INSPERITY, INC.

Previous wording

•Average number of WSEEs paid per month decreased 1%

Current wording

•Average number of WSEEs paid per month increased 1%

Previous wording

•Net income and diluted earnings per share (“EPS”) decreased 93% and 94% to $3 million and $0.07, respectively

Current wording

•Net income and diluted earnings per share (“EPS”) both decreased 35% to $51 million and $1.35, respectively

Previous wording

•Adjusted net income and adjusted EPS both decreased 73% to $15 million and $0.39, respectively

Current wording

•Adjusted net income and adjusted EPS both decreased 31% to $59 million and $1.57, respectively

Previous wording

•During Q3 2024, average WSEEs paid decreased 2% compared to Q3 2023. The number of WSEEs paid from new client sales declined compared with Q3 2023, while client retention and the net change in our client base remained consistent with Q3 2023.

Current wording

•During Q1 2025, average WSEEs paid increased 1% compared to Q1 2024. The number of WSEEs paid from new client sales and client retention increased compared with Q1 2024, while the net change in our client base decreased compared with Q1 2024.

Previous wording

percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Current wording

Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans. Because our monthly markup is computed in part as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Previous wording

Our revenues for Q3 2024 were $1.6 billion, an increase of 1%, primarily due to the following:

Current wording

Our revenues for Q1 2025 were $1.9 billion, an increase of 3%, primarily due to the following:

Previous wording

•Revenues per WSEE per month increased 3%, or $44, partially offset by a 2% decrease in average WSEEs paid.

Current wording

•Revenues per WSEE per month increased 3%, or $52.

Previous wording

The middle market sector, which we generally define as those companies with approximately 150 to 5,000 WSEEs, includes smaller clients whose number of WSEEs has grown to approximately 150 or more WSEEs. Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector. Our average number of WSEEs per month in our middle market sector decreased 4% during YTD 2024 compared to YTD 2023, representing approximately 26% of our total average paid WSEEs in both YTD 2024 and YTD 2023.

Current wording

We generally define the middle market sector as those companies with approximately 150 to 5,000 WSEEs. Currently, we have a dedicated sales management, service personnel, and consulting staff who concentrate solely on the middle market sector. Our average number of WSEEs per month in our middle market sector increased 4% during Q1 2025 compared to Q1 2024, representing approximately 26% and 25% of our total average paid WSEEs in Q1 2025 and Q1 2024, respectively.

Previous wording

In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, our operating results are significantly impacted by our ability to accurately estimate our direct costs relative to the revenues derived from the markup component of our gross billings.

Current wording

In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin.

Previous wording

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Outsourcing Solutions clients, which are subject to pricing arrangements that are typically renewed annually. We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

Current wording

Our gross profit per WSEE and operating results are significantly impacted by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Outsourcing Solutions clients, which are subject to pricing arrangements that are typically renewed annually. We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

Previous wording

Gross profit for Q3 2024 decreased 11% to $229 million compared to $258 million in Q3 2023. Gross profit per WSEE per month for Q3 2024 decreased $26 to $247 compared to $273 in Q3 2023 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Current wording

Gross profit for Q1 2025 decreased 10% to $310 million compared to $345 million in Q1 2024. Gross profit per WSEE per month for Q1 2025 decreased $40 to $338 compared to $378 in Q1 2024 due primarily to higher direct costs, offset in part by higher average pricing, as discussed below.

Previous wording

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 $44 due to higher average pricing of 3%.

Current wording

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 $52 due to higher average pricing of 3%.

Previous wording

The net increase in direct costs between Q3 2024 and Q3 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $14 million as discussed below. The $70 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Current wording

The net increase in direct costs between Q1 2025 and Q1 2024 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $32 million as discussed below. The $92 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Previous wording

•The cost of group health insurance and related employee benefits increased $45 per WSEE per month and increased 7.7% on a cost per covered employee basis in Q3 2024 as compared to Q3 2023.

Current wording

•The cost of group health insurance and related employee benefits increased $56 per WSEE per month and increased 8.4% on a cost per covered employee basis driven by an acceleration in inpatient, outpatient, and pharmacy costs and in the frequency of large claim activity in Q1 2025 as compared to Q1 2024.

Previous wording

•The percentage of WSEEs covered under our health insurance plans was 64% in YTD 2024 compared to 65% in YTD 2023.

Current wording

•The percentage of WSEEs covered under our health insurance plans was 64% in both Q1 2025 and Q1 2024.

Previous wording

•Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $12 million, or $13 per WSEE per month, in Q3 2024 compared to a decrease in costs of $23 million, or $24 per WSEE per month, in Q3 2023.

Current wording

•Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $12 million, or $13 per WSEE per month, in Q1 2025 compared to a decrease in costs of $18 million, or $20 per WSEE per month, in Q1 2024.

Previous wording

•Workers’ compensation costs increased $4 per WSEE per month in Q3 2024 compared to Q3 2023 while non-bonus payroll costs remained flat.

Current wording

•Workers’ compensation costs increased 13%, or $2 per WSEE per month, in Q1 2025 compared to Q1 2024.

Previous wording

•As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.25% in Q3 2024 compared to 0.21% in Q3 2023.

Current wording

•As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.24% in Q1 2025 compared to 0.22% in Q1 2024.

Previous wording

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.

Current wording

•Our continued discipline around our client selection, workplace safely and claims management has allowed for claims to be closed out at amounts below our original cost estimates, resulting in a reduction in workers’ compensation costs of $7 million, or 0.08% of non-bonus payroll costs in Q1 2025, compared to a reduction of $9 million, or 0.11% of non-bonus payroll costs in Q1 2024.

Previous wording

•Payroll taxes increased 2% on a 3% increase in payroll costs, or $20 per WSEE per month.

Current wording

•Payroll taxes increased 5% on a 6% increase in payroll costs, or $33 per WSEE per month.

Previous wording

•Payroll taxes as a percentage of payroll costs were 6% in both Q3 2024 and Q3 2023.

Current wording

•Payroll taxes as a percentage of payroll costs were 8% in both Q1 2025 and Q1 2024.

Previous wording

•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.

Current wording

•Stock-based compensation — Our stock-based compensation relates to the recognition of non-cash compensation expense over the requisite service period of time-based and performance-based awards.

Previous wording

Operating expenses for Q3 2024 increased 15% to $228 million compared to $199 million in Q3 2023. Operating expenses per WSEE per month for Q3 2024 increased 17% to $246 compared to $210 in Q3 2023.

Current wording

Operating expenses for Q1 2025 increased 2% to $242 million compared to $237 million in Q1 2024. Operating expenses per WSEE per month for Q1 2025 increased 2% to $264 compared to $260 in Q1 2024.

Previous wording

For the nine months ended September 30, 2024, our provision for income taxes differed from the U.S. statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards. During the first nine months of 2024 we did not recognize an income tax benefit as compared to an income tax benefit of $5 million for the first nine months of 2023, related to the vesting of long-term incentive and restricted stock awards. During Q3 2024, we recognized a $1 million, or $0.02 per share, tax benefit related to research and development activities pertaining to the 2023 tax year.

Current wording

For the three months ended March 31, 2025, our provision for income taxes differed from the U.S. statutory rate primarily due to state income taxes, non-deductible expenses and vesting of restricted and long-term incentive stock awards. During the first three months of 2025, we recognized additional income tax of $1 million related to the vesting of long-term incentive and restricted stock awards, primarily due to the vesting date price being below the grant date price.

Previous wording

We had $486 million in cash, cash equivalents and marketable securities at September 30, 2024, of which approximately $255 million was payable in early October 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, approximately $19 million represented client prepayments that were payable in October 2024. At September 30, 2024, we had working capital of $200 million compared to $159 million at December 31, 2023. We currently believe that our cash on hand, marketable securities, cash flows from operations, and availability under the Facility will be adequate to meet our liquidity requirements for the remainder of 2024. We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

Current wording

We had $568 million in cash, cash equivalents and marketable securities at March 31, 2025, of which approximately $404 million was payable in April 2025 for withheld federal and state income taxes, employment taxes and other payroll deductions. Approximately $40 million represented client prepayments that were invoiced in April 2025. At March 31, 2025, we had working capital of $188 million compared to $155 million at December 31, 2024. We currently believe that our cash on hand, marketable securities, cash flows from operations, and availability under the Facility will be adequate to meet our liquidity requirements for the remainder of 2025. We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

Previous wording

Net cash used in operating activities in the first nine months of 2024 was $99 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:

Current wording

Net cash used in operating activities in the first three months of 2025 was $443 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:

Previous wording

•Timing of client payments / payroll taxes — We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients no later than the same day as the payment of WSEE payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday. In the nine months ended September 30, 2024, the last business day of the reporting period was a Monday, client prepayments were $19 million and employment taxes and other deductions were $255 million. In the nine months ended September 30, 2023, the last business day of the reporting period was a Friday, client prepayments were $20 million and employment taxes and other deductions were $483 million, which included $149 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that were distributed to clients in early October 2023.

Current wording

•Timing of client payments / payroll taxes — We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients no later than the same day as the payment of WSEE payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday. In the three months ended March 31, 2025, the last business day of the reporting period was a Monday, client prepayments were $40 million and employment taxes and other deductions were $404 million. In the three months ended March 31, 2024, the last business day of the reporting period was a Friday, client prepayments were $34 million and employment taxes and other deductions were $443 million. In addition, $440 million of client employee retention tax credits received on their behalf from the Internal Revenue Service during the fourth quarter of 2024 were distributed to clients in early 2025.

Previous wording

•Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. As of September 30, 2024, Plan Costs were less than the net premiums paid and owed to United by $28 million, which is $19 million in excess of our agreed-upon $9 million surplus maintenance level. The $19 million difference is therefore reflected as a current asset and $9 million is reflected as a long-term asset on our Condensed Consolidated Balance Sheet at September 30, 2024. In addition, the premiums owed to United at September 30, 2024, were $39 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheet.

Current wording

•Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. As of March 31, 2025, Plan Costs were less than the net premiums paid and owed to United by $52 million, which is $43 million in excess of our agreed-upon $9 million surplus maintenance level. The $43 million difference is therefore reflected as a current asset and $9 million is reflected as a long-term asset on our Condensed Consolidated Balance Sheet at March 31, 2025. In addition, the premiums owed to United at March 31, 2025, were $64 million, which is included in accrued health insurance costs, a current liability, on our Condensed Consolidated Balance Sheet.

Previous wording

•Operating results — Our adjusted net income has a significant impact on our operating cash flows. Our adjusted net income decreased 27% to $134 million in the first nine months of 2024, compared to $183 million in the first nine months of 2023. Please read “Results of Operations.”

Current wording

•Operating results — Our adjusted net income has a significant impact on our operating cash flows. Our adjusted net income decreased 31% to $59 million in the first three months of 2025, compared to $86 million in the first three months of 2024. Please read “Results of Operations.”

Previous wording

Net cash flows used in investing activities were $25 million for the nine months ended September 30, 2024, primarily due to property and equipment purchases.

Current wording

Net cash flows used in investing activities were $6 million for the three months ended March 31, 2025, primarily due to property and equipment purchases.

Previous wording

Net cash flows used in financing activities were $163 million for the nine months ended September 30, 2024. We paid $67 million in dividends and repurchased or withheld $52 million in stock. In addition, client funds liability and other financing activities decreased by $44 million.

Current wording

Net cash flows used in financing activities were $49 million for the three months ended March 31, 2025. We paid $23 million in dividends and repurchased or withheld $19 million in stock. In addition, client funds liability and other financing activities decreased by $7 million.