Insperity, Inc. (NYSE:NSP) Q2 2020 Earnings Conference Call August 3, 2020 5:00 PM ET Company Participants Douglas Sharp - SVP of Finance, CFO & Treasurer Paul Sarvadi - Co-Founder, Chairman & CEO Conference Call Participants Tobey Sommer - SunTrust Robinson Humphrey Jeffrey Martin - ROTH Capital Partners Mark Marcon - Robert W. Baird & Co. Operator Good afternoon. My name is Jerome, and I'll be your conference operator today. I would like to welcome everyone to the Insperity Second Quarter 2020 Earnings Co ...

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, 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. Securities registered pursuant to Section 12(b) of the Act: | | | Name of each e ...

Insperity, Inc. (NYSE:NSP) Q1 2020 Results Conference Call May 4, 2020 5:00 PM ET Company Participants Paul Sarvadi - Chairman of the Board & Chief Executive Officer Douglas Sharp - Senior Vice President of Finance, Chief Financial Officer & Treasurer Conference Call Participants Mark Marcon - Baird Jeff Martin - ROTH Capital Partners Tobey Sommer - SunTrust Operator Good afternoon. My name is Lori, and I'll be your conference operator today. I would like to welcome everyone to the Insperity First Quarter 2 ...

```markdown Part I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Insperity, Inc.'s unaudited consolidated financial statements for Q1 2020, covering balance sheets, operations, cash flows, and equity, along with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2020, total assets increased to **$1.52 billion**, liabilities grew, and stockholders' equity shifted to a **$3.3 million deficit** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $404,728 | $367,342 | | Accounts receivable, net | $520,745 | $465,779 | | Total current assets | $1,079,280 | $974,746 | | Total assets | $1,522,408 | $1,394,996 | | **Liabilities & Equity** | | | | Total current liabilities | $888,458 | $869,045 | | Long-term debt | $369,400 | $269,400 | | Total liabilities | $1,525,718 | $1,390,917 | | Total stockholders' equity (deficit) | $(3,310) | $4,079 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2020 revenues grew **6.6% to $1.23 billion**, but net income decreased **18.6% to $62.1 million** due to higher expenses and tax Q1 2020 vs Q1 2019 Performance (in thousands, except per share) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Revenues | $1,229,483 | $1,153,010 | | Gross Profit | $234,022 | $226,717 | | Operating Income | $85,221 | $85,461 | | Net Income | $62,092 | $76,289 | | Diluted EPS | $1.58 | $1.85 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to **$23.8 million** in Q1 2020, while financing activities provided **$25.6 million** from borrowings Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,787 | $117,697 | | Net cash provided by (used in) investing activities | $(314) | $1,713 | | Net cash provided by (used in) financing activities | $25,603 | $(40,338) | | **Net increase in cash, cash equivalents and restricted cash** | **$49,076** | **$79,072** | [Consolidated Statements of Stockholders' Equity (Deficit)](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Deficit%29) Stockholders' equity declined to a **$3.3 million deficit** by March 31, 2020, primarily due to **$61.2 million** in treasury stock repurchases - Key activities impacting stockholders' equity in Q1 2020 include the purchase of **$61.2 million** in treasury stock, payment of **$15.6 million** in dividends, and the addition of **$62.1 million** in net income[11](index=11&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including revenue recognition, health insurance, workers' compensation, long-term debt, equity activities, and legal contingencies - The company's most comprehensive offering is its Professional Employer Organization (PEO) services, which include payroll, benefits, workers' compensation, and other HR functions[12](index=12&type=chunk) - Effective January 1, 2020, under an amended agreement with UnitedHealthcare, Insperity no longer has financial responsibility for a participant's annual health claim costs exceeding **$1 million**[18](index=18&type=chunk) - In Q1 2020, the company reduced accrued workers' compensation costs by **$10.1 million** due to favorable changes in estimated losses for prior periods, compared to a **$7.8 million** reduction in Q1 2019[24](index=24&type=chunk) - A class action lawsuit alleging breach of fiduciary duties related to the company's 401(k) plan went to a bench trial in March 2020, with plaintiffs alleging damages up to approximately **$146 million**[54](index=54&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 financial results, noting **5.5% WSEE growth** and **6.6% revenue increase**, with expected negative COVID-19 impacts on future periods - The COVID-19 pandemic did not significantly impact Q1 2020 financial results but is expected to have a negative impact for the remainder of 2020, with paid WSEEs declining by **3.3%** in April 2020[60](index=60&type=chunk) Q1 2020 vs Q1 2019 Key Metrics | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Average WSEEs paid | 238,014 | 225,525 | 5.5% | | Revenues | $1,229.5M | $1,153.0M | 6.6% | | Net Income | $62.1M | $76.3M | (18.6)% | | Diluted EPS | $1.58 | $1.85 | (14.6)% | | Adjusted EBITDA | $101.3M | $101.4M | (0.2)% | [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q1 2020 revenue grew **6.6% to $1.2 billion** driven by WSEE increase, but gross profit per WSEE declined due to higher benefits costs - Q1 2020 revenue growth of **6.6%** was primarily driven by a **5.5%** increase in the average number of WSEEs paid and a **1.1%** increase in revenues per WSEE per month[77](index=77&type=chunk)[79](index=79&type=chunk) - Gross profit per WSEE per month decreased by **$7** to **$328**, as a **$25** increase in direct costs per WSEE per month outpaced an **$18** increase in revenue per WSEE per month[87](index=87&type=chunk)[88](index=88&type=chunk) - Benefits costs increased by **$32** per WSEE per month, primarily due to a higher number of large individual healthcare claimants compared to the low level in Q1 2019[90](index=90&type=chunk) - Commissions expense increased **21.7%** due to growth in PEO solutions, higher sales channel referral fees, and bonuses from an extended sales campaign[99](index=99&type=chunk) - The effective income tax rate for Q1 2020 was **26.7%**, a significant increase from **12.3%** in Q1 2019, with the 2019 rate lower due to a much larger tax benefit (**$14.5M** vs **$2.0M** in 2020) related to the vesting of stock awards[101](index=101&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP measures like Adjusted EBITDA and Adjusted EPS, with Q1 2020 Adjusted EBITDA at **$101.3 million** and Adjusted EPS down **14.1%** Reconciliation of Net Income to Adjusted EBITDA (in thousands) | | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net income | $62,092 | $76,289 | | Income tax expense | $22,646 | $10,736 | | Interest expense | $2,362 | $1,681 | | Depreciation and amortization | $7,602 | $6,691 | | **EBITDA** | **$94,702** | **$95,397** | | Stock-based compensation | $6,552 | $6,040 | | **Adjusted EBITDA** | **$101,254** | **$101,437** | Reconciliation of Diluted EPS to Adjusted EPS | | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Diluted EPS | $1.58 | $1.85 | | Stock-based compensation | $0.17 | $0.15 | | Tax effect | $(0.05) | $(0.02) | | **Adjusted EPS** | **$1.70** | **$1.98** | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2020, liquidity was strong with **$424.2 million** in cash and equivalents, bolstered by a **$100 million** precautionary borrowing - In March 2020, the company borrowed **$100.0 million** under its **$500 million** revolving credit facility, increasing working capital and leaving **$129.6 million** in available borrowing capacity as of March 31, 2020[43](index=43&type=chunk)[108](index=108&type=chunk) - Net cash from operating activities decreased significantly to **$23.8 million** in Q1 2020 from **$117.7 million** in Q1 2019, primarily due to the timing of client payments and payroll tax cycles[110](index=110&type=chunk) - Financing activities in Q1 2020 included **$100.0 million** in borrowings, **$61.2 million** in stock repurchases, and **$15.6 million** in dividend payments[113](index=113&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations, impacting investments and variable-rate debt, managed through diversification - The company is primarily exposed to market risks from interest rate fluctuations, which impact its investment income and interest expense on its variable-rate debt[115](index=115&type=chunk) - As of March 31, 2020, the company had **$370.4 million** in borrowings and letters of credit outstanding under its variable-rate credit facility[115](index=115&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2020, disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - Management, including the CEO and CFO, concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective[118](index=118&type=chunk) - No changes occurred in internal controls over financial reporting during Q1 2020 that materially affected, or are reasonably likely to materially affect, these controls[119](index=119&type=chunk) Part II [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending a class action lawsuit regarding its 401(k) plan, with alleged damages up to **$146 million**, awaiting judgment - The company is defending a class action lawsuit related to its 401(k) plan, where plaintiffs allege damages up to **$146 million**, with a bench trial concluded in March 2020 and a court judgment awaited[54](index=54&type=chunk)[120](index=120&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include COVID-19 impacts on WSEEs, health insurance costs, client payments, and operations, alongside economic and regulatory challenges - The COVID-19 pandemic is a primary risk, with the company experiencing a **3.3%** decline in paid WSEEs in April 2020 and expecting the trend to continue, which is likely to have a material adverse effect on results[127](index=127&type=chunk) - The pandemic creates significant uncertainty in estimating health insurance costs due to deferred elective procedures and potential increases in claims from COBRA participants[129](index=129&type=chunk) - Economic disruptions from COVID-19 may increase client business failures and bad debt, as Insperity assumes the obligation to pay WSEE salaries and benefits regardless of client payment[131](index=131&type=chunk) - The company's Texas market, accounting for ~**20%** of revenues, faces heightened risk due to the pandemic's impact on oil prices and the regional economy[135](index=135&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2020, Insperity repurchased **878,305 shares** of common stock, including **728,000** under its program, with **685,833** shares remaining authorized Share Repurchases in Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 2020 | 30 | $92.70 | — | | Feb 2020 | 709,675 | $70.93 | 559,400 | | Mar 2020 | 168,600 | $64.44 | 168,600 | | **Total** | **878,305** | **$69.68** | **728,000** | - In February 2020, the Board of Directors authorized an additional **1,000,000** shares for the repurchase program, with **685,833** shares still available for repurchase as of March 31, 2020[138](index=138&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists Form 10-Q exhibits, including agreements with United Healthcare, severance plans, and CEO/CFO Sarbanes-Oxley certifications - Filed exhibits include a letter agreement with United Healthcare, the Executive Severance Plan, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[139](index=139&type=chunk) ```

Insperity, Inc. (NYSE:NSP) Q4 2019 Earnings Conference Call February 11, 2020 5:00 PM ET Company Participants Paul Sarvadi - Chairman of the Board & Chief Executive Officer Douglas Sharp - Senior Vice President of Finance, Chief Financial Officer & Treasurer Conference Call Participants Jim MacDonald - First Analysis Jeff Martin - Roth Capital Partners Mark Marcon - Baird Tobey Sommer - SunTrust Operator Good afternoon. My name is Erica, and I'll be your conference operator today. I would like to welcome ev ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2019 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File No. 1-13998 Insperity, Inc. (Exact name of registrant as specified in its charter) Delaware 76-0479645 (State or other juri ...

Part I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Insperity, Inc.'s unaudited condensed consolidated financial statements for Q3 and YTD September 30, 2019, report revenues of $3.24 billion and net income of $130.7 million [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2019, total assets reached $1.29 billion, liabilities $1.25 billion, and stockholders' equity decreased to $41.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $243,439 | $326,773 | | Accounts receivable, net | $483,890 | $400,623 | | Right-of-use leased assets | $58,185 | $— | | Total current assets | $893,743 | $866,536 | | **Total assets** | **$1,292,122** | **$1,191,816** | | **Liabilities & Equity** | | | | Total current liabilities | $761,212 | $772,332 | | Long-term debt | $239,400 | $144,400 | | **Total liabilities** | **$1,251,134** | **$1,114,140** | | **Total stockholders' equity** | **$40,988** | **$77,676** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q3 2019 revenues increased to $1.04 billion, net income decreased to $25.9 million; YTD revenues grew to $3.24 billion, net income rose to $130.7 million Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,043,388 | $925,126 | $3,239,714 | $2,861,793 | | Gross Profit | $170,546 | $166,054 | $570,998 | $520,318 | | Operating Income | $34,733 | $48,133 | $158,914 | $146,417 | | Net Income | $25,859 | $36,207 | $130,704 | $110,758 | | Diluted EPS | $0.63 | $0.86 | $3.18 | $2.63 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2019, operating cash flow was $47.1 million, investing used $35.6 million, and financing used $88.2 million Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,076 | $70,329 | | Net cash used in investing activities | ($35,598) | ($57,324) | | Net cash used in financing activities | ($88,230) | ($39,793) | | **Net decrease in cash, cash equivalents and restricted cash** | **($76,752)** | **($26,788)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies, key financial components, and significant events including a pending class action lawsuit - The company's most comprehensive offerings are its PEO services, Workforce Optimization® and Workforce Synchronization™, which include payroll, benefits, workers' compensation, and other HR functions[15](index=15&type=chunk) - For the nine months ended September 30, 2019, the company reduced accrued workers' compensation costs by **$26.0 million** due to favorable changes in estimated losses for prior periods, compared to a **$13.4 million** reduction in the same period of 2018[26](index=26&type=chunk) - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, resulting in the recognition of **$50.8 million** in right-of-use assets and **$63.7 million** in lease liabilities[46](index=46&type=chunk) - A class action lawsuit alleges breach of fiduciary duties related to the company's 401(k) plan, with plaintiffs alleging damages up to **$128 million**[59](index=59&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=19&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20%28MD%26A%29) Management discusses Q3 and YTD 2019 financial results, noting WSEE growth, Q3 net income decline from health claims, and strong YTD net income and EPS Q3 2019 vs Q3 2018 Performance Highlights | Metric | Q3 2019 | Change vs Q3 2018 | | :--- | :--- | :--- | | Avg. WSEEs paid/month | 240,939 | +12.0% | | Net Income | $25.9M | -28.6% | | Diluted EPS | $0.63 | -26.7% | | Adjusted EBITDA | $51.2M | -16.9% | YTD 2019 vs YTD 2018 Performance Highlights | Metric | YTD 2019 | Change vs YTD 2018 | | :--- | :--- | :--- | | Avg. WSEEs paid/month | 232,825 | +13.6% | | Net Income | $130.7M | +18.0% | | Diluted EPS | $3.18 | +20.9% | | Adjusted EBITDA | $209.3M | +9.0% | [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Q3 and YTD 2019 revenues increased from WSEE growth, but Q3 gross profit per WSEE decreased to $236 due to higher health claims, while operating expenses rose 15.2% - Q3 2019 gross profit per WSEE per month decreased by **8.2%** to **$236**, down from **$257** in Q3 2018[85](index=85&type=chunk) - Benefits costs increased by **$33** per WSEE per month in Q3 2019 due to a second consecutive quarter of large claim activity[87](index=87&type=chunk)[88](index=88&type=chunk) - Workers' compensation costs decreased by **9.6%** per WSEE per month in Q3 2019, including a **$7.5 million** reduction from closing out prior-period claims at lower-than-expected costs[96](index=96&type=chunk) - Total operating expenses for Q3 2019 increased **15.2%** to **$135.8 million**, driven by higher salaries from a **12.2%** increase in corporate headcount, increased advertising, and higher G&A costs[103](index=103&type=chunk)[104](index=104&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures; Q3 2019 Adjusted EBITDA was $51.2 million, Adjusted EPS $0.75; YTD Adjusted EBITDA $209.3 million, Adjusted EPS $3.57 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (GAAP) | $25,859 | $36,207 | $130,704 | $110,758 | | Adjustments | $15,979 | $19,591 | $57,754 | $61,591 | | **Adjusted EBITDA (Non-GAAP)** | **$51,154** | **$61,572** | **$209,277** | **$192,005** | Reconciliation of Diluted EPS to Adjusted EPS | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.63 | $0.86 | $3.18 | $2.63 | | Adjustments (net of tax) | $0.12 | $0.10 | $0.39 | $0.43 | | **Adjusted EPS (Non-GAAP)** | **$0.75** | **$0.96** | **$3.57** | **$3.06** | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2019, the company had $304.3 million in cash, $132.5 million working capital, and $259.6 million available on its $500 million credit facility - Working capital increased to **$132.5 million** at September 30, 2019, from **$94.2 million** at December 31, 2018[116](index=116&type=chunk) - The revolving credit facility was increased to **$500 million** in Q3 2019. As of September 30, 2019, the outstanding balance was **$239.4 million**, with an additional **$1.0 million** letter of credit, leaving **$259.6 million** available[42](index=42&type=chunk)[117](index=117&type=chunk) - Net cash used in financing activities for the first nine months of 2019 was **$88.2 million**, reflecting **$153.7 million** in stock repurchases and **$36.8 million** in dividends, partially offset by **$95.0 million** in new borrowings[121](index=121&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate fluctuations, impacting marketable securities and its variable-rate credit facility, with $240.4 million outstanding - The company is exposed to market risks from interest rate fluctuations, which impact its marketable securities and borrowings under its variable-rate credit facility[123](index=123&type=chunk) - As of September 30, 2019, the company had **$240.4 million** in outstanding borrowings and letters of credit under its variable-rate facility[123](index=123&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls during Q3 2019 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were **effective** as of September 30, 2019[126](index=126&type=chunk) - No material changes were made to internal controls over financial reporting during the third quarter of 2019[127](index=127&type=chunk) Part II [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is defending a class action lawsuit regarding its 401(k) plan, alleging fiduciary duty breaches with potential damages up to $128 million - A class action lawsuit alleges breach of fiduciary duties related to the company's 401(k) plan, with plaintiffs seeking damages up to **$128 million**[59](index=59&type=chunk) - The company has not recorded a provision for the lawsuit, as it believes it has strong defenses and the outcome is uncertain[59](index=59&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, including a new risk from an April 2019 IRS memorandum on reporting self-employed owner remuneration, requiring Insperity to transition its payroll - Key risks include adverse economic conditions, regulatory changes, increases in health insurance and workers' compensation costs, and competition[131](index=131&type=chunk) - A new risk has emerged from an April 2019 IRS memorandum regarding the tax reporting for self-employed owners of client companies. The company is transitioning its processes to align with the new guidance[134](index=134&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2019, Insperity repurchased 1,166,000 shares at an average price of $98.52, with 1,056,945 shares remaining available for repurchase Share Repurchases for Q3 2019 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 129,000 | $106.32 | | August 2019 | 835,000 | $97.10 | | September 2019 | 202,000 | $99.41 | | **Total Q3 2019** | **1,166,000** | **$98.52** | - As of September 30, 2019, **1,056,945 shares** remained available for repurchase under the authorized program[135](index=135&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including the Credit Agreement amendment, CEO/CFO certifications, and XBRL data files - Exhibits filed include the First Amendment to the Amended and Restated Credit Agreement, CEO/CFO certifications, and XBRL data files[137](index=137&type=chunk)

Insperity, Inc. (NYSE:NSP) Q3 2019 Earnings Conference Call November 4, 2019 9:00 AM ET Company Participants Paul Sarvadi - Chairman and Chief Executive Officer Douglas Sharp - Senior Vice President of Finance, Chief Financial Officer and Treasurer Conference Call Participants Jasper Bibb - SunTrust Jim MacDonald - First Analysis Jeff Martin - Roth Capital Mark Marcon - Baird Operator Good morning. My name is Marcella, and I will be your conference operator for today. I would like to welcome everyone to the ...

[Part I - Financial Information: Item 1. Financial Statements](index=4&type=section&id=Part%20I%2C%20Item%201.%20Financial%20Statements) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's balance sheet expanded, with total assets reaching $1.32 billion, driven by increased equity and liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $919,177 | $866,536 | | **Total assets** | **$1,316,995** | **$1,191,816** | | **Total current liabilities** | $769,848 | $772,332 | | **Long-term debt** | $169,400 | $144,400 | | **Total liabilities** | $1,182,106 | $1,114,140 | | **Total stockholders' equity** | **$134,889** | **$77,676** | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Revenues and net income grew significantly in the first half of 2019, with year-to-date net income up 40.6% to $104.8 million Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $1,043,316 | $922,295 | $2,196,326 | $1,936,667 | | **Gross Profit** | $173,735 | $154,544 | $400,452 | $354,264 | | **Operating Income** | $38,720 | $33,581 | $124,181 | $98,284 | | **Net Income** | $28,556 | $24,560 | $104,845 | $74,551 | | **Diluted EPS** | $0.69 | $0.58 | $2.54 | $1.77 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased substantially to $72.4 million, while financing activities used cash for buybacks and dividends Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $72,428 | $17,289 | | **Net cash used in investing activities** | ($17,207) | ($19,310) | | **Net cash used in financing activities** | ($34,773) | ($31,903) | | **Net increase (decrease) in cash** | $20,448 | ($33,924) | [Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity grew to $134.9 million, primarily driven by net income, partially offset by share repurchases and dividends Changes in Stockholders' Equity (Six Months Ended June 30, 2019, in thousands) | Component | Amount | | :--- | :--- | | **Balance at Dec 31, 2018** | **$77,676** | | Net Income | $104,845 | | Purchase of treasury stock | ($38,796) | | Dividends paid | ($24,740) | | Stock-based compensation | $14,296 | | **Balance at June 30, 2019** | **$134,889** | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail key accounting policies, the adoption of the new lease standard, and information on legal proceedings - The company's most comprehensive offering is its **Professional Employer Organization (PEO) services**, which include payroll, benefits, workers' compensation, and other HR functions[14](index=14&type=chunk) - For the six months ended June 30, 2019, the company reduced accrued workers' compensation costs by **$19.0 million** due to favorable changes in estimated losses for prior periods[24](index=24&type=chunk) - The company is a defendant in a class action lawsuit alleging breach of fiduciary duties related to its 401(k) plan; management believes it has **meritorious defenses**[59](index=59&type=chunk)[61](index=61&type=chunk) - On January 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recording of operating lease **Right-of-Use (ROU) assets of approximately $50.8 million**[47](index=47&type=chunk) [Part I - Financial Information: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Part%20I%2C%20Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) [Executive Summary](index=25&type=section&id=Executive%20Summary) Strong performance in H1 2019 was driven by growth in worksite employees, leading to significant increases in net income and EPS Q2 2019 Highlights vs. Q2 2018 | Metric | Growth Rate | | :--- | :--- | | Average WSEEs paid per month | 13.8% | | Net Income | 16.3% | | Adjusted EPS | 22.1% | | Adjusted EBITDA | 21.6% | First Six Months 2019 Highlights vs. First Six Months 2018 | Metric | Growth Rate | | :--- | :--- | | Average WSEEs paid per month | 14.5% | | Net Income | 40.6% | | Adjusted EPS | 34.4% | | Adjusted EBITDA | 21.2% | [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Revenue growth was driven by a 14.5% increase in worksite employees, while operating expenses decreased on a per-employee basis - Growth in WSEEs paid from new client sales increased due to a **9.9% increase** in the number of Business Performance Advisors in the first six months of 2019[75](index=75&type=chunk) - For YTD 2019, revenues per WSEE per month **decreased by 0.9% ($15)** due to lower WSEE medical participation[80](index=80&type=chunk) - Workers' compensation costs for YTD 2019 **decreased 10.4% per WSEE per month**, benefiting from a $19.0 million reduction from prior period estimates[101](index=101&type=chunk) - Operating expenses per WSEE per month for YTD 2019 **decreased 6.1%**, primarily because YTD 2018 included a $9.3 million one-time bonus[106](index=106&type=chunk)[109](index=109&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Adjusted EBITDA and Adjusted EPS to provide a management-centric view of performance Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | **Net income (GAAP)** | **$104,845** | **$74,551** | | Income tax expense | $22,063 | $24,818 | | Interest expense | $3,320 | $2,178 | | Depreciation and amortization | $13,599 | $10,693 | | **EBITDA (Non-GAAP)** | **$143,827** | **$112,240** | | Stock-based compensation | $14,296 | $8,887 | | One-time tax reform bonus | $— | $9,306 | | **Adjusted EBITDA (Non-GAAP)** | **$158,123** | **$130,433** | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $386.1 million in cash and equivalents and significant available credit - At June 30, 2019, the company had **working capital of $149.3 million**, up from $94.2 million at year-end 2018[121](index=121&type=chunk) - The company had $169.4 million outstanding on its revolving credit facility and an **available borrowing capacity of $179.6 million** as of June 30, 2019[43](index=43&type=chunk)[122](index=122&type=chunk) - Cash flows from operations are significantly impacted by the **timing of client payroll processing**[126](index=126&type=chunk) [Part I - Financial Information: Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Part%20I%2C%20Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) - The company's primary market risk exposure is from **interest rate fluctuations** affecting its cash, investments, and variable-rate debt[128](index=128&type=chunk) - As of June 30, 2019, the company had **$170.4 million in borrowings** and letters of credit outstanding under its variable-rate facility[128](index=128&type=chunk) - The investment policy is designed to **preserve principal and maximize after-tax income**, focusing on tax-exempt debt securities[130](index=130&type=chunk) [Part I - Financial Information: Item 4. Controls and Procedures](index=45&type=section&id=Part%20I%2C%20Item%204.%20Controls%20and%20Procedures) - Management concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2019[131](index=131&type=chunk) - There were **no material changes** in internal controls over financial reporting during the second quarter of 2019[132](index=132&type=chunk) [Part II - Other Information: Item 1. Legal Proceedings](index=46&type=section&id=Part%20II%2C%20Item%201.%20Legal%20Proceedings) - The company refers to Note 9 for details on legal proceedings, including a **class action lawsuit related to its 401(k) plan**[133](index=133&type=chunk)[59](index=59&type=chunk) [Part II - Other Information: Item 1A. Risk Factors](index=46&type=section&id=Part%20II%2C%20Item%201A.%20Risk%20Factors) - The report identifies risks including economic conditions, regulatory changes, and a **specific IRS memorandum concerning tax reporting**[134](index=134&type=chunk)[135](index=135&type=chunk) - A specific risk update was provided regarding an IRS advice memorandum from April 2019 that could **adversely impact the business** if its required transition is not successful[138](index=138&type=chunk) [Part II - Other Information: Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Part%20II%2C%20Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) - As of June 30, 2019, the company was authorized to **repurchase an additional 1,522,945 shares** under its program[140](index=140&type=chunk) Share Repurchases (Q2 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Program | Max Shares Available for Purchase | | :--- | :--- | :--- | :--- | :--- | | May 2019 | 85,046 | $114.75 | 85,000 | 1,522,945 | [Part II - Other Information: Item 6. Exhibits](index=48&type=section&id=Part%20II%2C%20Item%206.%20Exhibits) - The report includes **CEO and CFO certifications** pursuant to the Sarbanes-Oxley Act of 2002, as well as XBRL data files[141](index=141&type=chunk)

Financial Data and Key Metrics Changes - Adjusted EPS for Q2 2019 was $0.83, a 22% increase compared to Q2 2018 [6] - Adjusted EBITDA reached $56.7 million, also reflecting a 22% increase year-over-year [6] - Average paid worksite employees increased by 14% compared to Q2 2018 [6] - Client retention averaged just above 99%, near historical highs [6] - Gross profit increased by over 12% year-over-year, despite higher than forecasted benefit costs [8] Business Line Data and Key Metrics Changes - Net gains in the client base were down by 15% from Q2 2018, attributed to less hiring by clients [7] - Adjusted operating expenses increased by 12%, driven by investments in growth and new sales offices [10] - New sales were 101% of forecast for the first half of the year, indicating strong sales efficiency [15] Market Data and Key Metrics Changes - Total worksite employees sold for marketing leads increased by 25% year-over-year [16] - Total website visitors increased by 13%, with organic search traffic up by 22% [16] - Unique visitors to the company blog rose by 25%, supporting the goal of expanding authority in the HR space [17] Company Strategy and Development Direction - The company plans to continue expanding its office locations, with five new offices expected in the second half of the year [18] - Focus on mid-market and enterprise segments, leveraging new HR analytics technology to differentiate services [29] - The company aims to balance growth and profitability by making operational adjustments in line with revised growth expectations [33] Management's Comments on Operating Environment and Future Outlook - Management noted challenges in hiring due to a tight labor market, with a ratio of recruiter interviews to hires at 14:1 [22] - Despite challenges, the business model showed resilience, with expectations for continued growth in worksite employees [27] - Full year 2019 adjusted EBITDA is forecasted to be between $278 million and $286 million, reflecting a 16% to 19% increase over 2018 [39] Other Important Information - The effective tax rate for Q2 was 28%, with an estimated full year rate of 22% [11] - The company ended Q2 with $131 million in adjusted cash, up from $129 million at the end of 2018 [12] - The company repurchased 315,000 shares at a total cost of $39 million, with $10 million spent in Q2 [12] Q&A Session Summary Question: Was the sales result in the second quarter in line with expectations? - Management confirmed that sales in Q2 were good and no signs of a slowdown were observed [44] Question: How is the mid-market performing compared to the core business? - The mid-market channel is strong, with a significant pipeline and sales above last year [45] Question: Has the failed acquisition impacted worksite employee guidance? - Yes, the failed acquisition resulted in the removal of approximately 700-800 employees from guidance [48] Question: What are the expectations for worksite employee growth acceleration from Q3 to Q4? - Growth acceleration is expected based on normal sales plans and increased sales per salesperson [49] Question: Are there challenges in talent acquisition due to the tight labor market? - Yes, it is challenging, but the company is leveraging its reputation as a great workplace to attract talent [50] Question: What is the client retention rate for mid-market clients? - Client retention has been good, targeting 85% to 86% for the full year [53] Question: What insights does payroll data provide about customer attitudes? - Payroll data indicates a positive outlook among clients, with no negative sentiment detected [56] Question: How does pricing contribute to guidance? - Pricing has helped offset large claims, and overall claims were below trend [62]