Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
COVID-19 Pandemic
Insperity | 2022 Second Quarter Form 10-Q 19
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2022 Highlights
Second Quarter 2022 Compared to Second Quarter 2021
•Average number of WSEEs paid per month increased 19.4%
•Net income and diluted earnings per share (“diluted EPS”) increased 33.6% and 33.8% to $33.6 million and $0.87, respectively
•Adjusted EPS increased 27.5% to $1.16
•Adjusted EBITDA increased 24.6% to $75.0 million
First Six Months 2022 Compared to First Six Months 2021
•Average number of WSEEs paid per month increased 19.5%
•Net income and diluted EPS increased 18.8% and 19.6% to $103.5 million and $2.68, respectively
•Adjusted EPS increased 15.8% to $3.15
•Adjusted EBITDA increased 17.7% to $193.6 million
Please read “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA and adjusted EPS to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).
Insperity | 2022 Second Quarter Form 10-Q 20
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Key Financial and Statistical Data
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(1)Please read “Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP.
(2)Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month as follows:
Insperity | 2022 Second Quarter Form 10-Q 21
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We monitor certain key metrics to measure our performance, including:
Our growth in the number of WSEEs paid is affected by three primary sources: new client sales, client retention and the net change in WSEEs paid at existing clients through new hires and layoffs.
Insperity | 2022 Second Quarter Form 10-Q 22
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Insperity | 2022 Second Quarter Form 10-Q 23
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Second Quarter 2022 Compared to Second Quarter 2021
Our revenues for Q2 2022 were $1.4 billion, an increase of 20.8%, primarily due to the following:
•Average WSEEs paid increased 19.4%.
•Revenues per WSEE per month increased 1.2%, or $19.
First Six Months 2022 Compared to First Six Months 2021
Our revenues for YTD 2022 were $3.0 billion, an increase of 21.8%, primarily due to the following:
•Average WSEEs paid increased 19.5%.
•Revenues per WSEE per month increased 1.9%, or $33.
Insperity | 2022 Second Quarter Form 10-Q 24
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We provide our PEO HR Outsourcing solutions to small and medium-sized businesses throughout the United States. Our PEO HR Outsourcing solutions revenue distribution by region follows:
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(1)The Southwest region includes Texas.
The percentage of total PEO HR Outsourcing solutions revenue in our significant markets includes the following:
Insperity | 2022 Second Quarter Form 10-Q 25
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Gross Profit
Insperity | 2022 Second Quarter Form 10-Q 26
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Second Quarter 2022 Compared to Second Quarter 2021
Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses. Our revenues per WSEE per month increased $19 due to higher average pricing.
Benefits costs
•The percentage of WSEEs covered under our health insurance plans was 65.4% in Q2 2022 compared to 67.3% in Q2 2021.
Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.
Workers’ compensation costs
Our continued discipline around our client selection, workplace safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.
•Workers’ compensation costs decreased 11.7%, or $6 per WSEE per month, in Q2 2022 compared to Q2 2021 on a 25.9% increase in non-bonus payroll costs.
•As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.21% in Q2 2022 and 0.30% Q2 2021.
Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.
•Payroll taxes as a percentage of payroll costs increased to 6.7% in Q2 2022 compared to 6.2% Q2 2021.
First Six Months 2022 Compared to First Six Months 2021
Insperity | 2022 Second Quarter Form 10-Q 27
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Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses. Our revenues per WSEE per month increased $33 due to higher average pricing.
Benefits costs
•The cost of group health insurance and related employee benefits increased $4 per WSEE per month and increased 3.1% on a cost per covered employee basis.
•The percentage of WSEEs covered under our health insurance plans was 65.9% in YTD 2022 compared to 67.6% in YTD 2021.
Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Health Insurance Costs,” for a discussion of our accounting for health insurance costs.
Workers’ compensation costs
•Workers’ compensation costs decreased 8.0%, or $5 per WSEE per month, in YTD 2022 compared to YTD 2021.
•As a percentage of non-bonus payroll cost, workers’ compensation costs in YTD 2022 were 0.21% compared to 0.28% in YTD 2021.
Please read Note 2 to the Consolidated Financial Statements, “Accounting Policies – Workers’ Compensation Costs,” for a discussion of our accounting for workers’ compensation costs.
•Payroll taxes as a percentage of payroll costs increased to 7.1% in YTD 2022 compared to 7.0% in YTD 2021.
Operating Expenses
•Salaries, wages and payroll taxes – Salaries, wages and payroll taxes (“Salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional incentive compensation.
•Stock-based compensation – Our stock-based compensation relates to the recognition of non-cash compensation expense over the requisite service period of time-vested and performance-based awards.
•Commissions – Commissions expense consists primarily of amounts paid to sales managers and other sales personnel, including business performance advisors (“BPAs”), as well as, channel referral fees. Commissions are based on new accounts sold and a percentage of revenue generated by such personnel.
Insperity | 2022 Second Quarter Form 10-Q 28
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•Advertising – Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets.
•General and administrative expenses – Our general and administrative expenses primarily include:
•rent expenses related to our service centers and sales offices
•outside professional service fees related to legal, consulting and accounting services
•administrative costs, such as postage, printing and supplies
•employee travel and training expenses
•technology and facility costs, including repairs, maintenance and software-as-a-service (“SaaS”) licensing costs
•Depreciation and amortization – Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, service centers, sales offices, software development and technology infrastructure.
Second Quarter 2022 Compared to Second Quarter 2021
•Stock-based compensation expense for Q2 2022 increased 13.4% to $15.6 million, but decreased $1 on a per WSEE per month basis, compared to Q2 2021. The increase was primarily due to awards issued under our restricted stock program.
Insperity | 2022 Second Quarter Form 10-Q 29
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•General and administrative expenses for Q2 2022 increased 23.6% to $36.1 million, but remained flat on a per WSEE per month basis, compared to Q2 2021. The increase was primarily due to increased travel and event costs.
First Six Months 2022 Compared to First Six Months 2021
June 30,
•Advertising expense for YTD 2022 increased 47.0% to $21.0 million, or $2 per WSEE per month, compared to YTD 2021. The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs, partially offset by a reduction in television advertising.
Other Income (Expense)
Insperity | 2022 Second Quarter Form 10-Q 30
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Income Tax Expense
Non-GAAP Financial Measures
Benefit of Non-GAAP Measure Non-bonus payroll cost Non-bonus payroll cost is a non-GAAP Our management refers to non-bonus
payroll cost in analyzing, reporting
forecasting our workers’
compensation costs.
include these non-GAAP financial
measures because we believe they are
to investors in allowing for
greater transparency related to the
incurred under our current
believe that the exclusion of the
identified items helps us reflect the
fundamentals of our underlying business
expectations, against prior periods,
plan for future periods by
focusing on our underlying operations.
believe that the adjusted results
provide relevant and useful information
investors because they allow
investors to view performance in a
management and improves their ability
understand and assess our operating
lenders to assess our leverage and
ability to make interest payments.
Insperity | 2022 Second Quarter Form 10-Q 31
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8,842 $ 16,572,604 $ 9,706 $ 13,216,067 $ 9,246 Less: Bonus payroll cost 668,503 767
Non-bonus payroll cost $ 7,124,033 $ 8,175 $ 5,656,326 $ 7,750 $ 13,920,248 $ 8,153 $ 10,999,438 $ 7,695 % Change period over period
Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):
Cash, cash equivalents and marketable securities $ 541,650
Adjusted cash, cash equivalents and marketable $ 166,824
Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):
$ 193,599 $ 113 $ 164,427 $ 115 % Change period over period
Insperity | 2022 Second Quarter Form 10-Q 32
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Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):
Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):
Liquidity and Capital Resources
As of June 30, 2022, we had an outstanding letter of credit and borrowings totaling $370.4 million under the Facility. Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.
Insperity | 2022 Second Quarter Form 10-Q 33
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Cash Flows from Operating Activities
•Workers’ compensation plan funding – During YTD 2022, we received $30.2 million for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Net cash flows used in financing activities were $91.6 million for the six months ended June 30, 2022. We paid $37.1 million in dividends and repurchased or withheld $56.8 million in stock.
Insperity | 2022 Second Quarter Form 10-Q 34
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND CONTROLS AND PROCEDURES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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