Insperity, Inc. (NYSE:NSP) Q3 2021 Results Conference Call November 1, 2021 5:00 PM ET Company Participants Paul Sarvadi - Chairman and CEO Douglas Sharp - SVP, Finance, CFO and Treasurer Conference Call Participants Andrew Nicholas - William Blair Jeff Martin - Roth Capital Partners Mark Marcon - Baird Tobey Sommer - Truist Securities Josh Vogel - Sidoti & Company Operator Good evening. My name is Catherine, and I will be your conference operator today. I would like to welcome everyone to the Insperity Thi ...

Part I - Financial Information [Financial Statements](index=6&type=section&id=Part%20I%2C%20Item%201.%20Financial%20Statements) This section presents Insperity, Inc.'s unaudited condensed consolidated financial statements for Q3 and 9M 2021, detailing financial position, operations, and cash flows [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.73 billion** as of September 30, 2021, driven by accounts receivable, while liabilities grew and stockholders' equity more than doubled Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$1,734,052** | **$1,584,276** | | Cash and cash equivalents | $467,921 | $554,846 | | Accounts receivable, net | $579,503 | $392,746 | | **Total Liabilities** | **$1,637,046** | **$1,540,144** | | Accrued worksite employee payroll cost | $534,890 | $334,836 | | Long-term debt | $369,400 | $369,400 | | **Total Stockholders' Equity** | **$97,006** | **$44,132** | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) Q3 2021 revenues grew **20.0%** to **$1.21 billion** with net income up **36.4%**, while nine-month net income declined **14.6%** due to higher benefits costs Q3 Performance Comparison (in thousands, except per share) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,209,628 | $1,007,820 | 20.0% | | Gross Profit | $198,479 | $185,033 | 7.3% | | Operating Income | $39,603 | $28,772 | 37.6% | | Net Income | $27,296 | $20,009 | 36.4% | | Diluted EPS | $0.70 | $0.51 | 37.3% | Nine-Month Performance Comparison (in thousands, except per share) | Metric | 9M 2021 | 9M 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $3,681,834 | $3,230,669 | 14.0% | | Gross Profit | $649,478 | $639,304 | 1.6% | | Operating Income | $158,650 | $186,980 | -15.2% | | Net Income | $114,372 | $133,952 | -14.6% | | Diluted EPS | $2.94 | $3.43 | -14.3% | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to **$54.8 million** for 9M 2021, with significant cash usage in investing and financing activities Nine-Month Cash Flow Summary (in thousands) | Activity | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,843 | $106,574 | | Net cash used in investing activities | ($22,416) | ($68,433) | | Net cash used in financing activities | ($95,156) | ($31,436) | | Net (decrease) increase in cash | ($62,729) | $6,705 | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies for health insurance and workers' compensation, revenue recognition, long-term debt, stock repurchases, dividends, and ongoing litigation - The company's primary business is providing PEO HR Outsourcing solutions, including payroll, benefits, workers' compensation, and compliance services[21](index=21&type=chunk) - Health insurance costs are accounted for using a partially self-funded model, with benefits costs for the nine months ended Sep 30, 2021, including a **$4.5 million** increase for changes in estimated run-off related to prior periods[26](index=26&type=chunk)[29](index=29&type=chunk) - For the nine months ended Sep 30, 2021, the company reduced accrued workers' compensation costs by **$31.4 million** due to favorable changes in estimated losses from prior periods[32](index=32&type=chunk) - The company has a **$500 million** revolving credit facility, with **$369.4 million** outstanding as of September 30, 2021[47](index=47&type=chunk) - A federal securities class action lawsuit was filed against the company in July 2020, which management believes is without merit and is vigorously defending[56](index=56&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Part%20I%2C%20Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2021 financial results, highlighting strong WSEE growth, revenue increases, and the impact of rising benefits costs on nine-month profitability and liquidity [Executive Summary](index=23&type=section&id=Executive%20Summary) Q3 2021 saw **11.1%** WSEE growth and **36.4%** net income increase, but 9M net income declined **14.6%** due to a **10.3%** rise in benefits costs per employee Q3 2021 vs Q3 2020 Highlights | Metric | Change | | :--- | :--- | | Average WSEEs paid per month | +11.1% | | Net Income | +36.4% | | Diluted EPS | +37.3% | | Adjusted EPS | -2.2% | | Adjusted EBITDA | +4.5% | Nine Months 2021 vs 2020 Highlights | Metric | Change | | :--- | :--- | | Average WSEEs paid per month | +5.2% | | Net Income | -14.6% | | Diluted EPS | -14.3% | | Adjusted EPS | -12.8% | | Adjusted EBITDA | -10.5% | - Benefits costs per covered employee increased **10.3%** in the first nine months of 2021 compared to the same period in 2020, which saw significantly lower costs due to deferred medical procedures during the pandemic[63](index=63&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q3 2021 revenues grew **20.0%** driven by WSEE growth, but gross profit per WSEE decreased **3.4%** due to higher direct costs, while operating expenses rose modestly - Q3 2021 revenue growth of **20.0%** was driven by an **11.1%** increase in average WSEEs paid and a **7.9%** increase in revenue per WSEE per month[80](index=80&type=chunk)[81](index=81&type=chunk) - Q3 2021 gross profit per WSEE per month decreased by **$9 (3.4%)** to **$257**, primarily due to a **$124** increase in direct costs per WSEE per month, which outpaced the **$115** increase in revenue per WSEE[89](index=89&type=chunk)[91](index=91&type=chunk) - Benefits costs increased by **$27** per WSEE per month in Q3 2021, reflecting increased health plan utilization and COVID-19 related costs[91](index=91&type=chunk)[96](index=96&type=chunk) - Q3 2021 operating expenses increased **1.7%**, with a **98.8%** increase in advertising and a **21.4%** increase in G&A, offset by a **50.3%** decrease in stock-based compensation[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$500.6 million** in cash and **$202.3 million** working capital, utilizing cash for operations, capital expenditures, dividends, and share repurchases - As of September 30, 2021, the company had **$500.6 million** in cash, cash equivalents, and marketable securities, and working capital of **$202.3 million**[121](index=121&type=chunk) - The company has a **$500 million** revolving credit facility with **$370.4 million** in total borrowings and letters of credit outstanding at quarter-end[120](index=120&type=chunk)[122](index=122&type=chunk) - Net cash from operating activities for the first nine months of 2021 was **$54.8 million**[123](index=123&type=chunk) - Cash used in financing activities totaled **$95.2 million** for the first nine months of 2021, consisting of **$50.2 million** in dividends and **$49.8 million** in stock repurchases[125](index=125&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Part%20I%2C%20Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations affecting investments and its **$370.4 million** variable-rate credit facility, managed through diversification - The company is primarily exposed to market risks from interest rate fluctuations affecting its investments and variable-rate debt[127](index=127&type=chunk) - As of September 30, 2021, the company had **$370.4 million** in borrowings and letters of credit outstanding under its variable-rate revolving credit facility[127](index=127&type=chunk) [Controls and Procedures](index=36&type=section&id=Part%20I%2C%20Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during Q3 2021 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2021[130](index=130&type=chunk) - No changes in internal controls over financial reporting occurred during Q3 2021 that materially affected, or are reasonably likely to materially affect, these controls[131](index=131&type=chunk) Part II - Other Information [Legal Proceedings](index=37&type=section&id=Part%20II%2C%20Item%201.%20Legal%20Proceedings) Information on legal proceedings, including an ongoing securities class action lawsuit, is incorporated by reference from Note 8 - Information regarding legal proceedings is incorporated by reference from Note 8 to the Consolidated Financial Statements[132](index=132&type=chunk) [Risk Factors](index=37&type=section&id=Part%20II%2C%20Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the 2020 Annual Report on Form 10-K filing - No material changes have occurred in the company's risk factors since the filing of the 2020 Annual Report on Form 10-K[133](index=133&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Part%20II%2C%20Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Insperity repurchased **106,028** shares at **$105.75** per share in Q3 2021, with **874,828** shares remaining for repurchase under the program Share Repurchases for Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jul 2021 | — | $ — | | Aug 2021 | — | $ — | | Sep 2021 | 106,229 | $105.75 | - As of September 30, 2021, the company was authorized to repurchase an additional **874,828** shares under its existing program[134](index=134&type=chunk) [Exhibits](index=38&type=section&id=Part%20II%2C%20Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Interactive Data Files (XBRL) - Exhibits filed include CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Inline XBRL documents[137](index=137&type=chunk)

Financial Data and Key Metrics Changes - Adjusted earnings per share for Q2 2021 was $0.91, with adjusted EBITDA of $60 million, showing a rebound from pandemic lows [6] - Average number of paid worksite employees increased by 7% year-over-year and 4.3% sequentially from Q1 2021, exceeding forecasts [6] - Client retention rate reached a historical high of 99% in Q2 2021 [6] Business Line Data and Key Metrics Changes - Revenue per worksite employee increased due to a 6% rise in pricing and the non-recurrence of 2020 FICA deferral and customer service fee credits [7] - Gross profit declined by 9% year-over-year due to increased health care utilization and pandemic-related costs [7][8] - Payroll tax area showed favorable gross profit contributions, exceeding budget expectations due to lower-than-anticipated state unemployment tax rates [9][10] Market Data and Key Metrics Changes - The labor market is experiencing wage inflation, with average wages and bonuses up 7% and 44% respectively, leading to increased employee turnover [21] - The competition for qualified candidates is pronounced, impacting hiring dynamics and client retention [21][20] Company Strategy and Development Direction - The company aims to return to double-digit growth in paid worksite employees by Q3 2021, driven by strong sales momentum and client retention [16] - Strategic investments in sales and service capacity are planned, including hiring more business performance advisors and increasing marketing spend [23][24] - The company recognizes a significant market opportunity in the PEO industry, emphasizing the importance of HR functions for business success [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential in the PEO industry, highlighting the increasing recognition of HR's value [25] - There is caution regarding the ongoing pandemic's impact on costs, particularly in health care and unemployment taxes, leading to a wider range in earnings expectations [34][62] - The company plans to monitor labor market conditions closely, as candidate availability may affect hiring rates [20] Other Important Information - The company repurchased 98,000 shares at a cost of $9 million and raised its dividend rate by 12.5%, paying out $17 million in cash dividends [12] - Adjusted EBITDA guidance for Q3 is set between $52 million to $62 million, with adjusted EPS forecasted between $0.74 to $0.93 [35] Q&A Session Summary Question: Update on mid-market sales momentum - Management noted that the mid-market sales pipeline has strengthened and anticipates a good fall season for mid-market sales [39] Question: Guidance on worksite employee growth - Management indicated that the increase in guidance is due to strong hiring and sales performance, with expectations for continued growth despite a tightening labor market [41][42] Question: Pricing strategy and adjustments - Management explained that pricing adjustments are being made in response to market trends and lower unemployment tax rates, which will support sales and retention [44] Question: Client profile changes - Management reported that the average client size has partially recovered post-COVID, with potential for further growth [48] Question: Impact of potential lockdowns on tax rates - Management stated that mid-year changes to unemployment tax rates are highly unusual, and adjustments would likely be considered for 2022 [50][52] Question: Revenue per worksite employee sources - Management clarified that the increase in revenue per worksite employee is attributed to pricing increases and the absence of prior year government stimulus effects [55][56] Question: Client retention efforts - Management highlighted ongoing improvements in client interactions and retention strategies, expressing optimism for the year-end transition [57] Question: Healthcare cost trends - Management noted that healthcare costs have been higher than expected due to various pandemic-related factors, but remain within expected ranges [61][62] Question: Workforce Acceleration contributions - Management indicated that Workforce Acceleration is becoming a more routine part of the sales process, showing potential for future growth [66]

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 June 30, 2021 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File No. 1-13998 Insperity, Inc. (Exact name of registrant as specified in its charter) | Delaware | 76-0479645 | ...

Financial Data and Key Metrics Changes - Adjusted earnings per share for Q1 2021 was $1.82, a 7% increase compared to Q1 2020 [5] - Adjusted EBITDA increased by 3% to $104 million [5] - Gross profit rose by 7% over Q1 2020 despite a 2% decline in worksite employees [10] - Operating expenses increased by 13% over Q1 2020, but were flat when excluding performance-based compensation [15] - The company ended Q1 with $197 million of adjusted cash and $370 million of debt [16] Business Line Data and Key Metrics Changes - The average number of paid worksite employees declined by 2% compared to Q1 2020, primarily due to the loss of one large enterprise account [6] - Client attrition was 9%, an improvement from 11% in Q1 2020, excluding the large account loss [9] - The number of new clients increased by 16% over the same period last year [22] - The average number of worksite employees per client decreased, reflecting pandemic-related downsizing [23] Market Data and Key Metrics Changes - The company reported an 8% increase in the number of clients during the pandemic, although the average size of clients decreased due to layoffs [7] - A client survey indicated that 86% of small and medium-sized business owners were optimistic about their business outlook for the year [32] - 53% of surveyed clients expect to add employees, while only 3% expect to reduce their workforce [32] Company Strategy and Development Direction - The company aims to return to double-digit growth and profitability, with expectations for 5% to 6% growth in Q2 2021 [38] - The WX initiative, a traditional employment HR bundle, has seen a 90% increase in proposals and more than doubled book sales [25] - The company is focusing on increasing awareness of PEO services to enhance market penetration [88] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in growth acceleration due to improved client hiring and retention trends [30] - The company anticipates a strong recovery in the average number of worksite employees per client as optimism among small business owners increases [31] - There is a cautious outlook regarding potential increases in healthcare costs due to pent-up demand for services [80] Other Important Information - The company repurchased 340,000 shares at a cost of $30 million and paid $15 million in cash dividends during Q1 [16] - The retirement of Jay Mincks, Executive Vice President of Sales and Marketing, was announced, marking the end of a 31-year career with the company [39] Q&A Session Summary Question: What are the expectations for net job growth in the existing customer base? - Management believes there is a growth mindset among business owners, indicating potential recovery in employee numbers [47] Question: What changes were made to the traditional employment package? - The package was adjusted to remove less utilized components, making it more appealing to clients [48] Question: How does the company view pricing and healthcare utilization normalization? - Pricing has been adjusted to reflect a normal trend, with healthcare utilization expected to continue normalizing [51][53] Question: What are the hiring plans for BPAs in Q2 and beyond? - The company plans to increase BPA hiring significantly starting in Q3 [61] Question: How is the WX initiative performing across different regions? - The WX initiative has shown momentum, but detailed performance metrics are still being developed [84] Question: What is the competitive environment like in the PEO space? - There is a strong demand for PEO services, and the company aims to increase market penetration through awareness [88]

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, 2021 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File No. 1-13998 Insperity, Inc. (Exact name of registrant as specified in its charter) | Delaware | 76-0479645 ...

Financial Data and Key Metrics Changes - The company reported Q4 adjusted EPS of $0.49 and adjusted EBITDA of $38 million, reflecting outperformance in paid worksite employees compared to expectations [31] - For the full year 2020, adjusted EBITDA increased by 15% to $289 million, and adjusted EPS increased by 12% to $4.64 [36] - The average number of paid worksite employees for the full year 2020 declined by less than 1% [36] Business Line Data and Key Metrics Changes - The company achieved 81% of its pre-COVID budget in booked sales for both the full year and Q4, indicating strong performance despite challenges [10] - The pricing strength was maintained throughout the year, contributing to improved gross profit [11] - The average paid worksite employees in Q4 increased by 3% sequentially over Q3, continuing a recovery trend since the low point in May 2020 [32] Market Data and Key Metrics Changes - The company began the year with 8% more clients than the previous year, although the average account size decreased by about 1.5 worksite employees [28] - Client retention averaged 82%, demonstrating resilience and effective response to client needs [37] Company Strategy and Development Direction - The company aims for consistent double-digit unit and earnings growth, similar to the period from 2015 to 2019, focusing on initiatives to regain growth momentum post-COVID [24] - Investment in technology development, including the implementation of Salesforce, is expected to enhance service delivery and client experience [25][52] - The growth plan for 2021 anticipates a lower starting point in paid worksite employees for Q1, followed by growth acceleration throughout the year [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position for growth acceleration in 2021, drawing parallels to previous successful periods [29] - The company expects a 2% to 6% increase in the average number of paid worksite employees for the full year 2021, with a decline of 1.5% to 2.5% in Q1 compared to pre-pandemic levels [41] - Management highlighted the importance of client interactions, which have increased significantly since the pandemic, contributing to improved retention rates [27] Other Important Information - The company ended 2020 with a solid balance sheet, having invested $98 million in capital expenditures and returned $161 million to shareholders through dividends and share repurchases [40] - The company plans to manage operating costs while investing in targeted initiatives for long-term growth, budgeting for a 4% increase in cash operating costs in 2021 [50] Q&A Session Summary Question: What is the timeline for the Salesforce implementation? - The implementation is expected to span over this year and next, starting with sales and marketing areas [60] Question: Can the client data and analytic insights from Salesforce be packaged and priced? - The insights will enhance service delivery but will not be productized separately; they will be integrated into the client experience [62] Question: How is the pricing for healthcare plans expected to change? - The company anticipates a 6% to 7% increase in healthcare costs, with pricing adjustments made to match cost escalations [66] Question: What is the expected growth rate for the worksite employee base by the end of the year? - The company aims for high single-digit growth rates, potentially reaching double-digit growth if conditions are favorable [71] Question: How is the sales pipeline efficiency evolving post-pandemic? - There has been a significant drop in lead flow, but closing rates have improved, indicating a more serious interest from potential clients [79]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2020 ☐ 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 | | --- ...

Insperity, Inc. (NYSE:NSP) Q3 2020 Earnings Conference Call November 2, 2020 10:00 AM ET Company Participants Douglas Sharp - Senior Vice President Finance, Chief Financial Officer and Treasurer Paul Sarvadi - Chairman and Chief Executive Officer Conference Call Participants Josh Vogel - Sidoti & Company Tobey Sommer - Truist Securities Jeff Martin - Roth Capital Partners Mark Marcon - Baird Operator Good morning. My name is Lera [ph], and I'll be your conference operator today. I would like to welcome ever ...

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, 2020 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 ...