Business Wire | Nov 2, 2020 08:00AM EST

Insperity Announces Third Quarter Results

Nov. 02, 2020

HOUSTON--(BUSINESS WIRE)--Nov. 02, 2020--Insperity, Inc. (NYSE: NSP), a leading provider of human resources and business performance solutions for America's best businesses, today reported results for the third quarter ended Sep. 30, 2020:

* Q3 net income and diluted EPS of $20 million and $0.51, respectively * Q3 adjusted EPS up 21% to $0.91 * Q3 adjusted EBITDA up 13% to $58 million * YTD net income and diluted EPS of $134 million and $3.43, respectively * YTD adjusted EBITDA and adjusted EPS up 20% and 16% to $251 million and $4.15, respectively * Share repurchase authorization expanded by one million shares

Third Quarter Results

For the third quarter of 2020, reported net income and diluted earnings per share ("EPS") were $20 million and $0.51, respectively. Adjusted EPS increased 21% over the 2019 period to $0.91. Adjusted EBITDA increased 13% to $57.6 million. The difference between GAAP EPS and Adjusted EPS was primarily caused by performance driven stock-based compensation.

"These excellent results reflect outperformance in worksite employee growth and pricing relative to our expectations in the midst of an uncertain business environment. These developments, together with favorable results in our direct cost programs, more than offset the impact of layoffs within our client base brought about by the pandemic," said Paul J. Sarvadi, Insperity chief executive officer and chairman. "We expect the strength of our business model, the dedication of our staff, and the resiliency of our client base to be important factors as we look ahead with confidence into 2021."

The average number of worksite employees ("WSEEs") paid per month in Q3 2020 increased 1.7% sequentially over the Q2 period to 231,750 WSEEs, which was above the high end of our expected range. A continued improvement over the course of the pandemic from the low point experienced in May 2020 was driven by (1) WSEEs hired or returning to work outpacing layoffs, (2) client retention for both Q2 and Q3 remaining at our historical level of 99% and (3) the addition of WSEEs from solid new client sales throughout the pandemic.

"We are pleased with our recent sequential growth and expect paid worksite employees to return to near pre-pandemic levels by the end of the year," said Douglas S. Sharp, Insperity senior vice president of finance, chief financial officer and treasurer. "Additionally, strong execution in pricing, effective management of our direct cost programs and operating expenses, and the dynamics of the pandemic on our business has driven our recent substantial outperformance."

Average pricing increased 4.4% over the 2019 period, which more than offset the 3.8% year-over-year decline in average paid WSEEs driven by the pandemic. However, total revenues decreased 3% from Q3 2019 to $1.0 billion, due to the FICA deferral program instituted as part of the CARES Act.

Gross profit increased by 8% over Q3 2019 to $185.0 million. This greater than expected increase resulted from the higher than anticipated paid WSEEs and pricing, combined with significant favorable results in benefits and workers' compensation costs. Lower than expected benefit costs were primarily associated with favorable claims development from less healthcare utilization. Lower workers' compensation costs were primarily attributable to the effective management of claims incurred in periods prior to the pandemic.

Operating expenses increased 15% over Q3 2019 and included a 10% increase in the number of trained Business Performance Advisors. In spite of an increased workload from the pandemic, we have held other corporate headcount flat and achieved cost savings in other areas, including travel, training and other general and administrative costs. An increase in stock-based compensation was driven by our recent outperformance in the level of paid WSEEs and earnings. Operating expenses, excluding stock-based compensation and depreciation and amortization, increased by 5% over Q3 2019.

Year-to-Date Results

For the nine months ended September 30, 2020, reported net income and diluted EPS were $134.0 million and $3.43, respectively. Adjusted EPS increased 16% over the first nine months of 2019 to $4.15. Adjusted EBITDA increased 20% over the first nine months of 2019 to $250.8 million.

Revenues for the first nine months of 2020 were flat at $3.2 billion, as the improvement in the average number of paid WSEEs from the low point in May 2020 has resulted in the year-to-date average paid WSEEs per month being essentially unchanged compared to the 2019 period. Gross profit for the first nine months of 2020 increased 12% to $639.3 million. Operating expenses increased 10% to $452.3 million over the 2019 period.

Net income per WSEE per month increased 3% from $62 in the 2019 period to $64 in the 2020 period. Adjusted EBITDA per WSEE per month increased 20% from $100 in the 2019 period to $120 in the 2020 period.

Cash outlays in the first nine months of 2020 included the repurchase of approximately 1,337,000 shares of stock at a cost of $91.2 million, dividends totaling $46.5 million and capital expenditures of $68.8 million. Adjusted cash totaled $213 million at September 30, 2020 and $130 million remains available under our $500 million credit facility.

Share Repurchase Expansion

Insperity's board of directors has authorized an expansion of its stock repurchase program by an additional one-million shares, and as a result will have approximately 1.2 million shares available for repurchase. Purchases may be made from time to time in the open market or in privately negotiated transactions. The company may also adopt Rule 10b5-1 prearranged stock trading plans designed to facilitate Insperity's repurchase of its common stock during times it would not otherwise be in the open market due to self-imposed trading blackout periods or possible possession of material nonpublic information.

2020 Guidance

The company also announced its updated guidance for 2020, including the fourth quarter of 2020. Please refer to the accompanying financial tables at the end of this press release for the reconciliation of non-GAAP financial measures to the comparable GAAP financial measures.

Q4 2020 Full Year 2020



Average WSEEs paid ^(a) 236,500 - 238,500 233,500 - 234,000

Year-over-year decrease (3.0)% - (2.1)% (0.9)% - (0.7)%



Adjusted EPS ^(b) $0.20 - $0.38 $4.35 - $4.53

Year-over-year increase (decrease) (65)% - (33)% 5% - 9%



Adjusted EBITDA (in millions) ^(b) $20.5 - $30.0 $271 - $281

Year-over-year increase (decrease) (50)% - (26)% 8% - 12%

____________________________________

Q4 2020 guidance for average WSEEs paid represents 2% to 3% sequential(a) growth compared to Q3 2020.

Q4 2020 guidance for Adjusted EPS and Adjusted EBITDA reflects an expected shift in the timing of health care utilization during the pandemic into Q4 2020. This shift is primarily the result of the deferral of non-essential(b) procedures, including costs associated with participants with chronic conditions that missed treatments. As a result, the 2020 quarterly earnings pattern varies significantly from 2019.

Definition of Key Metrics

Average WSEEs paid - Determined by calculating the company's cumulative worksite employees paid during the period divided by the number of months in the period.

Adjusted EPS - Represents diluted net income per share computed in accordance with GAAP, excluding the impact of non-cash stock-based compensation.

Adjusted EBITDA - Represents net income computed in accordance with GAAP, plus interest expense, income taxes, depreciation and amortization expense and non-cash stock-based compensation.

Insperity will be hosting a conference call today at 10 a.m. ET to discuss these results, provide guidance for the fourth quarter and an update to the full year guidance, and answer questions from investment analysts. To listen in, call 877-651-0053 and use conference i.d. number 3497681. The call will also be webcast at http://ir.insperity.com. The conference call script will be available at the same website later today. A replay of the conference call will be available at 855-859-2056, conference i.d. 3497681. The webcast will be archived for one year.

About Insperity

Insperity(r), a trusted advisor to America's best businesses for more than 34 years, provides an array of human resources and business solutions designed to help improve business performance. Offering the most comprehensive suite of products and services available in the marketplace, Insperity delivers administrative relief, better benefits, reduced liabilities and a systematic way to improve productivity through its premier Workforce Optimization(r) solution. Additional company offerings include Traditional Payroll and Human Capital Management, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services and Insurance Services. With 2019 revenues of $4.3 billion, Insperity supports more than 100,000 businesses with over 2 million employees nationwide. For more information, visit http://www.insperity.com.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the federal securities laws (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 "expects," "intends," "plans," "projects," "believes," "estimates," "likely," "possibly," "probably," "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, Insperity, Inc., in an effort to help keep our stockholders and the public informed about our operations, may from time to time 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, unit growth, profit per worksite employee, pricing, operating expenses, benefits and workers' compensation costs, or other aspects of operating results. We base the forward-looking statements on our expectations, estimates and projections at the time such statements are made. These statements are not guarantees of future performance and involve risks and uncertainties 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; * regulatory and tax developments and possible adverse application of various federal, state and local regulations; * the ability to secure competitive replacement contracts for health insurance and workers' compensation insurance at expiration of current contracts; * cancellation of client contracts on short notice, or the inability to renew client contracts or attract new clients; * vulnerability to regional economic factors because of our geographic market concentration; * 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; * 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 PEO industry, on our growth and/or profitability; * our liability for worksite employee payroll, payroll taxes and benefits costs; * our liability for disclosure of sensitive or private information; * our ability to integrate or realize expected returns on our acquisitions; * failure of our information technology systems; * an adverse final judgment or settlement of claims against Insperity; and * disruptions to our business resulting from the actions of certain stockholders.

These factors are discussed in further detail in Insperity's filings with the U.S. Securities and Exchange Commission. 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, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands) September 30, December 31, 2020 2019



Assets

Cash and cash equivalents $ 372,356 $ 367,342

Restricted cash 45,265 49,295

Marketable securities 33,994 34,728

Accounts receivable, net 528,712 465,779

Prepaid insurance 34,759 10,418

Other current assets 33,772 43,493

Income taxes receivable - 3,691

Total current assets 1,048,858 974,746

Property and equipment, net 196,210 147,706

Right of use leased assets 60,682 56,886

Prepaid health insurance 9,000 9,000

Deposits 189,534 184,013

Goodwill and other intangible assets, net 12,707 12,714

Deferred income taxes, net - 3,956

Other assets 6,291 5,975

Total assets $ 1,523,282 $ 1,394,996



Liabilities and stockholders' equity

Accounts payable $ 6,016 $ 4,565

Payroll taxes and other payroll deductions 178,052 277,248 payable

Accrued worksite employee payroll cost 471,796 401,859

Accrued health insurance costs 44,639 21,180

Accrued workers' compensation costs 47,956 52,868

Accrued corporate payroll and commissions 39,925 52,612

Other accrued liabilities 46,400 58,713

Income taxes payable 6,286 -

Total current liabilities 841,070 869,045

Accrued workers' compensation cost, net of 196,247 193,609 current

Long-term debt 369,400 269,400

Operating lease liabilities, net of current 64,436 58,863

Deferred income taxes, net 2,801 -

Other accrued liabilities, net of current 8,689 -

Total noncurrent liabilities 641,573 521,872

Stockholders' equity:

Common stock 555 555

Additional paid-in capital 74,598 48,141

Treasury stock, at cost (620,638 ) (544,102 )

Retained earnings 586,124 499,485

Total stockholders' equity 40,639 4,079

Total liabilities and stockholders' equity $ 1,523,282 $ 1,394,996

Insperity, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

Change

2020

2019

Change

Operating results:

Revenues(1)

$

1,007,820

$

1,043,388

(3.4

)

%

$

3,230,669

$

3,239,714

(0.3

)

%

Payroll taxes, benefits and workers' compensation costs

822,787

872,842

(5.7

)

%

2,591,365

2,668,716

(2.9

)

%

Gross profit

185,033

170,546

8.5

%

639,304

570,998

12.0

%

Salaries, wages and payroll taxes

89,429

79,264

12.8

%

266,640

237,340

12.3

%

Stock-based compensation

20,864

6,517

220.1

%

38,110

20,813

83.1

%

Commissions

7,722

8,034

(3.9

)

%

23,657

22,727

4.1

%

Advertising

4,781

4,895

(2.3

)

%

15,334

17,474

(12.2

)

%

General and administrative expenses

25,646

29,773

(13.9

)

%

85,254

92,801

(8.1

)

%

Depreciation and amortization

7,819

7,330

6.7

%

23,329

20,929

11.5

%

Total operating expenses

156,261

135,813

15.1

%

452,324

412,084

9.8

%

Operating income

28,772

34,733

(17.2

)

%

186,980

158,914

17.7

%

Other income (expense):

Interest income

103

2,574

(96.0

)

%

2,351

8,621

(72.7

)

%

Interest expense

(1,731

)

(2,122

)

(18.4

)

%

(6,312

)

(5,442

)

16.0

%

Income before income tax expense

27,144

35,185

(22.9

)

%

183,019

162,093

12.9

%

Income tax expense

7,135

9,326

(23.5

)

%

49,067

31,389

56.3

%

Net income

$

20,009

$

25,859

(22.6

)

%

$

133,952

$

130,704

2.5

%

Less distributed and undistributed earnings allocated to participating securities

(104

)

(284

)

(63.4

)

%

(792

)

(1,546

)

(48.8

)

%

Net income allocated to common shares

$

19,905

$

25,575

(22.2

)

%

$

133,160

$

129,158

3.1

%

Net income per share of common stock

Basic

$

0.52

$

0.64

(18.8

)

%

$

3.45

$

3.19

8.2

%

Diluted

$

0.51

$

0.63

(19.0

)

%

$

3.43

$

3.18

7.9

%

____________________________________

Insperity, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, Three Months Ended September 30, Nine Months Ended September 30,except pershare amounts) 2020 2019 Change 2020 2019 Change

Operating results:

Revenues^(1) $ 1,007,820 $ 1,043,388 (3.4 ) % $ 3,230,669 $ 3,239,714 (0.3 ) %

Payroll taxes,benefits andworkers' 822,787 872,842 (5.7 ) % 2,591,365 2,668,716 (2.9 ) %compensationcosts

Gross profit 185,033 170,546 8.5 % 639,304 570,998 12.0 %

Salaries,wages and 89,429 79,264 12.8 % 266,640 237,340 12.3 %payroll taxes

Stock-based 20,864 6,517 220.1 % 38,110 20,813 83.1 %compensation

Commissions 7,722 8,034 (3.9 ) % 23,657 22,727 4.1 %

Advertising 4,781 4,895 (2.3 ) % 15,334 17,474 (12.2 ) %

General andadministrative 25,646 29,773 (13.9 ) % 85,254 92,801 (8.1 ) %expenses

Depreciationand 7,819 7,330 6.7 % 23,329 20,929 11.5 %amortization

Totaloperating 156,261 135,813 15.1 % 452,324 412,084 9.8 %expenses

Operating 28,772 34,733 (17.2 ) % 186,980 158,914 17.7 %income

Other income (expense):

Interest 103 2,574 (96.0 ) % 2,351 8,621 (72.7 ) %income

Interest (1,731 ) (2,122 ) (18.4 ) % (6,312 ) (5,442 ) 16.0 %expense

Income beforeincome tax 27,144 35,185 (22.9 ) % 183,019 162,093 12.9 %expense

Income tax 7,135 9,326 (23.5 ) % 49,067 31,389 56.3 %expense

Net income $ 20,009 $ 25,859 (22.6 ) % $ 133,952 $ 130,704 2.5 %

Lessdistributedandundistributed (104 ) (284 ) (63.4 ) % (792 ) (1,546 ) (48.8 ) %earningsallocated toparticipatingsecurities

Net incomeallocated to $ 19,905 $ 25,575 (22.2 ) % $ 133,160 $ 129,158 3.1 %common shares



Net income per share of common stock

Basic $ 0.52 $ 0.64 (18.8 ) % $ 3.45 $ 3.19 8.2 %

Diluted $ 0.51 $ 0.63 (19.0 ) % $ 3.43 $ 3.18 7.9 %

____________________________________

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2020

2019

2020

2019

Gross billings

$

6,563,727

$

6,555,865

$

20,356,164

$

19,804,549

Less: WSEE payroll cost

5,555,907

5,512,477

17,125,495

16,564,835

Revenues

$

1,007,820

$

1,043,388

$

3,230,669

$

3,239,714

Three Months Ended Nine Months Ended September September 30, 30,

(in thousands) 2020 2019 2020 2019



Gross billings $ 6,563,727 $ 6,555,865 $ 20,356,164 $ 19,804,549

Less: WSEE payroll 5,555,907 5,512,477 17,125,495 16,564,835 cost

Revenues $ 1,007,820 $ 1,043,388 $ 3,230,669 $ 3,239,714

Insperity, Inc.

KEY FINANCIAL AND STATISTICAL DATA

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

Change

2020

2019

Change

Average WSEEs paid

231,750

240,939

(3.8

)

%

232,553

232,825

(0.1

)

%

Statistical data (per WSEE per month):

Revenues(1)

$

1,450

$

1,444

0.4

%

$

1,544

$

1,546

(0.1

)

%

Gross profit

266

236

12.7

%

305

272

12.1

%

Operating expenses

225

188

19.7

%

216

197

9.6

%

Operating income

41

48

(14.6

)

%

89

76

17.1

%

Net income

29

36

(19.4

)

%

64

62

3.2

%

____________________________________

Insperity, Inc.

KEY FINANCIAL AND STATISTICAL DATA

(Unaudited)

Three Months Ended September Nine Months Ended September 30, 30,

2020 2019 Change 2020 2019 Change



Average WSEEs paid 231,750 240,939 (3.8 ) % 232,553 232,825 (0.1 ) %

Statistical data(per WSEE per month):

Revenues^(1) $ 1,450 $ 1,444 0.4 % $ 1,544 $ 1,546 (0.1 ) %

Gross profit 266 236 12.7 % 305 272 12.1 %

Operating expenses 225 188 19.7 % 216 197 9.6 %

Operating income 41 48 (14.6 ) % 89 76 17.1 %

Net income 29 36 (19.4 ) % 64 62 3.2 %

____________________________________

^ Revenues per WSEE per month are comprised of gross billings per WSEE per(1) month less WSEE payroll costs per WSEE per month follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(per WSEE per month)

2020

2019

2020

2019

Gross billings

$

9,441

$

9,070

$

9,726

$

9,451

Less: WSEE payroll cost

7,991

7,626

8,182

7,905

Revenues

$

1,450

$

1,444

$

1,544

$

1,546

Three Months Ended September Nine Months Ended 30, September 30,

(per WSEE per 2020 2019 2020 2019 month)

Gross billings $ 9,441 $ 9,070 $ 9,726 $ 9,451

Less: WSEE payroll 7,991 7,626 8,182 7,905 cost

Revenues $ 1,450 $ 1,444 $ 1,544 $ 1,546

Insperity, Inc.

Non-GAAP Financial Measures

(Unaudited)

Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the tables below.

Insperity, Inc.

Non-GAAP Financial Measures

(Unaudited)

Non-GAAP financial measures are not prepared in accordance with GAAP and may bedifferent from non-GAAP financial measures used by other companies. Non-GAAPfinancial measures should not be considered as a substitute for, or superiorto, measures of financial performance prepared in accordance with GAAP.Investors are encouraged to review the reconciliation of the non-GAAP financialmeasures used to their most directly comparable GAAP financial measures asprovided in the tables below.

Non-GAAP Measure

Definition

Benefit of Non-GAAP Measure

Non-bonus payroll cost

Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our WSEEs.

Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers' compensation costs under the current program.

Our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers' compensation costs.

We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers' compensation program.

Adjusted cash, cash equivalents and marketable securities

Excludes funds associated with:

? federal and state income tax withholdings,

? employment taxes,

? other payroll deductions, and

? client prepayments.

We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. Adjusted EBITDA is used by our lenders to assess our leverage and ability to make interest payments.

Adjusted operating expenses

Represents operating expenses excluding the impact of the following:

? non-cash stock-based compensation, and

? depreciation and amortization expense.

EBITDA

Represents net income computed in accordance with GAAP, plus:

? interest expense,

? income tax expense, and

? depreciation and amortization expense.

Adjusted EBITDA

Represents EBITDA plus:

? non-cash stock-based compensation.

Adjusted net income

Represents net income computed in accordance with GAAP, excluding:

? non-cash stock-based compensation.

Adjusted EPS

Represents diluted net income per share computed in accordance with GAAP, excluding:

? non-cash stock-based compensation.

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

Non-GAAP Definition Benefit of Non-GAAP MeasureMeasure

Non-bonus payroll cost is a non-GAAP financial measure that Our management refers to non-bonus payroll excludes the impact of cost in analyzing, reporting and bonus payrolls paid to forecasting our workers' compensation our WSEEs. costs.

Non-bonus payrollcost Bonus payroll cost We include these non-GAAP financial varies from period to measures because we believe they are useful period, but has no to investors in allowing for greater direct impact to our transparency related to the costs incurred ultimate workers' under our current workers' compensation compensation costs program. under the current program.

Excludes funds associated with:

Adjusted ? federal and statecash, cash income taxequivalents withholdings,andmarketable ? employment taxes,securities ? other payroll deductions, and

? client prepayments.



Represents operating expenses excluding the impact of theAdjusted following:operatingexpenses ? non-cash stock-based compensation, and

? depreciation and amortization expense. We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our Represents net income expectations, against prior periods, and to computed in accordance plan for future periods by focusing on our with GAAP, plus: underlying operations. We believe that the adjusted results provide relevant and ? interest expense, useful information for investors becauseEBITDA they allow investors to view performance in ? income tax expense, a manner similar to the method used by and management and improves their ability to understand and assess our operating ? depreciation and performance. Adjusted EBITDA is used by our amortization expense. lenders to assess our leverage and ability to make interest payments.

Represents EBITDAAdjusted plus:EBITDA ? non-cash stock-based compensation.



Represents net income computed in accordanceAdjusted with GAAP, excluding:net income ? non-cash stock-based compensation.



Represents diluted net income per shareAdjusted computed in accordanceEPS with GAAP, excluding:

? non-cash stock-based compensation.

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

Three Months Ended September 30, Nine Months Ended September 30,

(in 2020 2019 2020 2019thousands,except perWSEE per $ WSEE $ WSEE $ WSEE $ WSEEmonth)



Payroll $ 5,555,907 $ 7,991 $ 5,512,477 $ 7,626 $ 17,125,495 $ 8,182 $ 16,564,835 $ 7,905 cost

Less:Bonus 431,861 621 408,931 566 1,935,950 925 1,851,338 884 payrollcost

Non-bonuspayroll $ 5,124,046 $ 7,370 $ 5,103,546 $ 7,060 $ 15,189,545 $ 7,257 $ 14,713,497 $ 7,021 cost

% Changeperiod 0.4 % 4.4 % 14.7 % 2.3 % 3.2 % 3.4 % 15.1 % 1.3 %overperiod

Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

(in thousands) September December 30, 2020 31, 2019



Cash, cash equivalents and marketable securities $ 406,350 $ 402,070

Less:

Amounts payable for withheld federal and state income 147,149 234,553 taxes, employment taxes and other payroll deductions

Client prepayments 46,526 59,612

Adjusted cash, cash equivalents and marketable $ 212,675 $ 107,905 securities

Following is a reconciliation of operating expenses (GAAP) to adjusted operating expenses (non-GAAP):

(in Three Months Ended September 30, Nine Months Ended September 30,thousands,except per 2020 2019 2020 2019 WSEE permonth) $ WSEE $ WSEE $ WSEE $ WSEE



Operating $ 156,261 $ 225 $ 135,813 $ 188 $ 452,324 $ 216 $ 412,084 $ 197 expenses

Less:

Stock-based 20,864 30 6,517 9 38,110 18 20,813 10 compensation

Depreciationand 7,819 12 7,330 10 23,329 12 20,929 10 amortization

Adjustedoperating $ 127,578 $ 183 $ 121,966 $ 169 $ 390,885 $ 186 $ 370,342 $ 177 expenses

% Changeperiod over 4.6 % 8.3 % 14.5 % 1.8 % 5.5 % 5.1 % 8.0 % (4.8 ) %period

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

Three Months Ended September 30, Nine Months Ended September 30,(in thousands,except per WSEE 2020 2019 2020 2019per month) $ WSEE $ WSEE $ WSEE $ WSEE



Net income $ 20,009 $ 29 $ 25,859 $ 36 $ 133,952 $ 64 $ 130,704 $ 62

Income tax expense 7,135 10 9,326 13 49,067 23 31,389 15

Interest expense 1,731 2 2,122 3 6,312 3 5,442 3

Depreciation and 7,819 12 7,330 10 23,329 12 20,929 10 amortization

EBITDA 36,694 53 44,637 62 212,660 102 188,464 90

Stock-based 20,864 30 6,517 9 38,110 18 20,813 10 compensation

Adjusted EBITDA $ 57,558 $ 83 $ 51,154 $ 71 $ 250,770 $ 120 $ 209,277 $ 100

% Change period 12.5 % 16.9 % (16.9 ) % (25.3 ) % 19.8 % 20.0 % 9.0 % (3.8 ) %over period

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

Three Months Ended Nine Months Ended September September 30, 30,

(in thousands) 2020 2019 2020 2019



Net income $ 20,009 $ 25,859 $ 133,952 $ 130,704

Non-GAAP adjustments:

Stock-based 20,864 6,517 38,110 20,813 compensation

Total non-GAAP 20,864 6,517 38,110 20,813 adjustments

Tax effect (5,484 ) (1,728 ) (10,134 ) (4,818 )

Adjusted net income $ 35,389 $ 30,648 $ 161,928 $ 146,699

% Change period over 15.5 % (24.3 ) % 10.4 % 14.0 %period

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS(non-GAAP):

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019



Diluted EPS $ 0.51 $ 0.63 $ 3.43 $ 3.18

Non-GAAP adjustments:

Stock-based 0.54 0.16 0.98 0.51 compensation

Total non-GAAP 0.54 0.16 0.98 0.51 adjustments

Tax effect (0.14 ) (0.04 ) (0.26 ) (0.12 )

Adjusted EPS $ 0.91 $ 0.75 $ 4.15 $ 3.57

% Change period over 21.3 % (21.9 ) % 16.2 % 16.7 %period

Following is a reconciliation of GAAP to non-GAAP financial measures for fourth quarter and full year 2020 guidance:

(in millions, except per share amounts) Q4 2020 Full Year 2020 Guidance Guidance



Net income (loss) $(2) - $4 $132 - $139

Income tax expense (benefit) (1) - 2 48 - 51

Interest expense 2 8

Depreciation and amortization 8 31

EBITDA 7 - 16 219 - 229

Stock-based compensation 14 52

Adjusted EBITDA $21 - $30 $271 - $281



Diluted net income per share of common stock $(0.06) - $0.12 $3.38 - $3.56

Non-GAAP adjustments:

Stock-based compensation 0.36 1.33

Total non-GAAP adjustments 0.36 1.33

Tax effect (0.10) (0.36)

Adjusted EPS $0.20 - $0.38 $4.35 - $4.53

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