		$	723,970

____________________________________

(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 client’s 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 \| 2022 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, 2022						December 31, 2021
(in thousands)	Total		Level 1		Level 2		Total		Level 1		Level 2

Money market funds	$	546,717	$	546,717	$	—	$	579,105	$	579,105	$	—
U.S. Treasury bills	23,929		23,929		—		5,782		5,782		—
Municipal bonds	10,564		—		10,564		26,009		—		26,009
Total	$	581,210	$	570,646	$	10,564	$	610,896	$	584,887	$	26,009

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, 2022
U.S. Treasury bills	$	23,991	$	—	$	(62)	$	23,929
Municipal bonds	10,596		—		(32)		10,564

December 31, 2021
U.S. Treasury bills	$	5,783	$	—	$	(1)	$	5,782
Municipal bonds	26,017		—		(8)		26,009

As of September 30, 2022, 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 September 30, 2022, 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 September 30, 2022, 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.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Facility matures on June 30, 2027. Borrowings under the Facility bear interest at an annual rate equal to, at our option, an alternate base rate for alternate base rate loans or Adjusted Term SOFR for term SOFR loans, in either case plus an applicable margin. Adjusted Term SOFR is a forward-looking term rate based on the secured overnight financing rate plus a spread adjustment, which ranges from 0.10% to 0.25% depending on the interest period and type of loan. Depending on our leverage ratio, the applicable margin varies (1) in the case of term SOFR loans, from 1.50% to 2.25% and (2) in the case of alternate base rate loans, from 0.00% to 0.50%. The alternate base rate is the highest of (1) the prime rate most recently published in The Wall Street Journal, (2) the federal funds rate plus 0.50% and (3) the Adjusted Term SOFR rate plus 2.00%. We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25% per year. The average interest rate for the nine month period ended September 30, 2022 was 2.8%. Interest expense and unused commitment fees are recorded in other income (expense).

The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio, and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at September 30, 2022.


6.			Stockholders' Equity

During the first nine months of 2022, we repurchased or withheld an aggregate of 679,129 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, 2022, 580,183 shares were repurchased under the Repurchase Program. As of September 30, 2022, we were authorized to repurchase an additional 1,123,445 shares under the Repurchase Program.

Withheld Shares

During the nine months ended September 30, 2022, we withheld 98,946 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)	2022		2021

First quarter	$	0.45	$	0.40
Second quarter	0.52		0.45
Third quarter	0.52		0.45

During the nine months ended September 30, 2022 and 2021, we paid dividends totaling $56.9 million and $50.2 million, respectively.


Insperity \| 2022 Third Quarter Form 10-Q			17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


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)	2022		2021		2022		2021

Net income	$	37,669	$	27,296	$	141,152	$	114,372
Less distributed and undistributed earnings allocated to participating securities	—		(39)		(27)		(219)
Net income allocated to common shares	$	37,669	$	27,257	$	141,125	$	114,153

Weighted average common shares outstanding	38,017		38,524		38,177		38,445
Incremental shares from assumed time-vested and performance-based RSU awards	529		357		431		404
Adjusted weighted average common shares outstanding	38,546		38,881		38,608		38,849

Potentially dilutive securities not included in weighted average share calculation due to anti-dilutive effect	15		—		13		—


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 \| 2022 Third Quarter Form 10-Q			18


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, 2021, 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.

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 and to the workplace in general. While uncertainties continue regarding the pandemic, including its duration, future variants, and its longer-term impacts, we believe that we are positioned to continue to adjust our business plans and workforce practices as conditions change. In response to the pandemic’s impact on the workplace, we implemented flexible remote working arrangements for our employees. 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 with the impacts of the pandemic include 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 2022 (“Q3 2022”), the average number of WSEEs paid per month increased 17.8% year-over-year as the Q3 2022 increase in WSEEs paid from new sales and client retention exceeded the third quarter of 2021 (“Q3 2021”) levels. The net gain in our client base declined from Q3 2021, a period in which many clients were rehiring employees as the pandemic conditions improved. We expect the average number of paid WSEEs per month to increase between 14.5% and 15.5% in the fourth quarter of 2022 as compared to the fourth quarter of 2021, which, if achieved, would equate to the average number of paid WSEEs per month growing 1.5% to 2.4% sequentially from the third quarter of 2022.

We experienced a 1.8% increase in the year-over-year benefits costs per covered employee during Q3 2022 as compared to Q3 2021. During Q3 2021, we experienced a 6.0% increase in the year-over-year benefits costs per covered employee as compared to Q3 2020. During the remainder of 2022 and possibly beyond 2022, benefits costs trends are expected to continue to be affected by the dynamics of the pandemic, including the impact on healthcare utilization and COVID-19 testing, vaccination and treatment costs. This has resulted and may continue to result in a higher or more volatile level of healthcare claims costs than our historical claim cost trends. We have experienced a reduced frequency in workers’ compensation claims since the beginning of the pandemic, driven by the trend toward hybrid and remote work. While certain COVID-19 cases are covered under workers’ compensation, they have not had a material impact on our workers’ compensation costs.

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 speed and effectiveness of responses to combat the virus, including the development, availability and acceptance of therapeutics and vaccines. See Item 1A. “Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021.


Insperity \| 2022 Third Quarter Form 10-Q			19


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

2022 Highlights

Third Quarter 2022 Compared to Third Quarter 2021

•Average number of WSEEs paid per month increased 17.8%

•Net income and diluted earnings per share (“diluted EPS”) increased 38.0% and 40.0% to $37.7 million and $0.98, respectively

•Adjusted EPS increased 38.2% to $1.23

•Adjusted EBITDA increased 32.7% to $79.8 million

First Nine Months 2022 Compared to First Nine Months 2021

•Average number of WSEEs paid per month increased 18.9%

•Net income and diluted EPS increased 23.4% and 24.5% to $141.2 million and $3.66, respectively

•Adjusted EPS increased 21.0% to $4.38

•Adjusted EBITDA increased 21.8% to $273.4 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 \| 2022 Third Quarter Form 10-Q			20


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,
	2022		2021		% Change		2022		2021		% Change

Financial data:
Revenues	$	1,439,160	$	1,209,628	19.0	%	$	4,449,104	$	3,681,834	20.8	%
Gross profit	244,553		198,479		23.2	%	770,195		649,478		18.6	%
Operating expenses	191,922		158,876		20.8	%	570,819		490,828		16.3	%
Operating income	52,631		39,603		32.9	%	199,376		158,650		25.7	%
Other expense	(1,274)		(1,712)		25.6	%	(4,797)		(3,307)		(45.1)	%
Net income	37,669		27,296		38.0	%	141,152		114,372		23.4	%
Diluted EPS	0.98		0.70		40.0	%	3.66		2.94		24.5	%

Non-GAAP financial measures(1):
Adjusted net income	$	47,420	$	34,793	36.3	%	$	169,311	$	140,851	20.2	%
Adjusted EBITDA	79,811		60,133		32.7	%	273,410		224,560		21.8	%
Adjusted EPS	1.23		0.89		38.2	%	4.38		3.62		21.0	%

Average WSEEs paid	303,347		257,560		17.8	%	290,838		244,667		18.9	%

Statistical data (per WSEE per month):
Revenues(2)	$	1,581	$	1,565	1.0	%	$	1,700	$	1,672	1.7	%
Gross profit	269		257		4.7	%	294		295		(0.3)	%
Operating expenses	211		206		2.4	%	218		223		(2.2)	%
Operating income	58		51		13.7	%	76		72		5.6	%
Net income	41		35		17.1	%	54		52		3.8	%

____________________________________

(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)	2022		2021		2022		2021
Gross billings	$	10,470	$	10,346	$	11,122	$	10,755
Less: WSEE payroll cost	8,889		8,781		9,422		9,083
Revenues	$	1,581	$	1,565	$	1,700	$	1,672


Insperity \| 2022 Third Quarter Form 10-Q			21


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 2022, WSEEs paid increased 17.8% compared to Q3 2021. The number of WSEEs paid from new client sales and client retention improved compared to Q3 2021, while the net gain in our client base continued, although at lower levels than Q3 2021, a period when many clients were rehiring employees as the pandemic conditions improved.

•During the first nine months of 2022 (“YTD 2022”), WSEEs paid increased 18.9% compared to the first nine months of 2021 (“YTD 2021”). The number of WSEEs paid from new client sales, the net gain in our client base and client retention all improved compared to YTD 2021.

Average WSEEs Paid and

Year-over-Year Growth Percentage


Insperity \| 2022 Third Quarter Form 10-Q			22


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 \| 2022 Third Quarter Form 10-Q			23


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

Revenue and

Year-over-Year Growth Percentage

(in thousands)

Third Quarter 2022 Compared to Third Quarter 2021

Our revenues for Q3 2022 were $1.4 billion, an increase of 19.0%, primarily due to the following:

•Average WSEEs paid increased 17.8%.

•Revenues per WSEE per month increased 1.0%, or $16.

First Nine Months 2022 Compared to First Nine Months 2021

Our revenues for YTD 2022 were $4.4 billion, an increase of 20.8%, primarily due to the following:

•Average WSEEs paid increased 18.9%.

•Revenues per WSEE per month increased 1.7%, or $28.


Insperity \| 2022 Third Quarter Form 10-Q			24


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 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 23.3% during YTD 2022 compared to YTD 2021, representing approximately 24.6% and 23.7% of our total average paid WSEEs during YTD 2022 and YTD 2021, respectively.


Insperity \| 2022 Third Quarter Form 10-Q			25


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 \| 2022 Third Quarter Form 10-Q			26


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

Third Quarter 2022 Compared to Third Quarter 2021

Gross profit for Q3 2022 increased 23.2% to $244.6 million compared to $198.5 million in Q3 2021. Gross profit per WSEE per month for Q3 2022 increased $12 to $269 compared to $257 in Q3 2021 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 $16 due to higher average pricing.

The net decrease in direct costs between Q3 2022 and Q3 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $13.0 million as discussed below. The $4 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 decreased $6 per WSEE per month and increased 1.8% on a cost per covered employee basis in Q3 2022 as compared to Q3 2021.

•The percentage of WSEEs covered under our health insurance plans was 64.7% in Q3 2022 compared to 66.4% in Q3 2021.

•Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $16.6 million, or $18 per WSEE per month, in Q3 2022 compared to a decrease in costs of $3.7 million, or $5 per WSEE per month, in Q3 2021.

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 0.4%, but decreased $4 on a per WSEE per month basis, in Q3 2022 compared to Q3 2021 on a 23.9% increase in non-bonus payroll costs.

•As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.25% in Q3 2022 and 0.30% Q3 2021.

•We recorded a reduction in workers’ compensation costs of $9.4 million, or 0.12% of non-bonus payroll costs, in Q3 2022 compared to a reduction of $9.3 million, or 0.15% of non-bonus payroll costs, in Q3 2021, 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 21.7% on a 19.2% increase in payroll costs, or $18 per WSEE per month.

•Payroll taxes as a percentage of payroll costs increased to 6.1% in Q3 2022 compared to 6.0% in Q3 2021.

First Nine Months 2022 Compared to First Nine Months 2021

Gross profit for YTD 2022 increased 18.6% to $770.2 million compared to $649.5 million in YTD 2021. Gross profit per WSEE per month for YTD 2022 decreased $1 to $294 compared to $295 in YTD 2021 due primarily to higher average pricing, offset in part by higher direct costs, as discussed below.


Insperity \| 2022 Third Quarter Form 10-Q			27


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

The net increase in direct costs between YTD 2022 and YTD 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $4.4 million as discussed below. The $29 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 remained flat on a per WSEE per month basis and increased 2.6% on a cost per covered employee basis.

•The percentage of WSEEs covered under our health insurance plans was 65.5% in YTD 2022 compared to 67.2% in YTD 2021.

•Reported results include changes in estimated claims run-off related to prior periods which was an increase in costs of $12.8 million, or $5 per WSEE per month, in YTD 2022 compared to an increase in costs of $4.5 million, or $2 per WSEE per month, in YTD 2021.

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 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 decreased 4.9%, or $5 per WSEE per month, in YTD 2022 compared to YTD 2021.

•As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2022 were 0.22% compared to 0.29% in YTD 2021.

•We recorded a reduction in workers’ compensation costs of $35.3 million, or 0.16% of non-bonus payroll costs, in YTD 2022 compared to a reduction of $31.4 million, or 0.18% of non-bonus payroll costs, in YTD 2021, 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 25.8% on a 23.3% increase in payroll costs, or $35 per WSEE per month, due to the non-recurrence of 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 6.8% in YTD 2022 compared to 6.7% in YTD 2021.

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:


Insperity \| 2022 Third Quarter Form 10-Q			28


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

◦rent expenses related to our service centers and sales offices

◦outside professional service fees related to legal, consulting and accounting services

◦administrative costs, such as postage, printing and supplies

◦employee travel and training expenses

◦facility costs, including repairs and maintenance

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

Third Quarter 2022 Compared to Third Quarter 2021

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


	Three Months Ended September 30,
							per WSEE
(in thousands, except per WSEE)	2022		2021		% Change		2022		2021		% Change

Salaries	$	109,525	$	89,232	22.7	%	$	120	$	115	4.3	%
Stock-based compensation	13,341		10,362		28.7	%	15		13		15.4	%
Commissions	11,068		8,724		26.9	%	12		11		9.1	%
Advertising	9,790		9,507		3.0	%	11		12		(8.3)	%
General and administrative	38,115		31,134		22.4	%	42		42		—
Depreciation and amortization	10,083		9,917		1.7	%	11		13		(15.4)	%
Total operating expenses	$	191,922	$	158,876	20.8	%	$	211	$	206	2.4	%

Operating expenses for Q3 2022 increased 20.8% to $191.9 million compared to $158.9 million in Q3 2021. Operating expenses per WSEE per month for Q3 2022 increased 2.4% to $211 compared to $206 in Q3 2021.

•Salaries of corporate and sales staff for Q3 2022 increased 22.7% to $109.5 million, or $5 per WSEE per month, compared to Q3 2021 on the 17.8% increase in WSEEs paid per month. This increase was primarily due to a 10.6% increase in corporate headcount in Q3 2022 compared to Q3 2021, as well as higher incentive compensation accruals in Q3 2022.

•Stock-based compensation expense for Q3 2022 increased 28.7% to $13.3 million, or $2 per WSEE per month, compared to Q3 2021. The increase was primarily due to awards issued under our restricted stock program.

•Commissions expense for Q3 2022 increased 26.9% to $11.1 million, or $1 per WSEE per month, compared to Q3 2021. The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers.

•General and administrative expenses for Q3 2022 increased 22.4% to $38.1 million, but remained flat on a per WSEE per month basis, compared to Q3 2021. The increase was primarily due to increased travel and event costs, SaaS subscription costs and amortization of SaaS implementation costs.


Insperity \| 2022 Third Quarter Form 10-Q			29


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

First Nine Months 2022 Compared to First Nine Months 2021

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


	Nine Months Ended September 30,
							per WSEE
(in thousands, except per WSEE)	2022		2021		% Change		2022		2021		% Change

Salaries	$	323,486	$	286,669	12.8	%	$	123	$	130	(5.4)	%
Stock-based compensation	38,818		35,965		7.9	%	15		16		(6.3)	%
Commissions	32,121		24,694		30.1	%	12		11		9.1	%
Advertising	30,812		23,804		29.4	%	12		11		9.1	%
General and administrative	115,215		91,981		25.3	%	44		42		4.8	%
Depreciation and amortization	30,367		27,715		9.6	%	12		13		(7.7)	%
Total operating expenses	$	570,819	$	490,828	16.3	%	$	218	$	223	(2.2)	%

Operating expenses for YTD 2022 increased 16.3% to $570.8 million compared to $490.8 million in YTD 2021. Operating expenses per WSEE per month for YTD 2022 decreased 2.2% to $218 compared to $223 in YTD 2021.

•Salaries of corporate and sales staff for YTD 2022 increased 12.8% to $323.5 million, but decreased $7 on a per WSEE per month basis, compared to YTD 2021 on a 18.9% increase in WSEEs paid per month. This increase was primarily due to a 5.9% increase in corporate headcount, as well as higher incentive compensation accruals in YTD 2022.

•Stock-based compensation expense for YTD 2022 increased 7.9% to $38.8 million, but decreased $1 on a per WSEE per month basis, compared to YTD 2021. The increase was primarily due to awards issued under our restricted stock program.

•Commissions expense for YTD 2022 increased 30.1% to $32.1 million, or $1 per WSEE per month, compared to YTD 2021. The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers, as well as an increase in the amount of sales channel referral fees paid during YTD 2022.

•Advertising expense for YTD 2022 increased 29.4% to $30.8 million, or $1 per WSEE per month, compared to YTD 2021. The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs.

•General and administrative expenses for YTD 2022 increased 25.3% to $115.2 million, or $2 per WSEE per month, compared to YTD 2021. The increase was primarily due to increased travel and event costs.

•Depreciation and amortization expense for YTD 2022 increased 9.6% to $30.4 million, but decreased $1 on a per WSEE per month basis, compared to YTD 2021. 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.

Other Income (Expense)

Other Income (expense) for Q3 2022 was net expense of $1.3 million compared to net expense of $1.7 million in Q3 2021, and for YTD 2022 was net expense of $4.8 million compared to net expense of $3.3 million in YTD 2021.

Income Tax Expense


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021

Effective income tax rate	26.7%	28.0%	27.5%	26.4%

For the nine months ended September 30, 2022, 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


Insperity \| 2022 Third Quarter Form 10-Q			30


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

awards. During the first nine months of 2022 and 2021, we recognized an income tax benefit of $0.2 million and $2.2 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.

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,
	2022						2021						2022						2021
				Per WSEE						Per WSEE						Per WSEE						Per WSEE

Payroll cost	$	8,089,535		$	8,889		$	6,784,378		$	8,781		$	24,662,139		$	9,422		$	20,000,445		$	9,083
Less: Bonus payroll cost	583,703			641			726,187			940			3,236,059			1,236			2,942,817			1,337
Non-bonus payroll cost	$	7,505,832		$	8,248		$	6,058,191		$	7,841		$	21,426,080		$	8,186		$	17,057,628		$	7,746
% Change period over period	23.9		%	5.2		%	18.2		%	6.4		%	25.6		%	5.7		%	12.3		%	6.7		%


Insperity \| 2022 Third Quarter Form 10-Q			31


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

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, 2022		December 31, 2021

Cash, cash equivalents and marketable securities	$	596,636	$	607,603
Less:
Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions	321,930		424,800
Client prepayments	35,794		20,054
Adjusted cash, cash equivalents and marketable securities	$	238,912	$	162,749

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)	2022						2021						2022						2021
				Per WSEE						Per WSEE						Per WSEE						Per WSEE

Net income	$	37,669		$	41		$	27,296		$	35		$	141,152		$	54		$	114,372		$	52
Income tax expense	13,688			15			10,595			14			53,427			20			40,971			19
Interest expense	4,082			4			1,963			3			8,698			3			5,537			3
Amortization of SaaS implementation costs	948			1			—			—			948			—			—			—
Depreciation and amortization	10,083			12			9,917			12			30,367			13			27,715			12
EBITDA	66,470			73			49,771			64			234,592			90			188,595			86
Stock-based compensation	13,341			15			10,362			14			38,818			14			35,965			16

Adjusted EBITDA	$	79,811		$	88		$	60,133		$	78		$	273,410		$	104		$	224,560		$	102
% Change period over period	32.7		%	12.8		%	4.5		%	(6.0)		%	21.8		%	2.0		%	(10.5)		%	(15.0)		%

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)	2022			2021			2022			2021

Net income	$	37,669		$	27,296		$	141,152		$	114,372
Non-GAAP adjustments:
Stock-based compensation	13,341			10,362			38,818			35,965

Total non-GAAP adjustments	13,341			10,362			38,818			35,965
Tax effect	(3,590)			(2,865)			(10,659)			(9,486)
Total non-GAAP adjustments, net	9,751			7,497			28,159			26,479
Adjusted net income	$	47,420		$	34,793		$	169,311		$	140,851
% Change period over period	36.3		%	(1.7)		%	20.2		%	(13.0)		%


Insperity \| 2022 Third Quarter Form 10-Q			32


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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(amounts per share)	2022			2021			2022			2021

Diluted EPS	$	0.98		$	0.70		$	3.66		$	2.94
Non-GAAP adjustments:
Stock-based compensation	0.35			0.27			1.01			0.92

Total non-GAAP adjustments	0.35			0.27			1.01			0.92
Tax effect	(0.10)			(0.08)			(0.29)			(0.24)
Total non-GAAP adjustments, net	0.25			0.19			0.72			0.68
Adjusted EPS	$	1.23		$	0.89		$	4.38		$	3.62
% Change period over period	38.2		%	(2.2)		%	21.0		%	(12.8)		%

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 $596.6 million in cash, cash equivalents and marketable securities at September 30, 2022, of which approximately $321.9 million was payable in early October 2022 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $35.8 million represented client prepayments that were payable in October 2022. At September 30, 2022, we had working capital of $167.8 million compared to $116.3 million at December 31, 2021. 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 2022. 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 uncertainty related to the ongoing impacts of the COVID-19 pandemic.

As of September 30, 2022, 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.

Cash Flows from Operating Activities

Net cash provided by operating activities in the first nine months of 2022 was $122.0 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, 2022, the last business day of the reporting period was a Friday, client prepayments were $35.8 million and employment taxes and other deductions were $321.9 million. In the period ended September 30, 2021, the


Insperity \| 2022 Third Quarter Form 10-Q			33


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

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.

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

•Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. 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, 2022, premiums owed and cash funded to United have exceeded the costs of the United plan, resulting in a $25.2 million surplus, $16.2 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, 2022, were $57.6 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheets.

•Operating results – Our adjusted net income has a significant impact on our operating cash flows. Our adjusted net income increased 20.2% to $169.3 million in the first nine months ended September 30, 2022, compared to $140.9 million in the first nine months ended September 30, 2021. Please read “Results of Operations – First Nine Months 2022 Compared to First Nine Months 2021.”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $19.9 million for the nine months ended September 30, 2022, primarily due to property and equipment purchases of $16.4 million.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $123.4 million for the nine months ended September 30, 2022. We paid $56.9 million in dividends and repurchased or withheld $63.4 million in stock.


Insperity \| 2022 Third Quarter Form 10-Q			34


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, 2022, 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, 2022.

There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Insperity \| 2022 Third Quarter Form 10-Q			35


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, 2021 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, 2022 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)
07/01/2022 – 07/31/2022	—	$	—	—	1,186,545
08/01/2022 – 08/31/2022	5,616	108.77		5,616	1,180,929
09/01/2022 – 09/30/2022	57,819	103.84		57,484	1,123,445
Total	63,435	$	104.28	63,100

____________________________________

(1)During the three months ended September 30, 2022, 335 shares of stock were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock units. 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, 2022, we were authorized to repurchase an additional 1,123,445 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 \| 2022 Third Quarter Form 10-Q			36


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 \| 2022 Third Quarter Form 10-Q			37

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: October 31, 2022	By:	/s/ Douglas S. Sharp
		Douglas S. Sharp
		Executive Vice President of Finance,
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)


Insperity \| 2022 Third Quarter Form 10-Q			38

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