nsp-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


	For the quarterly period ended	September 30, 2022
	or
☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from _______________ to _______________

Commission File No. 1-13998

Insperity, Inc.

(Exact name of registrant as specified in its charter)


Delaware						76-0479645
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


19001 Crescent Springs Drive
Kingwood,	Texas	77339
(Address of principal executive offices)

(Registrant’s Telephone Number, Including Area Code): (281) 358-8986


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	NSP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “non-accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐
Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 24, 2022, 37,934,341 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.


TABLE OF CONTENTS


		Page

	Forward Looking Statements	4
Part I, Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets	6
	Consolidated Statements of Operations	7
	Consolidated Statements of Cash Flows	8
	Consolidated Statements of Stockholders’ Equity	9
	Notes to Consolidated Financial Statements	11
Part I, Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Part I, Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Part I, Item 4.	Controls and Procedures	35
Part II, Item 1.	Legal Proceedings	36
Part II, Item 1A.	Risk Factors	36
Part II, Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Part II, Item 6.	Exhibits	37


FORWARD LOOKING STATEMENTS

The statements contained herein that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify such forward-looking statements by the words “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “possibly,” “probably,” “could,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,” “indicator” and similar expressions. Forward-looking statements involve a number of risks and uncertainties. In the normal course of business, in an effort to help keep our stockholders and the public informed about our operations, from time to time, we may issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies; projected or anticipated benefits or other consequences of such plans or strategies; or projections involving anticipated revenues, earnings, average number of worksite employees (“WSEEs”), benefits and workers’ compensation costs, or other operating results. We base the forward-looking statements on our current expectations, estimates and projections. We caution you that these statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are:

•adverse economic conditions;

•impact of the COVID-19 pandemic, or other future pandemics, including the scope, severity and duration of the pandemic; government responses; regulatory developments; and the related disruptions and economic impact to our business and the small and medium-sized businesses that we serve;

•labor shortages and increasing competition for highly skilled workers;

•impact of inflation;

•vulnerability to regional economic factors because of our geographic market concentration;

•failure to comply with covenants under our credit facility;

•our liability for WSEE payroll, payroll taxes and benefits costs, or other liabilities associated with actions of our client companies or WSEEs;

•increases in health insurance costs and workers’ compensation rates and underlying claims trends, health care reform, financial solvency of workers’ compensation carriers, other insurers or financial institutions, state unemployment tax rates, liabilities for employee and client actions or payroll-related claims;

•an adverse determination regarding our status as the employer of our WSEEs for tax and benefit purposes and an inability to offer alternative benefit plans following such a determination;

•cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients;

•the ability to secure competitive replacement contracts for health insurance and workers’ compensation insurance at expiration of current contracts;

•regulatory and tax developments and possible adverse application of various federal, state and local regulations;

•failure to manage growth of our operations and the effectiveness of our sales and marketing efforts;

•the impact of the competitive environment and other developments in the human resources services industry, including the professional employer organization (or PEO) industry, on our growth and/or profitability;

•an adverse final judgment or settlement of claims against Insperity;

•disruptions of our information technology systems or failure to enhance our service and technology offerings to address new regulations or client expectations;

•our liability or damage to our reputation relating to disclosure of sensitive or private information as a result of data theft, cyberattacks or security vulnerabilities;


Insperity \| 2022 Third Quarter Form 10-Q			4


FORWARD LOOKING STATEMENTS

•failure of third-party providers, data centers or cloud service providers; and

•our ability to integrate or realize expected returns on our acquisitions.

These factors are discussed in further detail in our Annual Report on Form 10-K for the year ended December 31, 2021 under “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, and elsewhere in this report. Any of these factors, or a combination of such factors, could materially affect the results of our operations and whether forward-looking statements we make ultimately prove to be accurate.

Any forward-looking statements are made only as of the date hereof and, unless otherwise required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Insperity \| 2022 Third Quarter Form 10-Q			5


FINANCIAL STATEMENTS (Unaudited)

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


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


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

See accompanying notes.


Insperity \| 2022 Third Quarter Form 10-Q			6


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS


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

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

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

____________________________________

(1)Revenues are comprised of gross billings less WSEE payroll costs as follows:


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

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

See accompanying notes.


Insperity \| 2022 Third Quarter Form 10-Q			7


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS


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

Cash flows from operating activities
Net income	$	141,152	$	114,372
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	30,367		27,715
Stock-based compensation	38,818		35,965
Deferred income taxes	4,144		7,950
Changes in operating assets and liabilities:
Accounts receivable	(45,394)		(186,757)
Prepaid insurance	(19,083)		(9,493)
Other current assets	1,839		(13,832)
Other assets and ROU assets	(1,985)		4,153
Accounts payable	(946)		(

SEC Form 10-Q filed by Insperity Inc.