Insperity, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide a clear standalone fourth-quarter income statement or cash flow.
Business context
Insperity provides HR outsourcing and related services, primarily through professional employer organization (PEO) arrangements. Under these arrangements, Insperity and clients share employer responsibilities for worksite employees (WSEEs). Its core offerings include payroll, benefits, workers’ compensation, compliance, and HR support. Reported revenue excludes WSEE payroll costs and principally reflects service markups.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $5.939 billion | $4.973 billion |
| Gross profit | $1.011 billion | $820.1 million |
| Operating income | $250.2 million | $173.3 million |
| Net income | $179.4 million | $124.1 million |
| Diluted EPS | $4.64 | $3.18 |
| Adjusted EBITDA | $352.3 million | $254.9 million |
| Net cash from operating activities | $347.7 million | $260.2 million |
- Revenue grew 19.4%, driven primarily by a 17.7% increase in average paid WSEEs to 295,005, and a 1.5% increase in revenue per WSEE per month.
- Gross profit increased 23.3%; gross profit per WSEE per month rose 4.8% to $286. Operating expenses grew 17.7% to $761.0 million but were flat per WSEE per month at $215.
- Calculated from reported figures, gross margin was approximately 17.0% versus 16.5% in 2021; operating margin was approximately 4.2% versus 3.5%.
- Investing cash outflow was $32.1 million, including $30.4 million of capital expenditures. Financing cash outflow was $141.2 million, including $76.6 million of dividends and $73.3 million of share repurchases.
Liquidity, debt and capital
- Cash, cash equivalents and marketable securities totaled $765.9 million at year-end. This includes $504.8 million of payroll-related withholdings and $36.8 million of client prepayments; management’s non-GAAP adjusted cash measure, after excluding those amounts, was $224.3 million.
- Working capital was $158.5 million, up from $116.3 million in 2021. The company reported $347.7 million of operating cash flow.
- Long-term debt under the $650 million revolving facility was $369.4 million; an additional $1.0 million letter of credit was outstanding. The facility matures June 30, 2027. The company reported compliance with its financial covenants at year-end.
- Management said cash, marketable securities, operating cash flow and facility availability were expected to meet 2023 liquidity needs.
Material changes, outlook and key risks
- Net income rose 44.5% year over year. Growth reflected higher WSEE volumes and improved gross profit per WSEE, alongside increased operating expenses.
- Workers’ compensation costs included a $42.2 million reduction in estimates for prior-period claims, compared with a $41.7 million reduction in 2021. Health insurance costs included a $12.1 million increase from prior-period claims run-off estimates, versus a $4.9 million increase in 2021. These estimates are judgmental and were identified as critical audit matters.
- For 2023, management expected average paid WSEEs of 317,000–326,000, an increase of 7.5%–10.5% from 2022. The supplied filing text does not provide a clear 2023 earnings or revenue forecast.
- Management cited uncertainty from economic slowdowns, inflation and labor shortages; health and workers’ compensation claim variability; client attrition and collection exposure; and regulatory uncertainty concerning PEO employer status, payroll taxes and benefits. Insperity assumes payroll, tax and benefit obligations even when clients do not pay promptly.
- Workers’ compensation coverage with Chubb was due to expire September 30, 2023; Chubb had committed to certain terms for one additional policy year, subject to customary conditions. The United health contract covering most participants expires December 31, 2026, subject to cancellation on 180 days’ notice.
- The company disclosed ordinary-course litigation and claims; management did not expect their outcomes to materially affect financial position or results. The auditor issued unqualified opinions on the financial statements and internal controls; two critical audit matters concerned health and workers’ compensation claim estimates.
Important facts for investors to verify
- Whether WSEE growth and the 2023 range are being achieved, and how client retention, new sales and middle-market growth develop.
- Whether health and workers’ compensation claims, reserve estimates and future experience support the reported gross profit; in particular, the impact of prior-period workers’ compensation reserve reductions.
- Whether the company renews or replaces Chubb workers’ compensation coverage on acceptable terms before the stated expiration.
- How much reported cash is available for corporate use after payroll withholdings and client funds, and how facility borrowings, variable rates, dividends and repurchases affect liquidity and covenant headroom.
- Whether inflation, labor costs, client payment difficulties, cybersecurity or regulatory changes materially affect margins, operations or client demand.