nsp-20220331

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	March 31, 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 April 19, 2022, 38,307,974 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	10
	Notes to Consolidated Financial Statements	11
Part I, Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Part I, Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Part I, Item 4.	Controls and Procedures	31
Part II, Item 1.	Legal Proceedings	32
Part II, Item 1A.	Risk Factors	32
Part II, Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Part II, Item 6.	Exhibits	33


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 First 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 First Quarter Form 10-Q			5


FINANCIAL STATEMENTS (Unaudited)

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	576,654	$	575,812
Restricted cash	49,429		46,929
Marketable securities	32,610		31,791
Accounts receivable, net	670,223		513,306
Prepaid insurance	22,716		11,285
Other current assets	80,282		53,312
Income taxes receivable	—		12,413
Total current assets	1,431,914		1,244,848
Property and equipment, net of accumulated depreciation	205,064		210,723
Right-of-use (“ROU”) leased assets	61,629		62,830
Prepaid health insurance	9,000		9,000
Deposits – health insurance	7,900		7,900
Deposits – workers’ compensation	190,756		185,027
Goodwill and other intangible assets, net	12,707		12,707
Deferred income taxes, net	—		4,892
Other assets	21,107		15,158
Total assets	$	1,940,077	$	1,753,085
Liabilities and stockholders' equity
Accounts payable	$	7,826	$	6,412
Payroll taxes and other payroll deductions payable	384,767		467,892
Accrued worksite employee payroll cost	645,623		409,653
Accrued health insurance costs	61,399		50,001
Accrued workers’ compensation costs	53,290		50,534
Accrued corporate payroll and commissions	43,279		74,778
Other accrued liabilities	86,627		69,303
Income taxes payable	3,784		—
Total current liabilities	1,286,595		1,128,573
Accrued workers’ compensation cost, net of current	182,888		192,694
Long-term debt	369,400		369,400
Operating lease liabilities, net of current	62,119		64,192
Deferred income taxes, net	5,114		—

Total noncurrent liabilities	619,521		626,286
Commitments and contingencies
Common stock	555		555
Additional paid-in capital	110,053		109,179
Treasury stock, at cost	(681,625)		(665,089)
Retained earnings	604,978		553,581
Total stockholders’ equity (deficit)	33,961		(1,774)
Total liabilities and stockholders’ equity	$	1,940,077	$	1,753,085

See accompanying notes.


Insperity \| 2022 First Quarter Form 10-Q			6


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31,
(in thousands, except per share amounts)	2022		2021

Revenues(1)	$	1,577,837	$	1,286,835
Payroll taxes, benefits and workers’ compensation costs	1,292,063		1,035,390
Gross profit	285,774		251,445
Salaries, wages and payroll taxes	107,439		103,075
Stock-based compensation	9,846		11,822
Commissions	10,310		7,719
Advertising	8,595		5,322
General and administrative expenses	41,005		31,636
Depreciation and amortization	10,184		8,047
Total operating expenses	187,379		167,621
Operating income	98,395		83,824
Other income (expense):
Interest income	148		543
Interest expense	(1,925)		(1,599)
Income before income tax expense	96,618		82,768
Income tax expense	26,734		20,846
Net income	$	69,884	$	61,922
Less distributed and undistributed earnings allocated to participating securities	(47)		(197)
Net income allocated to common shares	$	69,837	$	61,725

Net income per share of common stock
Basic	$	1.82	$	1.62
Diluted	$	1.80	$	1.59

____________________________________

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


	Three Months Ended March 31,
(in thousands)	2022		2021

Gross billings	$	10,357,905	$	8,050,422
Less: WSEE payroll cost	8,780,068		6,763,587
Revenues	$	1,577,837	$	1,286,835

See accompanying notes.


Insperity \| 2022 First Quarter Form 10-Q			7


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
(in thousands)	2022		2021

Cash flows from operating activities
Net income	$	69,884	$	61,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,184		8,047
Stock-based compensation	9,846		11,822
Deferred income taxes	10,006		22,946
Changes in operating assets and liabilities:
Accounts receivable	(156,917)		(168,498)
Prepaid insurance	(11,431)		(47,506)
Other current assets	(26,970)		(14,257)
Other assets and ROU assets	(1,588)		1,508
Accounts payable	1,414		(362)
Payroll taxes and other payroll deductions payable	(83,125)		(67,441)
Accrued worksite employee payroll expense	235,970		168,498
Accrued health insurance costs	11,398		39,451
Accrued workers’ compensation costs	(7,050)		(3,393)
Accrued corporate payroll, commissions and other accrued liabilities	(18,971)		(5,421)
Income taxes payable/receivable	16,197		(5,345)
Total adjustments	(11,037)		(59,951)
Net cash provided by operating activities	58,847		1,971

Cash flows from investing activities
Marketable securities:
Purchases	(6,964)		(10,585)

Proceeds from maturities	5,760		10,580
Property and equipment:
Purchases	(4,686)		(12,072)
Net cash used in investing activities	(5,890)		(12,077)

Cash flows from financing activities
Purchase of treasury stock	(27,441)		(29,686)
Dividends paid	(17,244)		(15,461)

Other	799		2,751
Net cash used in financing activities	(43,886)		(42,396)
Net increase (decrease) in cash, cash equivalents and restricted cash	9,071		(52,502)
Cash, cash equivalents and restricted cash beginning of period	807,768		786,699
Cash, cash equivalents and restricted cash end of period	$	816,839	$	734,197


Insperity \| 2022 First Quarter Form 10-Q			8


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)


	Three Months Ended March 31,
(in thousands)	2022		2021

Supplemental schedule of cash and cash equivalents and restricted cash
Cash and cash equivalents	$	575,812	$	554,846
Restricted cash	46,929		45,522
Deposits – workers’ compensation	185,027		186,331
Cash, cash equivalents and restricted cash beginning of period	$	807,768	$	786,699

Cash and cash equivalents	$	576,654	$	494,777
Restricted cash	49,429		46,353
Deposits – workers’ compensation	190,756		193,067
Cash, cash equivalents and restricted cash end of period	$	816,839	$	734,197

Supplemental operating lease cash flow information:
ROU assets obtained in exchange for lease obligations	$	775	$	12,104

See accompanying notes.


Insperity \| 2022 First Quarter Form 10-Q			9


FINANCIAL STATEMENTS (Unaudited)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2022 and 2021


	Common Stock Issued			Additional Paid-In Capital		Treasury Stock		Retained Earnings and AOCI		Total
(in thousands)	Shares	Amount

Balance at December 31, 2021	55,489	$	555	$	109,179	$	(665,089)	$	553,581	$	(1,774)
Purchase of treasury stock, at cost	—	—		—		(27,441)		—		(27,441)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(9,214)		10,365		(1,151)		—
Stock-based compensation expense	—	—		9,575		271		—		9,846

Other	—	—		513		269		—		782
Dividends paid	—	—		—		—		(17,244)		(17,244)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(92)		(92)
Net income	—	—		—		—		69,884		69,884
Balance at March 31, 2022	55,489	$	555	$	110,053	$	(681,625)	$	604,978	$	33,961

Balance at December 31, 2020	55,489	$	555	$	95,528	$	(626,984)	$	575,033	$	44,132
Purchase of treasury stock, at cost	—	—		—		(29,686)		—		(29,686)
Issuance of equity-based incentive awards and dividend equivalents	—	—		(25,085)		26,421		(1,336)		—
Stock-based compensation expense	—	—		10,851		971		—		11,822
Exercise of stock options	—	—		(329)		569		—		240
Other	—	—		364		318		—		682
Dividends paid	—	—		—		—		(15,461)		(15,461)
Unrealized loss on marketable securities, net of tax	—	—		—		—		(7)		(7)
Net income	—	—		—		—		61,922		61,922
Balance at March 31, 2021	55,489	$	555	$	81,329	$	(628,391)	$	620,151	$	73,644


Insperity \| 2022 First Quarter Form 10-Q			10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


1.			Basis of Presentation

Insperity, Inc., a Delaware corporation (“Insperity,” “we,” “our,” and “us”), provides an array of human resources (“HR”) and business solutions designed to help improve business performance. Our most comprehensive HR services offerings are provided through our professional employer organization (“PEO”) services, known as Workforce Optimization® and Workforce SynchronizationTM solutions (together, our “PEO HR Outsourcing solutions”), which we provide by entering into a co-employment relationship with our clients. Our PEO HR Outsourcing solutions encompass a broad range of HR functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management solution, the Insperity PremierTM platform.

In addition to our PEO HR Outsourcing solutions, we offer a comprehensive traditional payroll and human capital management solution, known as our Workforce AccelerationTM solution. We also offer a number of other business performance solutions, including Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services, and Insurance Services, many of which are offered as a cloud-based software solution. These other products or services are offered separately or with our other solutions.

The Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The accompanying Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements at and for the year ended December 31, 2021. Our Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information or footnotes required by GAAP for complete financial statements. Our Condensed Consolidated Balance Sheet at March 31, 2022 and our Consolidated Statements of Operations for the three month periods ended March 31, 2022 and 2021, our Consolidated Statements of Cash Flows for the three month periods ended March 31, 2022 and 2021 and our Consolidated Statements of Stockholders’ Equity for the three month periods ended March 31, 2022 and 2021, have been prepared by us without audit. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows have been made, and all such adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to the 2022 presentation.

The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.


2.			Accounting Policies

Health Insurance Costs

We provide group health insurance coverage to our WSEEs in our PEO HR Outsourcing solutions through a national network of carriers, including UnitedHealthcare (“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Tufts, all of which provide fully insured policies or service contracts.

The policy with United provides approximately 87% of our participants’ health insurance coverage. While the policy with United is a fully-insured plan, as a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model. Effective January 1, 2020, under the amended agreement with United, we no longer have financial responsibilities for a participant’s annual claim costs that exceed $1 million. Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense, which is a component of direct costs, in our Consolidated Statements of Operations. The estimated incurred claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under


Insperity \| 2022 First Quarter Form 10-Q			11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

the plan; and (3) the number of participants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics, and other factors are incorporated into the benefits costs, which requires a significant level of judgment.

Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and a liability for the excess costs would be accrued in our Condensed Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Condensed Consolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $6.5 million at March 31, 2022, and is included in deposits - health insurance as a long-term asset on our Condensed Consolidated Balance Sheets. As of March 31, 2022, Plan Costs were less than the net premiums paid and owed to United by $13.3 million. As this amount is in excess of the agreed-upon $9.0 million surplus maintenance level, the $4.3 million difference is included in prepaid insurance, a current asset, in our Condensed Consolidated Balance Sheets. The premiums, including the additional quarterly premiums, owed to United at March 31, 2022 were $55.0 million, which is included in accrued health insurance costs, a current liability in our Condensed Consolidated Balance Sheets. Our benefits costs incurred in the first three months of 2022 included an increase of $0.8 million for changes in estimated run-off related to prior periods. Our benefits costs incurred in the first three months of 2021 included an increase of $5.5 million for changes in estimated run-off related to prior periods.

Workers’ Compensation Costs

Our workers’ compensation coverage for our WSEEs in our PEO HR Outsourcing solutions is provided through an arrangement with the Chubb Group of Insurance Companies or its predecessors (the “Chubb Program”). The Chubb Program is fully insured in that Chubb has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Under the Chubb Program for claims incurred on or before September 30, 2019, we have financial responsibility to Chubb for the first $1 million layer of claims per occurrence and, for claims over $1 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1 million. Chubb bears the financial responsibility for all claims in excess of these levels. Effective for claims incurred on or after October 1, 2019, we have financial responsibility to Chubb for the first $1.5 million layer of claims per occurrence and, for claims over $1.5 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1.5 million.

Because we bear the financial responsibility for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.

We utilize a third-party actuary to estimate our loss development rate, which is primarily based upon the nature of WSEEs’ job responsibilities, the location of WSEEs, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the three months ended March 31, 2022 and 2021, we reduced accrued workers’ compensation costs by $14.9 million and $13.2 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate utilized in the 2022 period was 1.5% and in the 2021 period was 0.5%) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table provides the activity and balances related to incurred but not paid workers’ compensation claims:


	Three Months Ended March 31,
(in thousands)	2022		2021

Beginning balance, January 1,	$	239,623	$	240,761
Accrued claims	8,373		9,616
Present value discount, net of accretion	(1,309)		(442)
Paid claims	(14,370)		(13,246)
Ending balance	$	232,317	$	236,689

Current portion of accrued claims	$	49,429	$	46,353
Long-term portion of accrued claims	182,888		190,336
Total accrued claims	$	232,317	$	236,689

The current portion of accrued workers’ compensation costs on our Condensed Consolidated Balance Sheets at March 31, 2022 includes $3.9 million of workers’ compensation administrative fees.

As of March 31, 2022 and 2021, the undiscounted accrued workers’ compensation costs were $248.0 million and $253.2 million, respectively.

At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated WSEE payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits – workers’ compensation, a long-term asset in our Condensed Consolidated Balance Sheets. At March 31, 2022, we had restricted cash of $49.4 million and deposits – workers’ compensation of $190.8 million.

Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities on our Condensed Consolidated Balance Sheets.

Revenue and Direct Cost Recognition

We enter into contracts with our customers for human resources services based on a stated rate and price in the contract. Our contracts generally establish pricing for a period of 12 months, and are generally cancellable at any time by either party with 30-days’ notice. Our performance obligations are satisfied as services are rendered each month. The term between invoicing and when our performance obligations are satisfied is not significant. Payment terms are typically due concurrently with the invoicing of our PEO services. We do not have significant financing components or significant payment terms.

Our revenue is generally recognized ratably over the payroll period as WSEEs perform their service at the client worksite. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but unbilled of $655.3 million and $490.5 million at March 31, 2022 and December 31, 2021, respectively, are included in accounts receivable, net on our Condensed Consolidated Balance Sheets.

Pursuant to the “practical expedients” provided under Accounting Standards Update No 2014-09, we expense sales commissions when incurred because the terms of our contracts generally are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Operations.


Insperity \| 2022 First Quarter Form 10-Q			13


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Our revenue for our PEO HR Outsourcing solutions by geographic region and for our other products and services offerings are as follows:


	Three Months Ended March 31,
(in thousands)	2022		2021		% Change

Northeast	$	449,925	$	373,629	20.4	%
Southeast	202,201		156,260		29.4	%
Central	271,310		225,700		20.2	%
Southwest	308,838		256,979		20.2	%
West	330,771		261,354		26.6	%
	1,563,045		1,273,922		22.7	%
Other revenue	14,792		12,913		14.6	%
Total revenue	$	1,577,837	$	1,286,835	22.6	%


3.			Cash, Cash Equivalents and Marketable Securities

The following table summarizes our cash and investments in cash equivalents and marketable securities held by investment managers and overnight investments:


	March 31, 2022						December 31, 2021
(in thousands)	Cash & Cash Equivalents		Marketable Securities		Total		Cash & Cash Equivalents		Marketable Securities		Total

Overnight holdings	$	566,030	$	—	$	566,030	$	490,154	$	—	$	490,154
Investment holdings	13,066		32,610		45,676		88,951		31,791		120,742
Cash in demand accounts	26,736		—		26,736		47,331		—		47,331
Outstanding checks	(29,178)		—		(29,178)		(50,624)		—		(50,624)
Total	$	576,654	$	32,610	$	609,264	$	575,812	$	31,791	$	607,603

Our cash and overnight holdings fluctuate based on the timing of clients’ payroll processing cycles. Our cash, cash equivalents and marketable securities at March 31, 2022 and December 31, 2021 included $338.3 million and $424.8 million, respectively, of funds associated with federal and state income tax withholdings, employment taxes, and other payroll deductions, as well as $117.8 million and $20.1 million, respectively, in client prepayments.


4.			Fair Value Measurements

We account for our financial assets in accordance with Accounting Standard Codification 820, Fair Value Measurement. This standard defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels based on valuation factors:

•Level 1 - quoted prices in active markets using identical assets

•Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs

•Level 3 - significant unobservable inputs


Insperity \| 2022 First Quarter Form 10-Q			14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Fair Value of Instruments Measured and Recognized at Fair Value

The following table summarizes the levels of fair value measurements of our financial assets:


	March 31, 2022						December 31, 2021
(in thousands)	Total		Level 1		Level 2		Total		Level 1		Level 2

Money market funds	$	579,096	$	579,096	$	—	$	579,105	$	579,105	$	—
U.S. Treasury bills	6,856		6,856		—		5,782		5,782		—
Municipal bonds	25,754		—		25,754		26,009		—		26,009
Total	$	611,706	$	585,952	$	25,754	$	610,896	$	584,887	$	26,009

The municipal bond securities valued as Level 2 are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of third-party pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investments in active markets and other observable inputs.

The following is a summary of our available-for-sale marketable securities:


(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

March 31, 2022
U.S. Treasury bills	$	6,874	$	—	$	(18)	$	6,856
Municipal bonds	25,837		—		(83)		25,754

December 31, 2021
U.S. Treasury bills	$	5,783	$	—	$	(1)	$	5,782
Municipal bonds	26,017		—		(8)		26,009

As of March 31, 2022, the contractual maturities of the marketable securities in our portfolio were less than one year.

Fair Value of Other Financial Instruments

The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, deposits and accounts payable approximate their fair values due to the short-term maturities of these instruments.

As of March 31, 2022, the carrying value of borrowings under our revolving credit facility approximates fair value and was classified as Level 2 in the fair value hierarchy. Please read Note 5, “Long-Term Debt,” for additional information.


5.			Long-Term Debt

We have a revolving credit facility (the “Facility”) with borrowing capacity of up to $500 million. The Facility may be further increased to $550 million based on the terms and subject to the conditions set forth in the agreement relating to the Facility (as amended, the “Credit Agreement”). The Facility is available for working capital and general corporate purposes, including acquisitions, stock repurchases and issuances of letters of credit. Our obligations under the Facility are secured by 65% of the stock of our captive insurance subsidiary and are guaranteed by all of our domestic subsidiaries other than certain excluded subsidiaries. At March 31, 2022, our outstanding balance on the Facility was $369.4 million, and we had an outstanding $1.0 million letter of credit issued under the Facility, resulting in an available borrowing capacity of $129.6 million.


Insperity \| 2022 First Quarter Form 10-Q			15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Facility matures on September 13, 2024. Borrowings under the Facility bear interest at an annual rate equal to an alternate base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin varies (1) in the case of LIBOR loans, from 1.50% to 2.25% and (2) in the case of alternate base rate loans, from 0.00% to 0.50%. The alternate base rate is the highest of (1) the prime rate most recently published in The Wall Street Journal, (2) the federal funds rate plus 0.50% and (3) the 30-day LIBOR rate plus 2.00%. We also pay an unused commitment fee on the average daily unused portion of the Facility at a rate of 0.25% per year. The average interest rate for the three month period ended March 31, 2022 was 1.9%. Interest expense and unused commitment fees are recorded in other income (expense). Following early opt-in by us or our lenders or such other time as LIBOR rates have permanently or indefinitely ceased to be published by the regulatory supervisory authority of LIBOR, then LIBOR will be replaced by a rate per annum equal to the secured overnight financing rate published by the Federal Reserve Bank of New York or such other benchmark as determined in accordance with the Credit Agreement.

The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, but are not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock, acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply with financial covenants limiting our total funded debt, minimum interest coverage ratio, and maximum leverage ratio. We were in compliance with all financial covenants under the Credit Agreement at March 31, 2022.


6.			Stockholders' Equity

During the first three months of 2022, we repurchased or withheld an aggregate of 308,057 shares of our common stock, as described below.

Repurchase Program

Our Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). The purchases may be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions and other factors. During the three months ended March 31, 2022, 209,841 shares were repurchased under the Repurchase Program. As of March 31, 2022, we were authorized to repurchase an additional 1,493,787 shares under the Repurchase Program.

Withheld Shares

During the three months ended March 31, 2022, we withheld 98,216 shares to satisfy tax withholding obligations for the vesting of long-term incentive and restricted stock awards.

Dividends

The Board declared quarterly dividends as follows:


(amounts per share)	2022		2021

First quarter	$	0.45	$	0.40

During the three months ended March 31, 2022 and 2021, we paid dividends totaling $17.2 million and $15.5 million, respectively.


Insperity \| 2022 First Quarter Form 10-Q			16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


7.			Net Income Per Share

We utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities, which includes unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-based payments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are not allocated to participating securities. Basic net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated to common shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of time-vested and performance-based restricted stock units (“RSUs”).

The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per share computations:


	Three Months Ended March 31,
(in thousands)	2022		2021

Net income	$	69,884	$	61,922

SEC Form 10-Q filed by Insperity Inc.