NSP 10-K & 10-Q changes, risk factors and insider trading

Adverse economic conditions or changes in the employment levels could negatively affect our industry, business, and results of operations.

The small and medium-sized business market is sensitive to changes in economic activity levels as well as the credit markets. As a result, the demand for the outsourced HR services we provide clients could be adversely impacted by weak economic conditions or difficulty obtaining credit.credit at favorable rates or at all. Current and prospective clients may respond to such conditions by reducing employment levels, compensation levels, employee benefit levels and outsourced HR services. In addition, during periods of weak economic conditions, current clients may have difficulty meeting their financial obligations to us and may select alternative HR services at more competitive rates than we offer. Further, our growth is partially dependent on hiring of new employees by our existing clients, which may be negatively impacted during periods of tight labor markets, such as the low unemployment environment experienced during 2022 and 2023, and during economic slowdowns, such as the high unemployment levels experienced during 2020. Such developments could adversely impact our financial condition, results of operationsoperations, and future growth rates.

If the claims that we aremade unablefor toemployee complyretention withtax orcredits meetunder client expectations regarding certain COVID-19COVID relief programs,programs are disallowed, our business, financial condition, and results of operations could be materially adversely affected.

Further,In connection with certain COVID relief programs, PEO clients arewere dependent on their PEO to process Employeeemployee Retentionretention Taxtax Creditscredits (“ERC”) on a consolidated basis, including through amending previously filed payroll tax forms with the IRS. The IRS has experienced significant backlogs in processing amended tax forms from employers seeking ERC refunds and we are currently awaiting IRS review of a number of ERC claims with respect to our PEO clients. Currently,While the deadline to submit any ERC claims for relevant periods in 2021 iswas April 2025.2025, Athe pendingOBBB federalthat bill,became Thelaw Taxin ReliefJuly for American Families and Workers Act of 2024 (H.R. 7024), however, would2025 retroactively accelerateaccelerated the deadline for all claims to January 31, 2024. If any of the ERC claims that we made on behalf of our clients were denied or otherwise deemed insufficient, we may not be able to perfect our filings on a timely basis. Further, eligibility for the ERC is dependent on certain operational information of our clients. The lack of guidance from the IRS on the application of deferred payroll taxes discussedunder aboveCOVID relief programs may also impact the amount of ERC refunds received on behalf of our clients if those deferred payroll taxes are deducted from ERC funds received or delay our receipt of the ERC funds. Further, if the IRS were to determine that any of our clients were not eligible for the ERC requested on their behalf or we do not perfect our filings on a timely basis, the IRS may conclude that we are responsible for those claims. Furthermore,if the IRS were to otherwise challenge the claims we requested, we could face penalties or other liabilities. If any those events were to occur, our clients may seek recourse against us or choose not to renew. As a result of the foregoing, our business, results of operations and financial condition could be materially adversely affected.

We use a U.S.-based global systemically important bank (or G-SIB) for our PEO operations, including our cash balances associated with that portion of our business. All of our cash deposits are held by Federal Deposit Insurance Corporation (“FDIC”) insured banks, which amountsdeposits may exceed the FDIC insurance limits. Through various overnight “sweep account” programs, we also invest a significant portion of our cash balances in U.S. Treasury-based funds, which are invested through brokerage firms affiliated with the banks at which our deposits are held. The failure of a bank or related brokerage firm that we use, or events involving limited liquidity, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, may lead to disruptions in access to our cash balances, adversely impact our liquidity, including our ability to borrow under our credit facility, or limit our ability to process transactions related to our clients. In the event of a failure of a bank or other financial institution that holds our cash deposits, there can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be recoverable or, even if ultimately recoverable, there may be significant delays in our ability to access those funds. Furthermore, bank failures, non-performance, or other adverse developments that affect financial institutions could impair the ability of one or more of the banks participating in our credit facility from honoring their commitments. Such events could have a material adverse effect on our financial condition or results of operations.

The success of our business is heavily dependent on our ability to attract and retain a skilled workforce, including in our service and sales positions. Several factors may limit the labor force available to us or increase our labor costs, including high employment levels, strong macroeconomic conditions, federal unemployment subsidies, and other governmental regulation. AsFor example, as macroeconomic conditions improved from 2021 through 2024,2023, the labor market tightened, resulting in increased employee turnover and skilled labor shortages. Increasing competition for highly skilled and talented workers may make it increasingly difficult and expensive for us to attract and retain a service team capable of supporting our clients or a sales team that is effective in selling our complex service offerings to clients. An overall or prolonged labor shortage, increased turnover, or labor inflation could have a material adverse impact on our growth plans, client service delivery, results of operations and financial condition.

Inflationary pressure could adversely impact our profitability. Our operating costs have increased, and may continue tocould increase, due to the recent growth in inflation. We may not be able to fully offset these cost increases by raising prices for our services, particularly because our client agreements generally fix our pricing for a period of time, which could result in downward pressure on our profit margins. Further, our clients may choose to reduce their business with us if we increase our pricing. Please also read “— Increases in health insurance costs or our inability to secure replacement health insurance coverage on competitive terms could have a material adverse effect on our business, financial condition or results of operations.”

PEO HR Outsourcing Solutions Risks

•providing one or more benefits to WSEEs

Further, the increase in remote work, including by WSEEs, has complicated the calculation of payroll and unemployment taxes applicable to those individuals. We are dependent on our PEO OutsourcingHR Solutions clients to properly report the locations in which WSEEs perform services. If a regulatory authority were to determine that we did not properly calculate or transmit these amounts, then we could be subject to fines, penalties, or other liabilities, which we may not be able to recover from our clients. We may also need to devote additional resources and incur additional costs to modify our systems to address any such compliance issues.

Maintaining health insurance plans that cover WSEEs is a significant part of our business. Our primary health insurance contract expires on December 31, 2026,2028, subject to cancellation by either party upon 180 days’ notice. We believe that there are a limited number of health insurance providers with the national coverage necessary to support our approach to providing healthcare benefits. In the event we are unable to secure replacement contracts on competitive terms, significant disruption and harm to our business could occur.

Health insurance costs are in part determined by our plans’ claims experience and comprise a significant portion of our direct costs. Our health insurance coverage is provided under policies or service contracts that are fully insured. United is the carrier that insures the majority of our coverage. Although all of our carriers remain responsible to pay all covered claims, under our health insurance contract with United, we retain an obligation to United to fund the cost of the plan. The profitability of our PEO HR Outsourcing Solutions is affected by the overall expenses associated with the cost of delivering our services, one of the largest of which is the cost of our health insurance. Our ability to accurately anticipate the expenses associated with the plans, including claims costs on a quarterly or annual basis, can impact our results of operations. If the plans experience an unexpected increase in the number or severity of claims, our associated health insurance costs could increase beyond anticipated levels, as we have experienced in 2021the andpast, 2023.most recently in 2025. These costs are further impacted by a number of factors, including coverage options elected by employees, macro-economic changes, proposed and enacted regulatory changes andchanges, wide-spread health-related outbreaks.outbreaks, increased utilization of new pharmaceuticals, and the use of AI-based billing solutions by healthcare providers. Contractual arrangements and competitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs associated with the plans, which could substantially impair our financial condition or results of operations. Further, if the overall pricing of our services includes cost assumptions based on inaccurate forecasts of plan expenses, our profitability or our ability to attract and retain clients may be adversely impacted. As a result, if we do not accurately forecast the costs of our plans, our business, financial condition or results of operations may be materially adversely affected. For additional information related to our health insurance costs, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Benefits Costs.”

Many of our clients select a PEO OutsourcingHR Solution pursuant to which we offer the health and welfare benefit plans sponsored by us to the WSEEs co-employed by those clients. The future impact and direction of healthcare reform, including future legislative or executive actions, is unknown and, if any such developments were to reduce our ability to make health care benefits available to WSEEs or were to make our offerings less attractive to our clients, then our business, financial condition, and results of operations may be materially adversely affected.

Subsequent changes resulting from action that may be taken at the federal or state level may impact our benefit plans, business model and future results of operations, including repeal or repeal and replacement of current healthcare reform provisions as has been advocated by some in the new Presidential administration and Congressional leaders. In future periods, changes may result in increased costs to us and could affect our ability to attract and retain clients. Additionally, contractual arrangements and competitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs. We are currently unable to determine whether potential future healthcare reform changes or other regulatory action, including at the state level, may adversely affect our business or market conditions.

If Insperity were found not to be an employer with respect to WSEEs for ERISA purposes, itsour plans would not comply with ERISA and/or the Code. Further, as a result of such finding, Insperity and itsour plans would not enjoy, with respect to WSEEs, the preemption of state laws provided by ERISA and could be subject to varying state laws and regulations as well as to claims based upon state common laws. In addition, if Insperity were found not to be the employer sponsoring a single-employer plan under ERISA for purposes of itsour health benefits plan, we could be subject to additional requirements under state and federal laws that could restrict our ability to provide benefits to our WSEEs in the same manner that we do today, which could negatively impact our business. In the case of any such events, we would endeavor to make available similar benefits at comparable costs in a manner that complied with applicable state laws. However, if we were unable to promptly transition our benefit plans to a compliant structure with terms that were acceptable to our clients and at a comparable cost to us, then our business, financial condition, and results of operations could be materially adversely affected.

Increases in workers’ compensation costs or our inability to secure replacement coverage on competitive terms could lead to a significant disruption and harm to our business.

Our ability to adjust and collect service fees for increases in unemployment or other tax rates may be limited.

We record our SUI expense based on taxable wages and tax rates assigned by each state. SUI tax rates vary by state and are determined, in part, based on prior years’ compensation experience in each state. Prior to the receipt of final rate notices, we estimate our expected SUI rate in those states for which rate notices have not yet been received for purposes of forecasting and pricing. In a period of adverse economic conditions, state unemployment funds may experience a significant increase in the number of unemployment claims. Accordingly, SUI rates would likely increase substantially. Some states have the ability under law to increase SUI rates retroactively to cover deficiencies in the unemployment fund. In addition, FUTA may be retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans, as we recently experienced with California and New York in 2024.2024 and California in 2025.

Many of our contracts for our PEO HR Outsourcing Solutions may be canceled on short notice. Our inability to renew client contracts or attract new clients could materially and adversely affect our financial condition or results of operations.

Our standard CSA can generally be canceled by us or the client with 30 days’ notice. Accordingly, the short-term nature of the CSA makes us vulnerable to potential cancellations by existing PEO HR Outsourcing solutionSolutions clients, which could materially and adversely affect our financial condition or results of operations. Our middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, represented 26% of our average paid WSEEs, and clients with an average number of WSEEs that exceed 1,000 WSEEs represented 3%2% during 2024.2025. Our new HRScale solution targets larger clients and could increase the number of clients with over 1,000 WSEEs. In the event we have large clients that terminate or an increase in terminating clients from our middle market client base, the financial impact of such an event could be significant. Also, our results of operations are dependent in part upon our ability to retain or replace our clients upon the termination or cancellation of the CSA. Our client attrition rate was approximately 19%17% in 2024.2025. There can be no assurance that the number of contract cancellations will continue at these levels and such cancellations may increase in the future due to various factors, including economic conditions in the markets we operate. Clients electing to purchase our services or electing an alternative solution often do so at the beginning of the calendar year. As a result, we typically experience our largest concentration of new client additions and attrition in the first quarter of each year.

As part of our PEO HR Outsourcing Solutions, in addition to our health insurance carriers, we contract with other insurance carriers to provide workers’ compensation insurance and employment practices liability insurance. In addition, we obtain insurance coverage for various commercial risks in our business such as property insurance, errors and omissions insurance, cyber liability insurance, general liability insurance, fiduciary liability insurance and ERISA bond coverage, automobile liability insurance, and directors’ and officers’ liability insurance. The failure of any insurance carrier, such as occurred in 2001carrier with respect to a previous workers’ compensation insurance provider, providing such coverage could leave us exposed to uninsured risk and could have a material adverse effect on our business and results of operations. In addition, in the event that our primary health carriers in any key market make material changes to their network of health care providers or facilities, such as the discontinuation of prominent hospital networks in key markets on occasion by a carrier in connection with their ongoing negotiations with those networks, then our ability to attract and retain clients in that market may be adversely affected, which could have a material adverse effect on our business and results of operations. Further, we have experienced an increase in insurance premiums for our corporate policies as well as an increase in the deductible amounts for which we retain liability and a decrease in coverage limits. If these premiums or deductible amounts continue to increase, or coverage limits continue to decrease we would have increased exposure with respect to costs and insurance claims, which could have a material adverse effect on our business and results of operations.

In times of economic slowdowns, the federal government and states and municipalities in which we operate may experience reductions in tax revenues and corresponding budget deficits. In response to budget shortfalls, such as those experienced during the COVID-19COVID pandemic, the federal government and many states and municipalities have in the past and may in the future increase or enact new taxes on businesses operating within their tax jurisdiction, including business activity taxes and income taxes. In addition, federal, state and local taxing agencies may increase their audit activity in an effort to identify additional tax revenues. New tax assessments on our operations could result in increased costs. Our ability to adjust our service fees and incorporate additional tax assessments into our billing system could be limited. As a result, such higher taxes could have a material adverse impact on our financial condition or results of operations.

As a co-employer in the PEO relationship, we assume or share many of the employer-related responsibilities and assist our clients in complying with many employment-related governmental regulations. A number of legal issues remain unresolved with respect to the co-employment arrangement between a PEO and its WSEEs, including questions concerning the ultimate liability for violations of employment, payroll, discrimination, and workplace safety laws. Our CSA establishes the contractual division of responsibilities between Insperity and our clients for various human capital management matters, including compliance with and liability under various governmental regulations. Also, we maintain an employment practices liability insurance policy for our clients.

Because we act as a co-employer, we may be subject to liability for violations of various employment, payroll, discrimination, privacy and biometric consent, and workplace safety laws despite these contractual provisions, even if we do not participate in such violations. AI-based technologies may also facilitate the ability of WSEEs, either on their own or with the assistance of counsel, to bring claims, which could impact the cost of the employment practices liability insurance that we provide or result in increased costs to us if we are also named in any such claims. Although the CSA generally requires the client to indemnify us for certain liabilities attributable to the client’s conduct,conduct and for the deductible under our employment practices liability insurance policy that we maintain on their behalf, we may not be able to collect on such a contractual indemnification claim and thus may be responsible for satisfying such liabilities to the extent that such liabilities are not covered or insured against under our insurance policies. InThese addition,amounts WSEEs maycould be deemedsignificant toand becould result in increased insurance premiums for us, any of which could impact our agents,business, whichfinancial maycondition subjector us to liability for the actionsresults of such WSEEs.operations.

As a major employer, our operations are affected by numerous federal, state and local laws and regulations relating to labor, tax, benefit, insurance and employment matters. By entering into a co-employer relationship with employees assigned to work at client locations, we assume certain obligations and responsibilities of an employer under these laws. However, many of these current laws (such as the Act, ERISA, and some state insurance codes and employment tax laws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and the definition of “employer” under these laws is not uniform despite the SBEA having provided clarification under federal employment tax laws for CPEOs. InSome addition,governmental manyprograms ofand theincentives statesdesigned to assist businesses and employees require us to make changes to our processes and systems in whichorder weto operatecomply haveas not addressed the PEO relationship for purposes of compliance with applicable state laws governing thean employer/employee relationship or PEO health insurance plans. Any adverse application of, or adverse legislative/regulatory response to, new or existing federal or state laws to theenable PEOour relationshipclients withand our WSEEs to benefit from these programs. For example, during the COVID pandemic, the CARES Act allowed companies to defer certain payroll taxes, which were reflected in the payrolls we processed for those clients and required us to make certain changes, without clear regulatory guidance. If we are unable to meet these requirements or make these changes, we could be subject to governmental fines or penalties or we may not meet client companiesexpectations, any of which could have a material adverse effect on our business, financial condition or results of operations or financial condition.operations.

Competition and other developments in the HR services industryindustry, including the impact of AI, may impact our growth and/or profitability.

The human resources services industry, including the PEO industry, is highly fragmented. Many PEOs have limited operations and fewer than 2,500 WSEEs, but there are several industry participants that are comparable to our size or larger. We also encounter competition from “fee for service” companies such as payroll processing firms, insurance companies, human resources consultants and human resources technology solutions as well as cloud-basedweb-based self-service bundled human resources offerings. Our competitors include the PEO divisions of large business services companies, such as Automatic Data Processing, Inc. and Paychex, Inc., and other national PEOs such as TriNet Group, Inc., Vensure, and Rippling. In many cases, these competitors offer a reduced service PEO offering at a lower price than our PEO HR Outsourcing Solutions. We expect that as the PEO industry grows and its regulatory framework becomes better established, well organized competition with greater resources than we have may enter the PEO market, possibly including large “fee for service” companies currently providing a more limited range of services. In addition, competitors may be able to offer or develop new technology-based lower service models that may require us to make substantial investments in order to effectively compete. Further, AI may accelerate the ability of new competitors to enter the market with a lower cost or different business model, or may reduce the need of our clients and target market for the types of services that our PEO HR Solutions provide.

We offer a lower priced reduced service level PEO offering referred to as WorkforceHR360 SynchronizationSelect Edition in response to certain middle market client needs and the evolving PEO marketplace. As of December 2024,2025, approximately 15%16% of our WSEEs were co-employed by WorkforceHR360 SynchronizationSelect Edition clients. In the event we were to experience a significant increase in the number of clients using the WorkforceHR360 SynchronizationSelect Edition offering or increased pricing pressures in the PEO marketplace without corresponding reductions in operating costs, our operating margins may decline, which could have a material adverse impact on our financial condition or results of operations.

The HR services industry is experiencing rapid technological advancesadvances, including as a result of AI, to meet client expectations and expanding regulations. As new regulations are adopted, we must modify our systems to address these changes in the law, such as our recent efforts to implement the assistance provided to businesses and employees under the Covid Reliefrelief Programs andprograms, Secure 2.0 Act of 2022.2022, and the OBBB. In order to make these types of modifications, we may be required to reallocate resources, potentially resulting in delays to planned competitive improvements to our systems. If we do not successfully or timely deploy these types of modifications, we may be unable to comply with regulations, which could subject us to penalties, damage our reputation or result in decreased sales. Further, in order to effectively compete in this environment, we must identify and predict trends, and adapt our technology and service offerings accordingly.accordingly, including by leveraging AI in our solutions. In addition, asif a larger portion of our client base falls within the middle market segment, we must also develop different technology and services to meet the more complex needs and demands of this key group.group, including by developing our new HRScale solution that is based on our proprietary Workday-based client tenant. (Please see “—We may not fully realize the anticipated benefits of our strategic partnership and joint solution with Workday, which could have a material adverse impact on our financial condition or results of operations.” below for a further discussion.) These efforts may require us to devote substantial resources to develop new functionality, or to integrate third-party solutions, into our offerings. If we fail to respond successfully to these developments or we make investments in enhancements that are not accepted by the market, then the demand for our solutions and services may diminish.

Many of the HR services offerings we provide to clients are conducted through a technology infrastructure using both internally developed and purchased commercial software, a wide variety of hardware infrastructure technologies, and a multi-carrier wide area network. The processing of payroll, benefits and other transactions is dependent upon this complex infrastructure, some of which is provided by third-party vendors. We must manage all of these systems, and are dependent on third parties to manage the systems that we obtain from them, including any upgrades, replacements or enhancements, to ensure that they continue to support our services. For example, in connection with our strategicHRScale partnership with Workday, Inc. (“Workday”),offering, we are currently working to developdeveloped a joint solution withthat Workdayutilizes a proprietary instance of Workday’s HCM solution that requiresis integrationsintegrated with third parties and with our proprietary systems for our PEO HR Outsourcing Solutions. We also continue to monitor and make changes to our proprietary system for our PEO HR Outsourcing Solutions for compliance and modernization. Any delays or failures resulting from network outages; planned upgrades, enhancements, or replacements of software, hardware, or other systems, including in connection with our projectHRScale with Workdayoffering or any updated for compliance and modernization of systems; or other data processing disruptions, even for a brief period of time, could result in our inability to timely process transactions. The speed with which we, or third-party vendors, are able to address significant cybersecurity incidents may be influenced by the cooperation of certain government agencies. We may also incur significant costs in the future to protect against damage or disruptions that could be caused by cybersecurity incidents.incidents or to address privacy violations. If such failures cause us to not meet client service expectations or to breach our obligations to our clients, we may lose existing clients, have difficulty attracting new clients, incur regulatory penalties or liability to our clients, or suffer other financial losses, which may have a material adverse effect on our business and financial condition.

In connection with our offerings, we collect, use, transmit and store large amounts of personal and business information about our WSEEs, employees paid under our traditional payroll solution, and clients, including payroll information, personal and business financial data, social security numbers, bank account numbers, tax information and other sensitive personal and business information. Attacks on information technology systems continue to grow in frequency and sophistication (including the use of emerging artificial intelligence (“AI”) technologies), and we and our third-party vendors are targeted by unauthorized parties using malicious tactics, code and viruses. Hardware or applications we develop or procure from third-party vendors may contain defects in design or other problems that could unexpectedly compromise the confidentiality, integrity or availability of data or our systems. Because the techniques used to obtain unauthorized access and disable or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventive measures. Further, increased reliance by us and our clients on remote workforces impacts our control over cybersecurity protection and service stability and performance, which increases our exposure to cybersecurity and privacy issues. As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities. We have limited ability to monitor the implementation of similar safeguards by our vendors and do not have the ability to monitor such implementation by our clients or their employees, including WSEEs.

Failure to comply with privacy, data protectionprotection, biometric, AI, and cybersecurity laws and regulations could have a material adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.

We are subject to various laws, rules and regulations relating to the collection, use, transmission and security and privacy of personal and business information. Most states and the District of Columbia have enacted notification rules that may require notification to regulators, clients or employees in the event of a privacy breach. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate our costs. It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have a material adverse effect on our business. Complying with these various laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. For example, we incurred additional costs and reallocated internal resources in order to comply with the requirements of the California Privacy Rights Act (“CPRA”), which amended the California Consumer Privacy Act of 2018 (“CCPA”) and became effective on January 1, 2023, which has required us to reallocate additional resources in order to manage compliance in light of the changes implemented by the CPRA. Other states have adopted or are currently contemplating additional privacy requirements. Some states have also adopted laws regarding the use of biometric data, which laws may be applicable to us or our clients that use timeclocks or other HR technology with biometric scanners. Also, in recent years, legislation that creates obligations with respect to the development and/or use of AI has been adopted or is under consideration in the U.S. at both the federal and state level. As a result, current or future laws (including product liability regimes), regulatory or self-regulatory requirements or ethical considerations, including our own published, guiding ethical principles regarding AI and machine learning, could restrict or impose burdensome and costly requirements on our ability to leverage data and/or these technologies in innovative ways. Generally, these laws do not address the coemploymentco-employment relationship, which requires us to make determinations as to the requirements applicable to our WSEEs and our PEO OutsourcingHR Solutions clients. The future enactment of similar laws, rules or regulations, or an adverse determination as to the applicability of these laws, rules, or regulations to us, could have a material adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant liability. Additionally, any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities for us.

We lease hosting facilities for our data centers at two separate facilities with one facility acting as our primary data center. These facilities host theour majority of ourinternally-developed business applications, telecommunications equipment, information security infrastructure, and network equipment. If our data centers experience any interruptions or outages, and our business continuity plan is delayed or fails, then our operations may be materially impacted, which could result in our failure to meet our obligations to our clients, WSEEs, tax authorities, and/or other vendors, which could damage our reputation, subject us to liability, and have a material adverse effect on our business and financial condition.

In addition, somemany of our systems and services rely upon third-party technology. ExamplesFor include,example, Insperity HRScale that is under development with Workday utilizes Workday’s HCM. Other examples include the human capital management system on which our Workforce AccelerationHRCore solution is based, the data analytics solution on which our Insperity People Analytics solution is based, and the payroll tax calculation and reporting tools that provide the rates used to calculate payroll taxes for our PEO HR Outsourcing Solutions, among others. In addition, the joint solution that we are developing with Workday will be based on Workday’s human capital management solution. Any failure by these service providers to deliver their services in a timely manner and in compliance with applicable laws could result in material interruptions to our operations; subject us to substantial fines, penalties, and other liabilities; damage our reputation; and result in a loss of clients.

We may not fully realize the anticipated benefits of our strategic partnership and plans to develop a joint solution with Workday, which could have a material adverse impact on our financial condition or results of operations.

We have announced a strategic partnership and are developing a joint solution with Workday.Workday Theknown as Insperity HRScale. In 2025, we announced that we had entered into agreements with clients for our HRScale solution, our joint solution wouldwith involve,Workday, commencing in the first quarter of 2026. Insperity HRScale involves, among other things, the offering of our PEO services using Workday’s human capital management solution, as well as joint marketing and sales efforts. The joint solution also requires integration with other third-party vendors and with our proprietary system for our PEO HR Outsourcing Solutions. The success of the strategic partnership and jointInsperity solutionHRScale will depend on many factors, and we may not realize all, or any, of the anticipated benefits. We have devoted substantial resources and incurred significant costs to develop theInsperity joint solution,HRScale, and expect to continue to devote additional substantial resources and to incurspend additional significant costs.amounts. The strategic partnership and plansdevelopment toof developInsperity a joint solutionHRScale involve numerous risks, including that we may be unable to complete the developmentimplementation andof Insperity HRScale, or that implementation of theInsperity joint solution, or that development and implementation of the joint solutionHRScale may be more difficult, time-consuming, or costly than expected, including due to difficulties with integrations with third party vendors. We may also not receive the expected sales, marketing, and other benefits from the strategic partnership.

The full benefit of the strategic partnership requires the cooperation of the two companies on sales, marketing, and technology matters, as well as our ability to successfully integrate and implement theInsperity Workday-based solutionHRScale with our other processes and systems in a manner that allows us to maintain compliance as a professional employer organization and incorporate appropriate financial and management systems and controls. In addition, we may fail to effectively market or sell theInsperity joint solution,HRScale, or there may be less demand than anticipated for theInsperity joint solution.HRScale. The initiatives related to the strategic partnership,partnership includingand the developmentimplementation of theInsperity joint solution,HRScale, may divert the attention of our technology, service, compliance, marketing, sales, management, and other teams away from our existing business solutions, which could result in the loss of existing or prospective clients or fines, penalties, or other liabilities if our existing business solutions and compliance are disrupted. We may also have conflicts or disagreements with Workday, which could disrupt the strategic partnership, could impact the development of theInsperity joint solution,HRScale, and could lead to termination of the strategic partnership.

The occurrence of one or more of these events could result in our failure to achieve anticipated growth or revenues, or require us to devote additional resources to the strategic partnership or theto developmentInsperity of the joint solution,HRScale, or to lose the investments made relating to the development of theInsperity joint solution,HRScale, any of which could result in a material adverse effect on our business, financial condition, and results of operations, as well as reputational damage that could negatively impact our sales and retention efforts.

We have adopted a strategy to market and sell additional solutions within and outside of our PEO HR Outsourcing Solutions. As part of this strategy, periodically we make strategic long-term decisions to partner with (including as a reseller arrangement), invest in and/or acquire new companies, business units or assets in order to offer new or enhanced solutions. Offering new solutions involves a number of risks such as entering markets or businesses in which we have no prior experience and that may be highly regulated; failing to integrate the new solution into our product and service offerings; diversion of technology, service, compliance, marketing, sales, management and other teams from other business concerns; in the case of a partnership or reseller arrangement, reliance on the service and technology of the third party; in the case of an investment or acquisition, over-valuation of the targeted business; and litigation or government action resulting from the activities of an acquired company or of our partner or from offering the new solution in a non-compliant manner. The occurrence of one or more of these events could result in the loss of existing or prospective clients or employees, not achieving anticipated revenues or profitability, impairment of acquired assets, and substantial liability. Such developments could have a material impact to our business, financial condition, results of operations, and future growth rates, and could also result in reputational damage that could negatively impact our sales and retention efforts.

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, our traditional payroll solution. We also offer a number of other business performance solutions, including RecruitingTalent Acquisition Services, Employment Screening, Retirement Services, Insurance Services, Contractor Management, and Insurance Services.Perks+. These other products orand services generally are offered only with our other solutions.solutions as discussed in Item 1. Business — Other Product and Services Offerings.

•Average number of WSEEs paid per month decreasedincreased 2%1% to 307,261.310,089. Revenues increased 1%4% on a 3% increase in revenue per WSEE, partially offset by the 2% decrease in average WSEEs paid.WSEE.

•We ended 20242025 averaging 309,093312,377 paid WSEEs in the fourth quarter of 2024,2025, which represents a 2%1% decreaseincrease over the fourth quarter of 2023.2024.

•Approximately 26% of our average paid WSEEs were in our middle market sector for both the years ended December 31, 20242025 and 2023,2024, which is generally defined as companies with 150 to 5,000 WSEEs.

•Gross profit increaseddecreased 1%14% to $1.1$900 billion.million. The increasedecrease was primarily due to a 3%15% increasedecrease in gross profit per WSEE, which was partially offset by a 2%1% declineincrease in the average number of WSEEs paid per month. Gross profit per WSEE paid per month reflected, in part, a 3% pricing increase offset by a 3%6% increase in direct costs per WSEE. The increase in direct costs per WSEE was primarily attributable to a 4%9% increase in benefits costs per participant.

•Operating expenses increaseddecreased 14%3% in 20242025 to $935$910 million, and included increasesdecreases in professional services, travel and event costs, and salary and wages, and the implementation of our Workday strategic partnership.wages. On a per WSEE per month basis, operating expenses increaseddecreased from $219 in 2023 to $253 in 2024.2024 to $245 in 2025.

•Net income (loss) and diluted earnings (loss) per share (“Diluted EPS”) both decreased 47% and 46%108% to $91$(7) million and $2.42,$(0.19), respectively.

•Adjusted net income and adjusted EPS both decreased 36% and 35%71% to $135$39 million and $3.58,$1.03, respectively.

•Our net income (loss) per WSEE per month decreased 46%108% from $46 in 2023 to $25 in 2024.2024 to $(2) in 2025.

We account for our revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Our PEO HR Outsourcing Solutions gross billings to clients include the payroll cost of each WSEE at the client location and a markup computed as a percentage of each WSEEs payroll cost. We invoice the gross billings concurrently with each periodic payroll of our WSEEs. Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite. This markup includes pricing components associated with our estimates of payroll taxes, benefits and workers’ compensation costs, plus a separate component related to our HR services. Revenues that have been recognized but not invoiced represent unbilled accounts receivable included in accounts receivable, net on our Consolidated Balance Sheets.

The primary direct costs associated with revenue-generating activities for our PEO HR Outsourcing Solutions are:

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.

◦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 ◦facility costs, including repairs and maintenance ◦technology costs, including software-as-a-service (“SaaS”) subscription costs, amortization of SaaS implementation costs, and costs associated with the development and implementation of theInsperity WorkdayHRScale, our joint solution.solution with Workday.

•Benefits costs — We provide group health insurance coverage under a single-employer plan that covers both our WSEEs in our PEO HR Outsourcing Solutions and our corporate employees and utilizes a national network of carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Harvard Pilgrim Health Care, formerly known as Tufts, all of which provide fully insured policies or service contracts.

The health insurance contract with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this planprogram since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan,program, including an estimate of the incurred claims, taxes and administrative fees (collectively the “PlanProgram Costs”), as benefits expense in the Consolidated Statements of Income.Operations. The estimated incurred but not reported claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under the planprogram; and (3) the number of participants in the plan,program, 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 benefits costs.

Our financial responsibility with United is limited toSince the first $1 million of paid claims per claimant per year. Additionally, since the plan’sprogram’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 PlanProgram Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the planprogram would be incurred and we would accrue a liability for the excess costs on our Consolidated Balance Sheets. On the other hand, if the PlanProgram Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the planprogram would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement with United require us to maintain an accumulated cash surplus in the planprogram of $9 million, which is reported as long-term prepaid insurance. As of December 31, 2024,2025, PlanProgram Costs were more than the net premiums paid and owed to United by $5$18 million.million, As this amount is less than the agreed-upon $9 million surplus maintenance level, the $14 million differencewhich is included in accrued health insurance costs, a current liability,liability inon our Consolidated Balance Sheets. In addition, the premiums owed to United at December 31, 2024,2025, were less than $1$7 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. Our benefits costs incurred included an increase of $11 million in 2025 and a decrease of $29 million in 2024 for changes in estimated run-off related to prior periods, net of Individual Claims Limit.

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 years ended December 31, 20242025 and 2023,2024, we reduced accrued workers’ compensation costs by $32$29 million and $33$32 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 was 3.9% in 2025 and 4.3% in both 2024 and 2023) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income.Operations.

Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims estimates and record an adjustment to workers’ compensation costs in the period such determination is made. If we were to experience any significant changes in actuarial assumptions, our loss development rates could increase (or decrease), which would result in an increase (or decrease) in workers’ compensation costs and a resulting decrease (or increase) in net income reported in our Consolidated Statements of Income.Operations.

We provide our PEO HR Outsourcing Solutions to small and medium-sized businesses throughout the United States. PEO HR Outsourcing Solutions revenue distribution by region follows:

PEO HR Outsourcing Solutions Revenue by Region

The percentage of total PEO HR Outsourcing Solutions revenues in our significant markets include the following:

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.

•Payroll taxes as a percentage of payroll costs increased towere 7% in 2024 compared toand 6% in 2023.

•Average number of WSEEs paid per month decreased 1%, which was partially impacted by our margin recovery efforts1%

•Net income and diluted earnings per share (“EPS”) bothincreased decreased180% 35%and 171% to $33$4 million and $0.88,$0.10, respectively

•Adjusted net income and adjusted EPS decreased 15%9% and 17%10% to $50$63 million and $1.31,$1.64, respectively, due in part to a higher effective tax rate associated with vesting of stock awards below the grant date valuerespectively Please read “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA, adjusted net income, 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”).

•During Q1Q2 2026, average WSEEs paid decreased 1% compared to Q1Q2 2025. The number of WSEEs paid from new client sales and client retention decreased due in part to our margin recovery efforts, while the net change in our client base increased compared withto Q1Q2 2025.

•Revenues per WSEE per month increased 3%, or $55, while the average WSEEs paid declined 1% We provide our PEO HR Solutions to small and medium-sized businesses throughout the United States. Our PEO HR Solutions revenue distribution by region follows:

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 9%10% during Q1YTD 2026 compared to Q1YTD 2025, representing approximately 29% and 26% of our total average paid WSEEs in Q1YTD 2026 and Q1YTD 2025, respectively.

The net decreaseincrease in direct costs between Q1Q2 2026 and Q1Q2 2025 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $12$4 million as discussed below. The $61$53 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

•Reported results include changes in estimated claims run-off related to prior periods, which was a reduction in costs of $2$1 million, or $2$1 per WSEE per month, in Q1Q2 20262026, comparedbut todid annot increaseimpact costs in costs of $12 million, or $13 per WSEE per month, in Q1Q2 2025.

•Workers’ compensation costs increased 30%,35%, or $7$8 per WSEE per month, in Q1Q2 2026 compared to Q1Q2 2025.2025 and has been impacted, in part, by elevated health care cost trends.

•Payroll taxes increased 2% on a 0.3%4% decreaseincrease in payroll costs, or $27$22 per WSEE per month.

•Restructuring charges -— Primarily due to severance costs, which were related to a reduction in our non-sales headcount.

Operating expenses for Q1Q2 2026 decreased 1%8% to $240$211 million compared to $242$230 million in Q1Q2 2025. Operating expenses per WSEE per month for Q1Q2 2026 remaineddecreased flat7% to $230 compared to Q1$248 in Q2 2025.

•Salaries of corporate and sales staff for Q1Q2 2026 decreased 8%11% to $131$115 million, or $11$14 per WSEE per month, compared to Q1Q2 2025. The decrease was primarily due to ana 8%6% decrease in BPA, service and support headcount and staff compensation levels in Q1Q2 2026 compared to Q1Q2 2025.

•CommissionsStock-based compensation expense for Q1Q2 2026 decreased 9%35% to $10$13 million, or $1$8 per WSEE per month, compared to Q1Q2 2025. The decrease was primarily due to lower channelvalue commissions.time-based restricted stock unit awards granted under our incentive plan in 2026.

•Advertising expense for Q1Q2 2026 increased 57%27% to $11$14 million, or $4$3 per WSEE per month, compared to Q1Q2 2025. The increase was primarily due to increasedthe timing of sponsorships and digital advertising.

•GeneralSalaries of corporate and administrativesales expensesstaff for Q1YTD 2026 decreased 8%9% to $55$246 million, or $4$12 per WSEE per month, compared to Q1YTD 2025. The decrease was primarily due to a 6% decrease in professionalBPA, services feesservice and travelsupport headcount and trainingstaff expenses.compensation levels in YTD 2026 compared to YTD 2025.

Interest income decreased $3$5 million in Q1YTD 2026 compared to Q1YTD 2025 primarily due to lower interest rates on overnight, investment and deposit holdings.

Interest expense was flat in Q1YTD 2026 compared to Q1YTD 2025.

For the threesix months ended MarchJune 31,30, 2026, 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. The decrease in net income without a corresponding change in non-deductible expenses resulted in a higher effective tax rate for the period. During the first threesix months of 2026,2026 we recognized additional$9 million of income tax of $10 millionexpense related to the vesting of long-term incentive and restricted stock awards,awards. primarilyDuring duethe first six months of 2025, we recognized $1 million of income tax expense related to the vesting dateof pricelong-term beingincentive belowand therestricted grantstock date price.awards.

Following is a reconciliation of net income (loss) (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Following is a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP):

We had $555$619 million in cash,cash and cash equivalents and marketable securities at MarchJune 31,30, 2026, of which approximately $415$481 million was payable in AprilJuly 2026 for withheld federal and state income taxes, employment taxes and other payroll deductions. Approximately $104$43 million represented client prepayments that were invoiced in AprilJuly 2026.2026 . During the second quarter 2026, we borrowed $50 million under the Facility for working capital purposes related to fluctuations in the timing of funding our direct cost programs. At MarchJune 31,30, 2026, we had working capital of $142$180 million compared to $102 million at December 31, 2025. 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 2026. 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.

As of MarchJune 31,30, 2026, we had outstanding letters of credit and borrowings totaling $370$420 million under the Facility. Please read Note 5 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.

Net cash used in operating activities in the first threesix months of 2026 was $67$19 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:

•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 threesix months ended MarchJune 31,30, 2026, the last business day of the reporting period was a Tuesday, client prepayments were $104$43 million and employment taxes and other deductions were $415$481 million. In the threesix months ended MarchJune 31,30, 2025, the last business day of the reporting period was a Monday, client prepayments were $40$26 million and employment taxes and other deductions were $404$316 million.