Insperity(NSP) - 2021 Q3 - Quarterly Report

Part I - Financial Information Financial Statements 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 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 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 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 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] - 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][29] - 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] - The company has a $500 million revolving credit facility, with $369.4 million outstanding as of September 30, 2021[47] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] Results of Operations 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][81] - 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][91] - Benefits costs increased by $27 per WSEE per month in Q3 2021, reflecting increased health plan utilization and COVID-19 related costs[91][96] - 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][109][110] Liquidity and Capital Resources 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] - 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][122] - Net cash from operating activities for the first nine months of 2021 was $54.8 million[123] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Controls and Procedures 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] - 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] Part II - Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]