Insperity, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing includes full-year results; it does not provide a separate fourth-quarter income statement summary. Insperity provides HR outsourcing and related services, principally through its PEO co-employment solutions for small and medium-sized businesses. Reported revenue excludes client worksite employee payroll costs.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $4.973 billion | $4.287 billion | +16.0% |
| Gross profit | $820.1 million | $806.9 million | +1.6% |
| Operating income | $173.3 million | $194.7 million | -11.0% |
| Net income | $124.1 million | $138.2 million | -10.2% |
| Diluted EPS | $3.18 | $3.54 | -10.2% |
| Adjusted EBITDA (non-GAAP) | $254.9 million | $288.6 million | -11.7% |
| Cash provided by operations | $260.2 million | $346.4 million | Lower |
- Approximate margins on reported revenue: gross 16.5% (2020: 18.8%), operating 3.5% (2020: 4.5%), and net 2.5% (2020: 3.2%).
- Average paid worksite employees (WSEEs) rose 7.1% to 250,745. Revenue per WSEE per month rose 8.4% to $1,653, while gross profit per WSEE per month fell 4.9% to $273 and adjusted EBITDA per WSEE per month fell 17.5% to $85.
- Management attributed revenue growth to WSEE growth, higher average pricing (up 5.1%), and the non-recurrence of 2020 payroll-tax deferrals and client fee credits. The 2020 FICA deferral credits were $121.3 million and had offset revenue and direct costs.
- Benefits costs per covered employee rose 9.8% year over year, reflecting recovery in healthcare utilization and COVID-related testing, vaccination, and treatment costs. Workers’ compensation costs included a $41.7 million reduction for favorable revisions to prior-period claim estimates.
Liquidity, debt, and capital allocation
- At year-end, cash, cash equivalents, and marketable securities totaled $607.6 million. This included $424.8 million of payroll-related withholdings and $20.1 million in client prepayments; management’s non-GAAP adjusted cash measure, excluding these amounts, was $162.7 million.
- Working capital was $116.3 million, down from $172.3 million at year-end 2020. Operating cash flow was $260.2 million; capital expenditures were $32.9 million.
- Long-term debt was $369.4 million under a $500 million revolving credit facility maturing September 13, 2024. Including letters of credit, borrowings and letters of credit totaled $370.4 million. The company reported compliance with facility covenants at year-end; borrowings bear variable interest.
- Insperity paid $144.2 million in dividends, including a $76.7 million special dividend, and repurchased approximately 716,000 shares for $69.7 million during 2021. Financing cash outflow was $208.1 million.
- Management said cash, marketable securities, operating cash flow, and facility availability should be adequate for 2022 liquidity needs.
Outlook, risks, and unusual items
- Management expected average paid WSEEs of 275,100–277,500 in the first quarter of 2022 and projected year-over-year first-quarter growth of 18%–19%, equivalent to 2.3%–3.2% sequential growth from fourth-quarter 2021. The filing does not provide full-year 2022 earnings guidance.
- Management cautioned that healthcare claims and costs could remain volatile and above historical trends as pandemic-related utilization changes and COVID-19 costs evolve. Labor shortages, wage and other inflation, and limited ability to reprice fixed-term client contracts may pressure margins.
- Material business risks include clients’ ability to pay while Insperity remains responsible for WSEE wages, taxes, and benefits; short-notice client cancellations; healthcare and workers’ compensation claims estimates; cybersecurity and service disruptions; and uncertainty in laws governing PEO co-employment and benefits.
- Workers’ compensation coverage with Chubb was scheduled to expire September 30, 2022; Chubb had committed to certain terms through September 2024, subject to customary conditions. Insperity’s primary UnitedHealthcare contract covers approximately 87% of health plan coverage and runs to December 31, 2026, subject to cancellation on notice.
- A securities class action filed in 2020 alleges materially false or misleading statements and seeks unspecified damages and other relief. Insperity disputes the allegations and intends to defend the case; no provision was recorded because the outcome was uncertain.
- Auditors issued unqualified opinions on the financial statements and internal controls. The audit identified health insurance and workers’ compensation claim estimates as critical audit matters.
Important facts for investors to verify
- Whether WSEE growth and pricing can offset rising benefits, payroll, and other operating costs while restoring per-WSEE profitability.
- The development of healthcare claims and the assumptions used to estimate incurred-but-not-reported claims, including the year-end health-plan deficit and related accrued costs.
- The durability of favorable workers’ compensation reserve revisions and the adequacy of the $239.6 million accrued claims balance.
- Usable liquidity after excluding payroll-related funds and client prepayments, as well as debt availability, variable-rate exposure, and covenant headroom.
- Progress and realized results against first-quarter 2022 WSEE guidance, and renewal of workers’ compensation coverage on competitive terms.
- Developments in the securities class action and any resulting financial exposure.