Insperity, Inc. (NYSE:NSP) Q1 2022 Earnings Conference Call April 26, 2022 8:30 AM ET Company Participants Paul Sarvadi - Management Director, Chairman and Chief Executive Officer Douglas Sharp - Senior Vice President, Finance, Chief Financial Officer and Treasurer Conference Call Participants Andrew Nicholas - William Blair Tobey Sommer - Truist Jeff Martin - ROTH Capital Partners Mark Marcon - Baird Operator Good morning. My name is Jane and I will be your conference operator today. I would like to welco ...

| --- | --- | |---------------------------|-------| | | | | | | | | | | | | | Earnings Call and Webcast | | | Q1 2022 April 26, 2022 | | Safe Harbor Statement The statements contained herein that are not historical facts are forward-looking statements within the meaning of the 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," "est ...

| --- | --- | --- | |-----------------------------------|-------|-------| | | | | | | | | | | | | | Earnings Call and Webcast Q4 2021 | | | | February 10, 2022 | | | Safe Harbor Statement The statements contained herein that are not historical facts are forward-looking statements within the meaning of the 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," ...

Financial Data and Key Metrics Changes - The company reported a 12.4% increase in the average number of paid worksite employees in Q4 2021, driven by strong net hiring and improved sales efficiency [6][12] - Adjusted EPS for Q4 was $0.34, while full year 2021 adjusted EBITDA was $255 million and adjusted EPS was $3.95 [12][13] - Operating expenses in Q4 increased by 8% due to higher headcount and sales commission costs, while full year operating expenses increased by just 6% on a 7% growth in worksite employees [11][14] Business Line Data and Key Metrics Changes - Gross profit per worksite employee per month averaged $273 in 2021, slightly exceeding budget expectations despite a decline from 2020 [14] - The company experienced a 39% increase in new sales booked during the fall campaign compared to the previous year, indicating strong demand for services [23] - Workforce optimization and workforce acceleration book sales increased by 24% and 111%, respectively, over 2020, reflecting significant sales momentum [28] Market Data and Key Metrics Changes - Client retention remained high at 82%, despite the loss of a large enterprise account at the beginning of the year [13] - The company noted that service interactions continued at nearly three times pre-COVID levels, indicating increased client engagement [19] Company Strategy and Development Direction - The company launched a new five-year plan aimed at capitalizing on the increased demand for sophisticated HR services post-pandemic [31][32] - Key initiatives for 2022 include increasing sales efficiency, delivering premium service levels, and developing competitive HR technology [37][39] - The renewal of the United Health Care Group policy through 2026 is expected to provide service level improvements and cost reductions [30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of new COVID variants on healthcare costs, which rose from 4% of total claims in prior quarters to 7% in Q4 [8][22] - The company expects an 18% to 19% increase in paid worksite employees in Q1 2022, with a full year expectation of mid-teens growth [36][42] - Despite short-term challenges, management remains optimistic about long-term growth potential and profitability [40][41] Other Important Information - The company invested $33 million in capital expenditures during the year and returned $214 million to shareholders through dividends and share repurchase programs [15] - Adjusted cash at year-end was $163 million, with $130 million available under a $500 million credit facility [15] Q&A Session Summary Question: What drove the higher COVID costs in Q4 compared to previous quarters? - Management indicated that the spike in Q4 was primarily due to new variants, including Delta and Omicron, which led to increased treatment, vaccination, and testing costs [62][63] Question: How does the company view the healthcare cost trend for 2022? - Management stated that they are not considering the Q4 spike as a bubble and have budgeted for a continued trend based on elevated costs from 2021 [63][68] Question: Will the company provide financial metrics for the five-year plan? - Management has not provided specific long-term financial metrics but aims for double-digit unit growth and improved gross profitability [78][80]

[FORM 10-K Filing Information](index=1&type=section&id=FORM%2010-K%20Filing%20Information) [Registrant Information](index=1&type=section&id=Registrant%20Information) Insperity, Inc. filed its 2021 Form 10-K, is incorporated in Delaware, and trades on the NYSE under 'NSP' - Insperity, Inc. filed its Annual Report on Form 10-K for the fiscal year ended **December 31, 2021**[2](index=2&type=chunk) - The company is incorporated in Delaware and its common stock trades on the New York Stock Exchange under the symbol **'NSP'**[3](index=3&type=chunk)[4](index=4&type=chunk) [Filer Status and Market Value](index=1&type=section&id=Filer%20Status%20and%20Market%20Value) Insperity is a Large Accelerated Filer with a non-affiliate common stock market value of approximately **$3.3 billion** as of June 30, 2021 - Insperity, Inc. is classified as a **Large Accelerated Filer** and a well-known seasoned issuer[4](index=4&type=chunk)[5](index=5&type=chunk) - As of **February 3, 2022**, **38,336,850** shares of common stock were outstanding[7](index=7&type=chunk) Aggregate Market Value of Common Stock Held by Non-Affiliates | Date | Market Value (approx.) | | :--- | :--- | | June 30, 2021 | $3.3 billion | [Documents Incorporated by Reference](index=2&type=section&id=Documents%20Incorporated%20by%20Reference) Part III information is incorporated by reference from the 2022 annual meeting proxy statement, to be filed within 120 days of fiscal year-end - Part III information is incorporated by reference from the proxy statement for the **2022 annual meeting of stockholders**, to be filed within **120 days** of the fiscal year-end[8](index=8&type=chunk) [Part I](index=4&type=section&id=Part%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Insperity provides comprehensive HR and business solutions, including PEO services, to small and medium-sized businesses, serving **268,978 WSEEs** monthly in Q4 2021 - Insperity provides comprehensive HR and business solutions, evolving from a PEO pioneer to a full-service provider since **1986**[12](index=12&type=chunk) - The most comprehensive HR services are offered through **Workforce Optimization** and **Workforce Synchronization** solutions, covering payroll, benefits, workers' compensation, and compliance[13](index=13&type=chunk) Worksite Employees (WSEEs) and Office Locations (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Average WSEEs per month (Q4 2021) | 268,978 | | Physical office locations | 68 | | Sales markets | 40 | [General Business Overview](index=4&type=section&id=General%20Business%20Overview) Insperity offers comprehensive HR outsourcing solutions, Workforce Optimization and Workforce Synchronization, and other business performance services, acting as a co-employer to manage administrative burdens for clients - Insperity's long-term strategy is to provide specialized HR services to small and medium-sized businesses in the U.S., leveraging its buying power and expertise[13](index=13&type=chunk) - The company's most comprehensive HR services are **Workforce Optimization** and **Workforce Synchronization** (PEO HR Outsourcing solutions), including payroll, benefits, workers' compensation, government compliance, performance management, and training[13](index=13&type=chunk) - Insperity also offers **Workforce Acceleration** (traditional payroll and HCM) and other business performance solutions like Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services, and Insurance Services[13](index=13&type=chunk) [PEO Industry Context](index=5&type=section&id=PEO%20Industry%20Context) The PEO industry helps small and medium-sized employers manage complex regulations and achieve economies of scale for HR and benefits - The PEO industry evolved in the early **1980s** due to increasing legal and regulatory burdens on small and medium-sized employers[18](index=18&type=chunk) - Key demand drivers for PEO services include: focus on growth/productivity, need for competitive health care/benefits, increasing costs of health/workers' compensation insurance, complex payroll/employment regulation, and significant costs of HR technology infrastructure[19](index=19&type=chunk) - **42 states** have enacted legislation recognizing PEOs or requiring licensing/registration/certification, and Insperity actively supports these regulatory efforts[20](index=20&type=chunk) - The Small Business Efficiency Act (SBEA) created a federal regulatory framework for Certified PEOs (CPEOs), clarifying their role in federal payroll tax reporting and remittance; Insperity PEO Services, L.P. is a **CPEO**[21](index=21&type=chunk) [Service Offerings Details](index=6&type=section&id=Service%20Offerings%20Details) Insperity's PEO HR Outsourcing solutions provide extensive services, including payroll, benefits, and compliance, supported by the cloud-based Insperity Premier platform, alongside standalone HR solutions - PEO HR Outsourcing solutions include payroll/benefits administration, health/workers' compensation programs, employer liability management, government compliance assistance, general HR advice, and access to **Insperity Premier**[22](index=22&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - **Workforce Optimization** adds 401(k) retirement plans, employee recruiting/support, performance management, and training/development services[22](index=22&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - **Insperity Premier** is a cloud-based human capital management platform providing role-based access for managers, owners, and WSEEs to manage payroll, benefits, HR information, and analytics[22](index=22&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) - Other product and service offerings include **Workforce Acceleration** (comprehensive traditional payroll and HCM), Performance Management, Recruiting Services, and Insurance Services, with revenues from these offerings representing **0.9%** of total revenues in both 2021 and 2020[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) [Client Service Agreement and Responsibilities](index=10&type=section&id=Client%20Service%20Agreement%20and%20Responsibilities) The Client Service Agreement (CSA) establishes a co-employment relationship, assigning Insperity responsibility for personnel administration and compliance, while clients retain daily supervisory control - All PEO HR Outsourcing solutions clients execute a Client Service Agreement (CSA) establishing a co-employment relationship with Insperity[44](index=44&type=chunk)[46](index=46&type=chunk) - Insperity's responsibilities include payment of wages/salaries and related taxes, workers' compensation compliance, and employee benefits administration[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - Client responsibilities include product/service provision, OSHA/EPA/FLSA/FMLA/WARN/USERRA compliance, and professional licensing[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - Concurrent responsibilities include implementation of employee policies, internal compliance with employment laws (e.g., Title VII, ADEA, ADA), and COBRA/HIPAA/PPACA/Code/ERISA compliance for client-sponsored plans[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - CSAs generally establish pricing for one year (two years for middle market clients) and are terminable with **30 days' written notice** (or a termination fee for middle market clients)[45](index=45&type=chunk) [PEO HR Outsourcing Solutions Clients](index=12&type=section&id=PEO%20HR%20Outsourcing%20Solutions%20Clients) Insperity targets small to medium-sized businesses, conducting risk analysis for client selection, and achieved an **82%** client retention rate in 2021 - Insperity targets small and medium-sized businesses with approximately **10 to 5,000** employees, aiming to serve **10%** of the overall market[54](index=54&type=chunk) - All prospective clients undergo a comprehensive employer-related risk analysis, minimizing offerings to high-risk industries[56](index=56&type=chunk) Client Retention Rate | Year | Retention Rate | | :--- | :--- | | 2021 | 82% | | 2020 | 82% | | Last 5-year average | 85% | [Marketing and Sales Strategy](index=14&type=section&id=Marketing%20and%20Sales%20Strategy) Insperity operates **85 sales offices** in **40 markets**, employing diverse marketing and sales strategies, including a proprietary pricing model and cross-selling initiatives Sales Office and Personnel (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Sales offices | 85 | | Sales markets | 40 | - Marketing efforts include national and local advertising, digital marketing, and public relations, with the **Insperity Invitational** golf tournament and **Jim Nantz** as key brand marketing focal points[63](index=63&type=chunk)[64](index=64&type=chunk) - The organic growth model generates sales leads from direct sales, digital/traditional advertising, third-party channels, referrals, and marketing alliances, utilizing a proprietary pricing model and comprehensive employer risk analysis[64](index=64&type=chunk) [Competitive Landscape](index=15&type=section&id=Competitive%20Landscape) Insperity competes in the fragmented PEO industry based on service quality, scope, benefits, reputation, and price, with a full-service approach yielding higher gross profit and operating income per WSEE than industry averages - Competition in the PEO industry centers on quality and scope of services, benefits packages, reputation, and price[67](index=67&type=chunk) - Insperity's full-service approach resulted in a staff support ratio **52% higher** than the PEO industry average from 2018-2020[66](index=66&type=chunk)[68](index=68&type=chunk) - During the same period, gross profit per WSEE and operating income per WSEE exceeded industry averages by **149%** and **239%**, respectively[66](index=66&type=chunk)[68](index=68&type=chunk) - Primary competitors include traditional in-house HR, large national PEOs (Automatic Data Processing, Inc., Paychex, Inc., TriNet Group, Inc.), fee-for-service providers, and HR technology solution companies[66](index=66&type=chunk)[68](index=68&type=chunk) [Vendor Relationships](index=16&type=section&id=Vendor%20Relationships) Insperity's key vendor relationships are with UnitedHealthcare for health insurance and Chubb Group for workers' compensation, with contracts extending through 2026 and 2024, respectively - UnitedHealthcare and Chubb Group of Insurance Companies are Insperity's most significant employee benefits vendors[69](index=69&type=chunk) - UnitedHealthcare provides approximately **87%** of health insurance coverage, with the contract expiring **December 31, 2026**[70](index=70&type=chunk) - The Chubb Program for workers' compensation, a fully insured program with financial responsibility for claims up to certain levels, expires **September 30, 2022**, with terms committed through **September 30, 2024**[70](index=70&type=chunk) [Information Technology Infrastructure](index=16&type=section&id=Information%20Technology%20Infrastructure) Insperity's PEO HR Outsourcing solutions rely on a proprietary mix of internally developed and licensed software, including Insperity Premier, hosted in two leased facilities with robust security and business continuity plans - Insperity's PEO HR Outsourcing solutions utilize a proprietary mix of internally developed and licensed software, including **Insperity Premier**, for managing WSEE enrollment, HR, benefits, payroll, and client invoicing[72](index=72&type=chunk)[74](index=74&type=chunk) - The company has two leased hosting facilities, with the primary one capable of running all critical business applications independently, supported by an active **Business Continuity Plan**[75](index=75&type=chunk) - Security measures include industry-standard technologies, best practice policies, annual employee training, SOC-1 reports, and access controls to protect data and privacy[77](index=77&type=chunk) [Industry Regulations and Compliance](index=17&type=section&id=Industry%20Regulations%20and%20Compliance) Insperity's PEO HR Outsourcing solutions are subject to extensive federal, state, and local laws, with the company acting as a Certified PEO (CPEO) and plan sponsor for employee benefits - Insperity's operations are affected by numerous federal, state, and local laws related to tax, insurance, and employment, with the company assuming certain employer obligations as a co-employer[78](index=78&type=chunk) - Insperity PEO Services, L.P. is a **Certified PEO (CPEO)** under the SBEA, clarifying its responsibility for federal payroll taxes[78](index=78&type=chunk)[83](index=83&type=chunk) - Employee benefit plans (group health, 401(k), cafeteria plans, etc.) are offered to WSEEs and are subject to ERISA and the Code, with Insperity acting as plan sponsor[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[87](index=87&type=chunk) - Insperity assumes responsibility for federal and state employment taxes (income tax withholding, FICA, FUTA) for WSEEs[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[87](index=87&type=chunk) - State unemployment insurance (SUI) tax expense is based on taxable wages and state-assigned rates, which can vary based on compensation experience and state fund deficiencies[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[87](index=87&type=chunk) [Human Capital and Intellectual Property](index=19&type=section&id=Human%20Capital%20and%20Intellectual%20Property) Insperity focuses on attracting and retaining skilled corporate employees, with approximately **3,600** corporate employees and **650** Business Performance Advisors as of 2021, and holds important intellectual property - Insperity's human capital management objective is to attract, develop, and retain qualified corporate employees to support growth, client service, and technology investments[89](index=89&type=chunk) Corporate Employees and Business Performance Advisors (BPAs) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Corporate employees (as of Dec 31) | ~3,600 | N/A | | Average BPAs | 650 | 645 | | Average trained BPAs | 596 | 590 | - The company offers competitive compensation, 401(k), employee stock purchase programs, leadership development, and flexible remote working arrangements[91](index=91&type=chunk) - Insperity holds registered trademarks, copyrights, and other intellectual property, which are considered of considerable importance to its business[93](index=93&type=chunk) [Item 1A. Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) Insperity faces risks from adverse economic conditions, PEO-specific liabilities for WSEE payroll and benefits, rising healthcare costs, technology disruptions, cybersecurity threats, and challenges in integrating acquisitions - Adverse economic conditions, including the COVID-19 pandemic, can negatively affect demand for HR services, employment levels, and client ability to pay, impacting financial results[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[103](index=103&type=chunk) - Insperity assumes liability for WSEE payroll, payroll taxes, benefits, and workers' compensation costs, regardless of client payment, posing a significant financial risk[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - Increases in health insurance and workers' compensation costs, or inability to secure competitive coverage, could materially adversely affect the business[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - A determination that Insperity is not the employer of its WSEEs could jeopardize favorable tax treatment and ERISA compliance for benefit plans[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - Technology risks include the need to constantly enhance service/technology offerings, potential disruptions to IT systems, data theft/cyberattacks, and compliance with evolving privacy and data protection laws (e.g., CCPA)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Economic Risks](index=21&type=section&id=Economic%20Risks) Insperity's business is vulnerable to economic downturns, the COVID-19 pandemic's impact on employment and benefits, labor shortages, inflation, and regional economic factors, with credit facility covenants potentially restricting activities - Adverse economic conditions or difficulty obtaining credit can negatively impact demand for outsourced HR services, leading to reduced employment, compensation, and benefits levels, and increased client payment difficulties[96](index=96&type=chunk) - The COVID-19 pandemic caused a **1.8%** year-over-year decline in average paid WSEEs in Q2 2020, though 2021 saw a **7.1%** increase to **250,745** WSEEs[99](index=99&type=chunk)[101](index=101&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Health insurance costs experienced a **9.8%** increase per covered employee in 2021 due to variable claim patterns and COVID-19 related costs, following lower utilization in 2020[99](index=99&type=chunk)[101](index=101&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Labor shortages and inflation could increase labor costs and reduce profitability, as client agreements generally fix pricing for a period[99](index=99&type=chunk)[101](index=101&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Geographic market concentration in New York (**10%**), California (**16%**), and Texas (**18%**) makes results vulnerable to regional economic, statutory, and regulatory factors[109](index=109&type=chunk) [PEO HR Outsourcing Solutions Risks](index=24&type=section&id=PEO%20HR%20Outsourcing%20Solutions%20Risks) Insperity faces significant financial liability for WSEE payroll and benefits, regardless of client payment, along with risks from rising insurance costs, adverse employer status determinations, and short-term contract cancellations - Insperity assumes liability for WSEE payroll, payroll taxes, benefits, and workers' compensation costs, and is responsible for their payment even if client fees are insufficient[114](index=114&type=chunk)[115](index=115&type=chunk) - Increases in health insurance costs (e.g., due to unexpected claims or inaccurate forecasts) or inability to secure replacement coverage could materially affect the business[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - Workers' compensation costs are a significant direct cost, and unexpected increases in claims or inaccurate forecasts could adversely impact results[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - A determination that Insperity is not the 'employer' of WSEEs for ERISA or tax purposes could lead to non-compliance, loss of preemption, and inability to offer current benefit plans[116](index=116&type=chunk)[117](index=117&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - Standard CSAs can generally be canceled with **30 days' notice**, making Insperity vulnerable to client cancellations, especially from large middle market clients (**23.8%** of WSEEs in 2021)[132](index=132&type=chunk) [Technology Risks](index=29&type=section&id=Technology%20Risks) Insperity faces technology risks from the need for continuous system enhancements, potential IT infrastructure disruptions, cybersecurity threats, and compliance with evolving data privacy laws - Evolving regulations and client expectations necessitate constant enhancement and expansion of Insperity's service and technology offerings, requiring substantial resource investment[145](index=145&type=chunk)[146](index=146&type=chunk) - Disruptions to IT systems (e.g., network outages, system upgrades, data processing failures) could prevent timely transaction processing, leading to client loss, regulatory penalties, or financial losses[147](index=147&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Handling large amounts of sensitive personal and business information exposes Insperity to risks of data theft, cyberattacks, and security vulnerabilities, which could result in disclosure/misuse of information, liability, or reputational harm[147](index=147&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Failure to comply with privacy, data protection, and cybersecurity laws (e.g., CCPA) could lead to fines, regulatory penalties, and significant liabilities[147](index=147&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Reliance on third-party providers (financial institutions, data centers, cloud-service providers) for critical operations exposes Insperity to risks of communication failures, interruptions, and non-compliance, impacting client retention and reputation[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) [Other Operational Risks](index=31&type=section&id=Other%20Operational%20Risks) Insperity's strategy of marketing additional products and services, including through acquisitions, carries risks such as over-valuation, integration challenges, and potential litigation - Acquiring new businesses involves risks such as over-valuation, entering new markets without prior experience, integration challenges, diversion of management's attention, and potential litigation[155](index=155&type=chunk) - Failure to integrate or realize the expected return on acquisitions and investments could have a material adverse impact on financial condition or results of operations, potentially requiring impairment charges[155](index=155&type=chunk) [Item 1B. Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[156](index=156&type=chunk) [Item 2. Properties](index=33&type=section&id=Item%202.%20Properties) Insperity's corporate headquarters is a **33-acre** campus in Kingwood, Texas, complemented by two leased hosting facilities, four regional service centers, and **69** leased sales and service offices nationwide - Insperity's corporate headquarters is a **33-acre** company-owned campus in Kingwood, Texas, with **700,000 square feet** of office space and undeveloped land for future expansion[159](index=159&type=chunk) - Two leased hosting facilities in Bryan, Texas (lease until 2024) and The Woodlands, Texas (lease until 2022) total approximately **2,000 square feet**[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Four regional service centers are located in Atlanta (servicing ~35% of WSEE base), Dallas (~24% of WSEE base), Houston (~20% of WSEE base), and Los Angeles (~21% of WSEE base)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - As of **December 31, 2021**, there were **69** leased sales and service facilities in **40** sales markets across the United States, housing **85** sales offices[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) [Item 3. Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20Proceedings) Insperity is defending a federal securities class action lawsuit filed in July 2020, alleging materially false statements, which the company believes is without merit, and is also involved in other routine litigation - A federal securities class action lawsuit was filed against Insperity and certain officers in **July 2020**, alleging materially false and misleading statements[411](index=411&type=chunk) - Insperity believes the allegations are without merit and intends to vigorously defend the litigation; no provision has been made in the financial statements due to outcome uncertainty[412](index=412&type=chunk) - The company is also a defendant in various other routine lawsuits and claims, which management believes will not have a material adverse effect on financial condition or results of operations[413](index=413&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Insperity, Inc - Mine Safety Disclosures are not applicable to Insperity, Inc[168](index=168&type=chunk) [Item S-K 401(b). Executive Officers of the Registrant](index=36&type=section&id=Item%20S-K%20401(b).%20Executive%20Officers%20of%20the%20Registrant) This section lists Insperity's executive officers as of February 3, 2022, including Paul J. Sarvadi (Chairman and CEO) and A. Steve Arizpe (President and COO), highlighting their extensive experience Insperity, Inc. Executive Officers (as of Feb 3, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Paul J. Sarvadi | 65 | Chairman of the Board and Chief Executive Officer | | A. Steve Arizpe | 64 | President and Chief Operating Officer | | Douglas S. Sharp | 60 | Senior Vice President of Finance, Chief Financial Officer and Treasurer | | Daniel D. Herink | 55 | Senior Vice President of Legal, General Counsel and Secretary | | James D. Allison | 53 | Senior Vice President of Gross Profit Operations | - Executive officers have extensive experience, with **Paul J. Sarvadi** co-founding Insperity in **1986** and **A. Steve Arizpe** joining in **1989**[170](index=170&type=chunk) [Part II](index=37&type=section&id=Part%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Insperity's common stock trades on the NYSE under 'NSP', with **422** holders of record, and the company paid **$144.2 million** in dividends in 2021, including a **$76.7 million** special cash dividend - Insperity's common stock is traded on the New York Stock Exchange under the symbol **'NSP'**; as of **February 3, 2022**, there were **422** holders of record[175](index=175&type=chunk) Dividends Paid | Year | Total Dividends Paid | | :--- | :--- | | 2021 | $144.2 million (includes $76.7 million special dividend) | | 2020 | $61.9 million | Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased under Program | Maximum Shares Remaining under Program | | :--- | :--- | :--- | :--- | :--- | | 10/01/2021 – 10/31/2021 | 257 | $115.66 | — | 874,828 | | 11/01/2021 – 11/30/2021 | 71,200 | $117.60 | 71,200 | 1,803,628 | | 12/01/2021 – 12/31/2021 | 100,049 | $115.45 | 100,000 | 1,703,628 | | **Total** | **171,506** | **$116.34** | **171,200** | **1,703,628** | 5-Year Cumulative Total Return (Indexed to $100 on 12/31/16) | Index | 12/16 | 12/17 | 12/18 | 12/19 | 12/20 | 12/21 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Insperity, Inc. | 100.00 | 169.61 | 278.56 | 259.80 | 251.71 | 384.69 | | S&P Smallcap 600 | 100.00 | 113.23 | 103.63 | 127.24 | 141.60 | 179.58 | | S&P Midcap 400 | 100.00 | 116.24 | 103.36 | 130.44 | 148.26 | 184.96 | | S&P 1500 Composite Human Resource and Employment Services | 100.00 | 133.83 | 118.16 | 139.60 | 140.55 | 211.68 | [Item 6. [Reserved]](index=38&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Insperity's 2021 revenues grew **16.0% to $5.0 billion**, but net income and diluted EPS decreased **10.2%**, while liquidity remained strong with **$607.6 million** in cash and equivalents Key Financial and Statistical Information (2021 vs 2020) | Metric | 2021 | 2020 | % Change (YoY) | | :--- | :--- | :--- | :--- | | Revenues (in thousands) | $4,973,070 | $4,287,004 | 16.0% | | Gross profit (in thousands) | $820,102 | $806,854 | 1.6% | | Operating expenses (in thousands) | $646,773 | $612,165 | 5.7% | | Operating income (in thousands) | $173,329 | $194,689 | (11.0)% | | Net income (in thousands) | $124,080 | $138,237 | (10.2)% | | Diluted EPS | $3.18 | $3.54 | (10.2)% | | Adjusted EBITDA (in thousands) | $254,946 | $288,620 | (11.7)% | | Average WSEEs paid | 250,745 | 234,223 | 7.1% | | Revenues per WSEE per month | $1,653 | $1,525 | 8.4% | | Gross profit per WSEE per month | $273 | $287 | (4.9)% | | Operating expenses per WSEE per month | $215 | $218 | (1.4)% | | Adjusted EBITDA per WSEE per month | $85 | $103 | (17.5)% | - Revenues increased **16.0%** in 2021, driven by a **7.1%** increase in average WSEEs and an **8.4%** increase in revenue per WSEE per month, partly due to higher pricing and the non-recurrence of 2020 FICA deferral credits[190](index=190&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Liquidity is strong with **$607.6 million** in cash, cash equivalents, and marketable securities at **December 31, 2021**, and a **$500 million** revolving credit facility available for working capital and corporate purposes[190](index=190&type=chunk)[257](index=257&type=chunk) [Executive Summary](index=39&type=section&id=Executive%20Summary) Insperity's long-term strategy focuses on specialized HR services for small and medium-sized businesses, with average WSEEs increasing **7.1%** in 2021, despite a **9.8%** rise in benefits costs per covered employee - Insperity's long-term strategy is to provide specialized HR services to small and medium-sized businesses, leveraging its buying power and expertise[183](index=183&type=chunk) - Average WSEEs paid per month increased **7.1%** year-over-year in 2021 to **250,745**[185](index=185&type=chunk)[186](index=186&type=chunk) - Benefits costs per covered employee increased **9.8%** in 2021 compared to 2020, reflecting variable claim incurral patterns and incremental COVID-19 testing, vaccination, and treatment costs[185](index=185&type=chunk)[186](index=186&type=chunk) - The company expects average paid WSEEs per month to increase between **18.0%** and **19.0%** in Q1 2022 compared to Q1 2021[185](index=185&type=chunk)[186](index=186&type=chunk) [Revenues](index=41&type=section&id=Revenues) Insperity recognizes revenues from PEO HR Outsourcing solutions as the markup component of gross billings, excluding WSEE payroll costs, recognized ratably and driven by client and WSEE numbers - Revenues are accounted for in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)[192](index=192&type=chunk) - Revenues exclude the payroll cost component of gross billings and consist solely of the markup, recognized ratably over the payroll period as WSEEs perform services[192](index=192&type=chunk) - Revenue drivers include the number of enrolled clients, WSEEs paid, WSEEs in benefit plans, and WSEE payroll costs (influenced by composition, wage inflation, and local economies)[193](index=193&type=chunk) [Direct Costs](index=41&type=section&id=Direct%20Costs) Direct costs for Insperity's PEO HR Outsourcing solutions primarily include employment-related taxes, employee benefits, and workers' compensation, significantly impacting gross profit - Primary direct costs include employment-related taxes (payroll taxes), costs of employee benefit plans, and workers' compensation costs[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Payroll taxes consist of employer portions of Social Security, Medicare, federal unemployment, and state unemployment taxes[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Employee benefits costs primarily comprise health insurance premiums and claims, along with other benefits like life, vision, and disability insurance[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) [Gross Profit](index=41&type=section&id=Gross%20Profit) Gross profit per WSEE is a key performance metric, determined by Insperity's ability to accurately estimate and control direct costs and effectively incorporate them into annually renewed client gross billings - Gross profit per WSEE is the principal measurement of relative performance at the gross profit level[197](index=197&type=chunk) - It is primarily determined by the ability to accurately estimate and control direct costs and incorporate these changes into annually renewed gross billings[197](index=197&type=chunk) [Operating Expenses](index=41&type=section&id=Operating%20Expenses) Operating expenses encompass corporate employee salaries, stock-based compensation, sales commissions, advertising, general and administrative costs, and depreciation, influenced by headcount, incentives, and capital investments - Salaries, wages, and payroll taxes are driven by the number of corporate employees, average pay, and cash incentive compensation[198](index=198&type=chunk)[203](index=203&type=chunk) - Stock-based compensation relates to non-cash expense recognition for time-vested and performance-based awards[198](index=198&type=chunk)[203](index=203&type=chunk) - Commissions are based on new accounts sold and a percentage of revenue generated by sales personnel[198](index=198&type=chunk)[203](index=203&type=chunk) - Advertising includes media advertising, business promotions, and sponsorships (e.g., Insperity Invitational)[198](index=198&type=chunk)[203](index=203&type=chunk) - General and administrative expenses cover rent, professional services, administrative costs, travel, training, and technology/facility costs[198](index=198&type=chunk)[203](index=203&type=chunk) - Depreciation and amortization are a function of capital investments in facilities, software development, and technology infrastructure[198](index=198&type=chunk)[203](index=203&type=chunk) [Other Income (Expense)](index=42&type=section&id=Other%20Income%20(Expense)) Other income (expense) primarily consists of interest charges from credit facility borrowings and interest income from cash, cash equivalents, and marketable securities, influenced by interest rates and debt balances - Other income (expense) includes interest charges from credit facility borrowings and interest income from cash, cash equivalents, marketable securities, restricted cash, and deposits[200](index=200&type=chunk) [Income Taxes](index=42&type=section&id=Income%20Taxes) Insperity's income tax provision deviates from the U.S. statutory rate due to state taxes, non-deductible expenses, and equity awards, with deferred taxes reflecting temporary differences between financial and tax reporting - The provision for income taxes differs from the U.S. statutory rate of **21%** due to state income taxes, non-deductible expenses, vesting of equity awards, and various tax credits[201](index=201&type=chunk) - Deferred income taxes reflect net tax effects of temporary differences between financial reporting and income tax carrying amounts of assets and liabilities[201](index=201&type=chunk) [Critical Accounting Policies and Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Insperity's financial statements rely on critical accounting policies and estimates, particularly for health and workers' compensation costs, which involve significant judgment in estimating incurred claims and future trends - Critical accounting policies and estimates include health and workers' compensation insurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities[202](index=202&type=chunk) - Benefits costs for the UnitedHealthcare plan are accounted for using a partially self-funded model, with estimated incurred claims based on processed claims, estimated completion rates, and participant numbers, requiring significant judgment[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) - Workers' compensation costs involve estimates for incurred claims, which are recorded in the period incurred and discounted to present value, based on loss development rates and future cost trends[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) - Allowance for doubtful accounts is maintained for estimated losses from client non-payment, mitigated by tight credit policies and the right to terminate CSAs or require collateral[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk)[216](index=216&type=chunk) [New Accounting Pronouncements](index=45&type=section&id=New%20Accounting%20Pronouncements) Insperity has implemented all material accounting pronouncements and does not anticipate new or pending pronouncements to materially affect its financial position or results - Insperity has implemented accounting pronouncements with a material impact and does not believe new or pending pronouncements will materially affect its financial position or results of operations[215](index=215&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) In 2021, revenues increased **16.0% to $5.0 billion**, but gross profit per WSEE declined **4.9%** due to higher benefits costs, leading to a **10.2%** decrease in net income and diluted EPS Key Financial and Statistical Information (2021 vs 2020 vs 2019) | Metric | 2021 | 2020 | 2019 | % Change (2021 v 2020) | % Change (2020 v 2019) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues (in thousands) | $4,973,070 | $4,287,004 | $4,314,804 | 16.0% | (0.6)% | | Gross profit (in thousands) | $820,102 | $806,854 | $732,934 | 1.6% | 10.1% | | Operating expenses (in thousands) | $646,773 | $612,165 | $546,301 | 5.7% | 12.1% | | Operating income (in thousands) | $173,329 | $194,689 | $186,633 | (11.0)% | 4.3% | | Net income (in thousands) | $124,080 | $138,237 | $151,099 | (10.2)% | (8.5)% | | Diluted EPS | $3.18 | $3.54 | $3.70 | (10.2)% | (4.3)% | | Average WSEEs paid | 250,745 | 234,223 | 235,547 | 7.1% | (0.6)% | | Revenues per WSEE per month | $1,653 | $1,525 | $1,527 | 8.4% | (0.1)% | | Gross profit per WSEE per month | $273 | $287 | $259 | (4.9)% | 10.8% | | Operating expenses per WSEE per month | $215 | $218 | $193 | (1.4)% | 13.0% | | Adjusted EBITDA per WSEE per month | $85 | $103 | $88 | (17.5)% | 17.0% | - 2021 Revenues increased **16.0% to $5.0 billion**, driven by a **7.1%** increase in average WSEEs and an **8.4%** increase in revenue per WSEE per month (due to higher pricing and non-recurrence of 2020 FICA deferral credits)[219](index=219&type=chunk)[220](index=220&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[246](index=246&type=chunk) - 2021 Gross profit increased **1.6% to $820.1 million**, but gross profit per WSEE per month declined **4.9% to $273**, primarily due to a **9.8%** increase in benefits costs per covered employee[219](index=219&type=chunk)[220](index=220&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[246](index=246&type=chunk) - 2021 Operating expenses increased **5.7% to $646.8 million**, mainly from higher salaries and advertising, but decreased **1.4%** on a per WSEE per month basis; stock-based compensation decreased **32.5%**[219](index=219&type=chunk)[220](index=220&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[246](index=246&type=chunk) - Net income and diluted EPS both decreased **10.2%** in 2021 to **$124.1 million** and **$3.18**, respectively; the effective income tax rate was **26.3%** in 2021[190](index=190&type=chunk)[217](index=217&type=chunk)[250](index=250&type=chunk) [Non-GAAP Financial Measures](index=55&type=section&id=Non-GAAP%20Financial%20Measures) Insperity provides non-GAAP financial measures like Adjusted EBITDA and Adjusted EPS to enhance transparency into underlying business performance, excluding items such as bonus payrolls and stock-based compensation - Non-GAAP financial measures (non-bonus payroll cost, adjusted cash, EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS) are used to provide greater transparency and reflect the fundamentals of the underlying business model[252](index=252&type=chunk)[253](index=253&type=chunk) Reconciliation of Net Income (GAAP) to Adjusted EBITDA (Non-GAAP) | Metric (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net income | $124,080 | $138,237 | $151,099 | | Income tax expense | 44,238 | 51,033 | 38,544 | | Interest expense | 7,458 | 8,016 | 7,647 | | Depreciation and amortization | 38,547 | 31,189 | 28,723 | | **EBITDA** | **$214,323** | **$228,475** | **$226,013** | | Stock-based compensation | 40,623 | 60,145 | 23,993 | | **Adjusted EBITDA** | **$254,946** | **$288,620** | **$250,006** | Reconciliation of Diluted EPS (GAAP) to Adjusted EPS (Non-GAAP) | Metric (per share) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Diluted EPS | $3.18 | $3.54 | $3.70 | | Non-GAAP adjustments: | | | | | Stock-based compensation | 1.04 | 1.54 | 0.59 | | Tax effect of non-GAAP adjustments | (0.27) | (0.44) | (0.14) | | Total non-GAAP adjustments, net | 0.77 | 1.10 | 0.45 | | **Adjusted EPS** | **$3.95** | **$4.64** | **$4.15** | [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Insperity maintains strong liquidity with **$607.6 million** in cash, cash equivalents, and marketable securities, supported by a **$500 million** revolving credit facility, and manages capital for expansion, repurchases, and debt service - Insperity relies on cash from operations for short-term liquidity and may use public/private debt or equity for longer-term projects, stock repurchases, or significant acquisitions[256](index=256&type=chunk) Liquidity and Capital Resources (as of Dec 31, 2021) | Metric | Amount (in millions) | | :--- | :--- | | Cash, cash equivalents and marketable securities | $607.6 | | Working capital | $116.3 | | Revolving credit facility | $500.0 | | Outstanding letters of credit and borrowings | $370.4 | Cash Flows Summary (2021) | Activity | Net Cash Flow (in millions) | | :--- | :--- | | Operating Activities | $260.2 | | Investing Activities | $(31.0) | | Financing Activities | $(208.1) | [Seasonality, Inflation and Quarterly Fluctuations](index=58&type=section&id=Seasonality,%20Inflation%20and%20Quarterly%20Fluctuations) Insperity's quarterly earnings are influenced by seasonal medical claims costs, peaking in Q4, and payroll taxes, with higher gross profit in Q1/Q2, while inflation has not historically had a significant impact - Quarterly earnings are impacted by seasonal medical claims costs (higher in Q4) and payroll taxes (higher in Q1/Q2)[262](index=262&type=chunk) - Medical claims costs show variability due to large claims and COVID-19 impacts on healthcare utilization[262](index=262&type=chunk) - Inflation has not had a significant historical impact but could adversely affect future profitability[263](index=263&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=60&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Insperity is primarily exposed to market risks from interest rate fluctuations affecting its investments and variable-rate borrowings, which it manages through diversification and a focus on principal preservation - Insperity is primarily exposed to market risks from fluctuations in interest rates, impacting cash equivalent short-term investments, available-for-sale marketable securities, and variable-rate borrowings under its credit facility[265](index=265&type=chunk) - The company's investment policy aims to limit interest rate risk through diversification and low investment turnover, focusing on maximizing after-tax interest income while preserving principal[266](index=266&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=60&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The required financial statements and supplementary data are presented in a separate section of this Annual Report, specifically referenced in the 'Index to Consolidated Financial Statements' - The information required by this Item 8 is contained in a separate section of this Annual Report, referenced in the 'Index to Consolidated Financial Statements'[267](index=267&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=61&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in and disagreements with accountants on accounting and financial disclosure[268](index=268&type=chunk) [Item 9A. Controls and Procedures](index=61&type=section&id=Item%209A.%20Controls%20and%20Procedures) Insperity's management, including the CEO and CFO, concluded that its disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes during Q4 2021 - Insperity's CEO and CFO concluded that disclosure controls and procedures were effective as of **December 31, 2021**[269](index=269&type=chunk) - Management assessed and maintained effective internal control over financial reporting as of **December 31, 2021**, based on COSO (2013 framework), which was also audited by Ernst & Young LLP[270](index=270&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) - There were no material changes in internal control over financial reporting during the three months ended **December 31, 2021**[271](index=271&type=chunk) [Item 9B. Other Information](index=61&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - No other information to report[272](index=272&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=61&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Insperity, Inc - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable[273](index=273&type=chunk) [Part III](index=62&type=section&id=Part%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from Insperity's definitive Proxy Statement for the 2022 annual meeting of stockholders - Information on Directors, Executive Officers and Corporate Governance is incorporated by reference from the definitive Proxy Statement[276](index=276&type=chunk) - The Board adopted a Code of Business Conduct and Ethics, accessible on the company's website, meeting NYSE and Regulation S-K requirements[277](index=277&type=chunk) [Item 11. Executive Compensation](index=62&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from Insperity's definitive Proxy Statement - Information on Executive Compensation is incorporated by reference from the definitive Proxy Statement[278](index=278&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=62&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from Insperity's definitive Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the definitive Proxy Statement[279](index=279&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=62&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on certain relationships and related transactions, and director independence, is incorporated by reference from Insperity's definitive Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the definitive Proxy Statement[280](index=280&type=chunk) [Item 14. Principal Accounting Fees and Services](index=62&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from Insperity's definitive Proxy Statement - Information on Principal Accounting Fees and Services is incorporated by reference from the definitive Proxy Statement[281](index=281&type=chunk) [Part IV](index=63&type=section&id=Part%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=63&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and a comprehensive list of exhibits filed as part of the Annual Report on Form 10-K - The Consolidated Financial Statements are filed as part of this Annual Report[283](index=283&type=chunk) - The item includes a comprehensive list of exhibits, such as the Amended and Restated Certificate of Incorporation, Bylaws, various stock award agreements, credit agreements, and certifications[284](index=284&type=chunk)[285](index=285&type=chunk)[287](index=287&type=chunk) [Item 16. Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[288](index=288&type=chunk) [Signatures](index=67&type=section&id=Signatures) [Signatures](index=67&type=section&id=Signatures) The Annual Report on Form 10-K was signed on **February 10, 2022**, by authorized representatives of Insperity, Inc., including Douglas S. Sharp (CFO) and Paul J. Sarvadi (CEO) - The report was signed on behalf of Insperity, Inc. on **February 10, 2022**[290](index=290&type=chunk) - Signatories include **Douglas S. Sharp** (Principal Financial Officer) and **Paul J. Sarvadi** (Principal Executive Officer), along with other directors[291](index=291&type=chunk)[292](index=292&type=chunk) [Consolidated Financial Statements](index=69&type=section&id=Consolidated%20Financial%20Statements) [Index to Consolidated Financial Statements](index=69&type=section&id=Index%20to%20Consolidated%20Financial%20Statements) This section provides an index to the Consolidated Financial Statements, including reports from independent registered public accounting firms, management's report on internal control, and the primary financial statements along with their accompanying notes - The index lists the Report of Independent Registered Public Accounting Firm, Management's Report on Internal Control, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders' Equity (Deficit), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[295](index=295&type=chunk) [Report of Independent Registered Public Accounting Firm](index=70&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued unqualified opinions on Insperity's 2021 consolidated financial statements and the effectiveness of its internal control over financial reporting, highlighting critical audit matters related to health and workers' compensation claims estimates - Ernst & Young LLP issued an unqualified opinion on Insperity's consolidated financial statements for the three years ended **December 31, 2021**, confirming fair presentation in conformity with U.S. GAAP[297](index=297&type=chunk) - An unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of **December 31, 2021**, based on COSO criteria[298](index=298&type=chunk) - Critical audit matters included the estimation of the cost of incurred health insurance claims, due to significant estimation required in determining medical completion rates[301](index=301&type=chunk)[302](index=302&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) - Another critical audit matter was the estimation of the cost of incurred workers' compensation claims, due to significant estimation required in determining the loss development rate and future cost trends[301](index=301&type=chunk)[302](index=302&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) [Management's Report on Internal Control](index=73&type=section&id=Management's%20Report%20on%20Internal%20Control) Insperity's management assessed and concluded that the company maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO 2013 framework, providing reasonable assurance regarding financial reporting reliability - Management assessed the effectiveness of its internal control over financial reporting as of **December 31, 2021**, based on COSO (2013 framework)[311](index=311&type=chunk) - Management concluded that Insperity maintained effective internal control over financial reporting as of **December 31, 2021**[313](index=313&type=chunk) - Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting, acknowledging inherent limitations[312](index=312&type=chunk) [Consolidated Balance Sheets](index=75&type=section&id=Consolidated%20Balance%20Sheets) Total assets reached **$1.75 billion** in 2021, while total liabilities increased, leading to a stockholders' equity deficit of **$(1.8) million** due to repurchases and dividends Consolidated Balance Sheet Summary (in thousands) | Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total assets | $1,753,085 | $1,584,276 | | Total current assets | $1,244,848 | $1,077,268 | | Total liabilities | $1,754,859 | $1,540,144 | | Total current liabilities | $1,128,573 | $904,924 | | Total stockholders' equity (deficit) | $(1,774) | $44,132 | - Cash and cash equivalents increased to **$575.8 million** in 2021 from **$554.8 million** in 2020[322](index=322&type=chunk) - The shift to a stockholders' equity deficit in 2021 was influenced by treasury stock repurchases and dividends paid[322](index=322&type=chunk)[328](index=328&type=chunk) [Consolidated Statements of Operations](index=76&type=section&id=Consolidated%20Statements%20of%20Operations) In 2021, revenues increased **16.0% to $4.97 billion**, but operating income declined **11.0%**, and net income decreased **10.2% to $124.1 million** Consolidated Statements of Operations Summary (in thousands, except per share amounts) | Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $4,973,070 | $4,287,004 | $4,314,804 | | Payroll taxes, benefits and workers' compensation costs | $4,152,968 | $3,480,150 | $3,581,870 | | Gross profit | $820,102 | $806,854 | $732,934 | | Total operating expenses | $646,773 | $612,165 | $546,301 | | Operating income | $173,329 | $194,689 | $186,633 | | Income before income tax expense | $168,318 | $189,270 | $189,643 | | Income tax expense | $44,238 | $51,033 | $38,544 | | Net income | $124,080 | $138,237 | $151,099 | | Diluted EPS | $3.18 | $3.54 | $3.70 | - Revenues increased **16.0%** year-over-year in 2021, while net income and diluted EPS decreased by **10.2%**[324](index=324&type=chunk) [Consolidated Statements of Comprehensive Income](index=77&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For 2021, Insperity reported comprehensive income of **$124.1 million**, slightly below net income due to a minor unrealized loss on available-for-sale securities Consolidated Statements of Comprehensive Income (in thousands) | Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net income | $124,080 | $138,237 | $151,099 | | Unrealized gain (loss) on available-for-sale securities, net of tax | (14) | (7) | 21 | | **Comprehensive income** | **$124,066** | **$138,230** | **$151,120** | - Comprehensive income for 2021 was **$124.1 million**, reflecting a minor unrealized loss on available-for-sale securities[326](index=326&type=chunk) [Consolidated Statements of Stockholders' Equity (Deficit)](index=78&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Insperity's stockholders' equity shifted to a deficit of **$(1.8) million** in 2021, primarily due to **$144.2 million** in dividends paid and **$69.7 million** in treasury stock repurchases Consolidated Statements of Stockholders' Equity (Deficit) Summary (in thousands) | Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total stockholders' equity (deficit) | $(1,774) | $44,132 | | Treasury stock, at cost | $(665,089) | $(626,984) | | Retained earnings | $553,590 | $575,028 | - The shift to a stockholders' equity deficit in 2021 was primarily due to **$144.2 million** in dividends paid and **$69.7 million** in treasury stock repurchases[328](index=328&type=chunk) - These outflows were partially offset by **$124.1 million** in net income and **$40.6 million** in stock-based compensation expense[328](index=328&type=chunk) [Consolidated Statements of Cash Flows](index=79&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow was **$260.2 million** in 2021, while financing activities used **$208.1 million** for dividends and repurchases, increasing cash to **$807.8 million** Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $260,155 | $346,353 | $205,153 | | Net cash used in investing activities | $(31,013) | $(98,621) | $(29,724) | | Net cash used in financing activities | $(208,073) | $(53,583) | $(118,353) | | Net increase in cash and cash equivalents | $21,069 | $194,149 | $57,076 | | Cash, cash equivalents and restricted cash at end of year | $807,768 | $786,699 | $592,550 | - Operating cash flows were **$260.2 million** in 2021, impacted by changes in accounts receivable and payroll tax payables[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[330](index=330&type=chunk) - Investing activities used **$31.0 million**, primarily for **$32.9 million** in property and equipment purchases[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[330](index=330&type=chunk) - Financing activities used **$208.1 million**, including **$144.2 million** in dividends and **$69.7 million** in treasury stock repurchases[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[330](index=330&type=chunk) [Notes to Consolidated Financial Statements](index=81&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail Insperity's accounting policies, including revenue recognition, direct costs, and segment reporting, with critical estimates for health and workers' compensation costs, and disclosures on financial instruments, debt, equity, and contingencies - Insperity operates one reportable segment and recognizes revenue ratably over the payroll period, excluding WSEE payroll costs[338](index=338&type=chunk)[343](index=343&type=chunk) - Health insurance costs are accounted for using a partially self-funded model, with significant judgment in estimating incurred claims and managing plan surpluses/deficits[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk) - Workers' compensation costs involve actuarial estimates of loss development rates and future cost trends, discounted to present value, with financial responsibility for claims up to certain levels[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk) - Long-term debt includes a **$500 million** revolving credit facility, with **$369.4 million** outstanding at year-end 2021, subject to financial covenants[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) - Stockholders' equity details include treasury stock repurchases (**$69.7 million** in 2021) and dividends paid (**$144.2 million** in 2021), contributing to a shift to equity deficit; incentive plans include time-based RSAs/RSUs and performance-based LTIP awards[391](index=391&type=chunk)[392](index=392&type=chunk)[394](index=394&type=chunk)[396](index=396&type=chunk)[399](index=399&type=chunk)[401](index=401&type=chunk) [1. Accounting Policies](index=81&type=section&id=1.%20Accounting%20Policies) Insperity's accounting policies detail its business as a PEO and comprehensive HR solutions provider, recognizing revenue as markup, with direct costs including payroll taxes, benefits, and workers' compensation, and critical estimates for claims and contingent liabilities - Insperity provides PEO HR Outsourcing solutions through a co-employment relationship, assuming employer rights and obligations for WSEEs[334](index=334&type=chunk)[335](index=335&type=chunk) - Revenue is recognized ratably over the payroll period, consisting solely of the markup component of gross billings, with direct costs comprising payroll taxes, employee benefits, and workers' compensation[338](index=338&type=chunk)[342](index=342&type=chunk) - Health insurance costs for the UnitedHealthcare plan are accounted for using a partially self-funded model, with estimates for incurred claims based on completion rates[356](index=356&type=chunk)[357](index=357&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[366](index=366&type=chunk)[3

| --- | --- | --- | |--------------------------------|-------|-------| | | | | | | | | | | | | | | | | | 2021 Q3 INVESTOR PRESENTATION | | | | November 1, 2021 | | | Safe Harbor Statement The statements contained herein that are not historical facts are forward-looking statements within the meaning of the 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," ...

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 | ...