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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-26 · 93 added, 81 removed, 135 unchanged (56% of the section changed)

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You should carefully consider the following information.

We may be more sensitive to revenue fluctuations than other companies, which could result in fluctuations in the market price of our common stock.

A substantial majority of our operating expenses, such as personnel and related costs and occupancy costs, are relatively fixed in the short term.

As a result, we may not be able to quickly reduce costs in response to any decrease in revenue.

This factor could cause our quarterly results to be lower than expectations of securities analysts and stockholders, which could result in a decline in the price of our common stock.

Risk Factors Related to Our Business and Industry

Payments on accounts receivable may be slower than expected, or amounts due on receivables or notes may not be fully collectible.

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Our success depends in large part upon the abilities and continued services of our executive officers and other key employees, such as those who generate substantial client revenue and our business unit presidents.

In the course of business operations, employees may retire, resign and seek employment elsewhere.

In the course

of business operations, employees may retire, resign and seek employment elsewhere.

Certain key employees, however, are bound in writing to agreements containing non-compete and other restrictive covenants barring competitive employment, client acceptance, and solicitation of employees for a period of between one and ten years following their resignation.

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While we generally have contractual arrangements with key personnel that contain restrictive covenants, courts are at times reluctant to enforce such covenants.

In addition, many of our executive officers and other key personnel are either participants in our 2019 Stock Omnibus Incentive Plan (the “2019 Plan”), holders of a significant amount of our common stock, or receive other incentive-based compensation.

In addition, many of our executive officers and other key personnel are either participants in our 2019 Stock Omnibus Incentive Plan, holders of a significant amount of our common stock, or receive other incentive-based compensation.

We believe that these interests provide additional incentives for these key employees to remain with us.

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preparing marketing and promotion materials;

providing office space, computer equipment, systems support and administrative support.

and providing office space, computer equipment, systems support and administrative support.

Services are performed in exchange for a fee.

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further, we do not provide any non-audit services to an SEC-reporting attest client that the CPA firm performing an audit could not sell under the auditor independence limitations set out in the Sarbanes-Oxley Act of 2002 and other professional accountancy independence standards.

SEC staff informed us that independence rules that apply to clients

that receive attest services under SEC and Public Company Accounting Oversight Board (“PCAOB”) standards from such CPA firms would prohibit such clients from holding any common stock of CBIZ.

SEC staff informed us that independence rules that apply to clients that receive attest services under SEC and Public Company Accounting Oversight Board (“PCAOB”) standards from such CPA firms would prohibit such clients from holding any common stock of CBIZ.

However, applicable professional standards generally permit us to provide additional services to privately-held companies, in addition to those services which may be provided to SEC-reporting attest clients of a CPA firm.

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There can be no assurance that following the policies and procedures implemented by us and the CPA firms will enable us and the CPA firms to avoid circumstances that would cause us and them to lack independence from an SEC-reporting attest client;

nor can there be any assurance that state, U.S.

Government Accountability Office or U.S.

Department Of Labor accountancy authorities will not impose additional restrictions on the profession.

nor can there be any assurance that state, United States Government Accountability Office or United States Department of Labor accountancy authorities will not impose additional restrictions on the profession.

To the extent that the CPA firms for whom we provide staffing, administrative and other services are affected, we may experience a decline in fee revenue from these businesses as well as expenses related to addressing independence concerns.

To date, revenues derived from providing services in connection with attestation engagements of the attest firms performed for SEC-reporting clients have not been material.

Our goodwill and other intangible assets could become impaired, which could lead to material non-cash charges against earnings.

Our goodwill and other intangible assets could become impaired, which could lead to material non-cash charges against earnings and a material impact on our results of operations and statement of financial position.

At December 31, 2020, the net carrying value of our goodwill and other intangible assets totaled $683.1 million and $73.7 million, respectively.

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Any impairment of goodwill or intangible assets would result in a non-cash charge against current earnings, which could lead to a material impact on our results of operations and statements of financial position.

Certain liabilities resulting from acquisitions are estimated and could lead to a material impact on earnings.

Certain liabilities resulting from acquisitions are estimated and could lead to a material impact on our results of operations.

Through our acquisition activities, we record liabilities for future contingent earnout payments that are settled in cash or through the issuance of common stock.

The fair value of these liabilities is assessed on a quarterly basis and changes in assumptions used to determine the amount of the liability or a change in the fair value of our common stock could lead to an adjustment that may have a material impact, favorable or unfavorable, on our results of operations.

Governmental regulations and interpretations are subject to changes, which could have a material adverse effect on revenue.

Governmental regulations and interpretations are subject to changes, which could have a material adverse effect on our financial condition.

Changes in laws and regulations, or the interpretation and application thereof, could result in changes in the amount or the type of business services required by businesses and individuals, which could have a material adverse effect on our financial condition.

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Specifically, legislation or other changes could afford our clients and their employees the ability to seek insurance coverage through other means, including, but not limited to, direct access with insurance carriers or other similar avenues, which could eliminate or adversely alter the remuneration brokers receive from insurance carriers for their services.

Furthermore, statutory or regulatory changes may result in establishing alternatives to employer-sponsored healthcare insurance or replace it with government-sponsored health insurance programs.

These changes could materially alter the healthcare in the United States and our ability to provide effective services in these areas may be substantially limited and adversely affect revenue and margins in our healthcare benefit business.

Higher rates of unemployment in the United States could result in a general reduction in the number of individuals with employer-sponsored healthcare coverage.

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While we have been successful to date in defending against such suits, it is possible that similar claims may be brought in the future.

We will be required to defend against such claims, and may incur expenses related to such lawsuits and may not be successful in

defending against such lawsuits.

We will be required to defend against such claims, and may incur expenses related to such lawsuits and may not be successful in defending against such lawsuits.

In the event that the CPA firms with which we maintain ASAs incur judgments and costs related to such suits that threaten the solvency of the CPA firms, we may incur expenditures related to such proceedings.

The future issuance of additional shares could adversely affect the price of our common stock.

Future sales or issuances of common stock, including those related to the uses described below, or the perception that sales could occur, could adversely affect the market price of our common stock and dilute the percentage ownership held by our stockholders.

We have authorized 250 million shares of common stock, and have approximately 55.3 million shares of common stock outstanding at January 31, 2020.

A substantial number of these shares have been issued in connection with acquisitions.

As part of many acquisition transactions, shares are contractually restricted from sale for a one-year period, and as of January 31, 2020, approximately 0.1 million shares of our common stock were under lock-up contractual restrictions that expire by December 31, 2020.

We cannot be sure when sales by holders of our stock will occur, how many shares will be sold or the effect that sales may have on the market price of our common stock.

Our principal stockholders may have substantial control over our operations.

Our stockholders that beneficially own (within the meaning of Rule 13d-3 of the Exchange Act) significant percentages of our common stock relative to other individual stockholders may exert substantial influence over actions that require the consent of a majority of our outstanding shares, including the election of directors.

Our share repurchase activities may result in increased ownership percentages of these individuals and therefore increase the influence they may exert, if they do not participate in these share repurchase transactions or otherwise dispose of their common stock.

The business services industry is competitive and fragmented.

If we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted.

We face competition from a number of sources in the business services industry.

Many of our competitors are large companies that may have greater financial, technical, marketing and other resources.

Our principal competitors include financial and

management consulting firms, the consulting practices of major accounting firms, local and regional business services companies, independent contractors, the in-house or former in-house resources of our clients, as well as new entrants into our markets.

We cannot assure you that, as our industry continues to evolve, additional competitors will not enter the industry or that our clients will not choose to conduct more of their business services internally or through alternative business services providers.

Although we intend to monitor industry trends and respond accordingly, we cannot assure you that we will be able to anticipate and successfully respond to such trends in a timely manner.

We cannot be certain that we will be able to effectively compete against current and future competitors, or that competitive pressure will not have a material adverse effect on our business, financial condition and results of operations.

Given our levels of share-based compensation, our tax rate may vary significantly depending on our stock price.

We apply FASB Accounting Standards Codification 718, Compensation - Stock Compensation under which the tax effects of the accounting for share-based compensation may significantly impact our effective tax rate from period to period.

In periods in which our stock price is higher than the grant date fair value of the share-based compensation vesting or exercises in that period, we will recognize excess tax benefits that will decrease our effective tax rate.

In future periods in which our stock price is lower than the grant price of the share-based compensation vesting in that period, our effective tax rate may increase.

The amount and value of share-based compensation issued relative to our earnings in a particular period will also affect the magnitude of the impact of share-based compensation on our effective tax rate.

These tax effects are dependent on our stock price and exercise activity, which we do not control, and a decline in our stock price could significantly increase our effective tax rate and adversely affect our financial results.

We may be subject to the actions of activist shareholders.

Our Board of Directors and management team are committed to acting in the best interest of all of our shareholders.

We value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance.

Activist shareholders who disagree with the composition of the Board of Directors, our strategy or the way the Company is managed may seek to effect change through various strategies and channels.

Responding to shareholder activism can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees from our strategic initiatives.

Activist campaigns can create perceived uncertainties as to our future direction, strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to attract new employees, investors, and customers, and cause our stock price to experience periods of volatility or stagnation.

Changes in accounting policies, standards, and interpretations could materially affect how we report our financial condition, results of operations, and cash flows.

The FASB, regulatory agencies, and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of our consolidated financial statements.

Additionally, those bodies that establish and interpret the accounting standards (such as the FASB and the SEC) may change prior interpretations or positions on how these standards should be applied.

These changes can be difficult to predict and can materially affect how we record and report our financial condition, results of operations, and cash flows.

In unusual circumstances, we could be required to retroactively apply a new or revised standard, resulting in changes to previously reported financial results.

Rapid technological changes could significantly impact our competitive position, client relationships and operating results.

The professional business services industry has been and continues to be impacted by significant technological changes, enabling companies to offer services competitive with ours.

Those technological changes may (i) reduce demand for our services, (ii) enable the development of competitive products or services, or (iii) enable our current customers to reduce or bypass the use of our services.

Additionally, rapid changes in artificial intelligence and block chain-based technology are increasing the competitiveness landscape.

We may not be successful in anticipating or responding to these changes and demand for our services could be further reduced by advanced technologies being deployed by our competitors.

The effort to gain technological expertise and develop new technologies in our business may require us to incur significant expenses.

In some cases, we depend on key vendors and partners to provide technology and other support.

If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected.

Climate change legislation or regulations restricting emissions of Greenhouse Gases could result in increased operating costs.

In 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other greenhouse gases (“GHGs”), present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth's atmosphere and other climate changes.

These findings allow the EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the federal Clean Air Act.

The EPA has adopted two sets of regulations under the

existing Clean Air Act that would require a reduction in emissions of GHGs from motor vehicles and could trigger permit review for GHG emissions from certain stationary sources.

In addition, both houses of Congress have actively considered legislation to reduce emissions of GHGs, and almost one-half of the states have taken legal measures to reduce emissions of GHGs primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs.

Most of these cap and trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved.

The adoption and implementation of any regulations imposing GHG reporting obligations on, or limiting emissions of GHGs from, our equipment and operations could require us to incur costs to monitor and to reduce emissions of GHGs associated with our operations.

The widespread outbreak of a communicable illness or any other public health crisis could adversely affect our business, results of operations and financial condition.

We may face risks related to public health threats or widespread outbreak of a communicable illness.

A widespread outbreak of a communicable disease or a public health crisis could adversely affect the global and domestic economy and our business partners’ ability to conduct business in the United States for an indefinite period of time.

For example, in March 2020, the World Health Organization declared a new strain of coronavirus (“COVID-19”) a pandemic.

The global spread of COVID-19 has negatively impacted the global economy and disrupted both financial markets and international trade.

The COVID-19 pandemic resulted in increased unemployment levels and significantly impacted global supply chain.

In addition, federal, state, and local governments have implemented various mitigation measures, including travel restrictions, restrictions on public gatherings, shelter-in-place restrictions, and limitations on business activities.

Although we are considered an essential business, some of these actions have adversely impacted the ability of our employees, contractors, suppliers, customers, and other business partners to conduct business activities, and could ultimately do so for an indefinite period of time.

This could have a material adverse effect on our results of operations, financial condition, and liquidity, and will depend on numerous factors that we may not be able to predict, including, but not limited to, the duration and severity of the pandemic, governmental actions in response to the pandemic, the impact of business and economic disruptions on our clients and their demand for our services, and our clients’ ability to pay for our services.

We are reliant on information processing systems and any failure or disruptions of these systems could have a material adverse effect on our business, financial condition and results of operations.

Our ability to provide business services depends on our capacity to store, retrieve, process and manage significant databases, and expand and upgrade periodically our information processing capabilities.

Interruption or loss of our information processing capabilities through loss of stored data, breakdown or malfunctioning of computer equipment and software systems, telecommunications failure, or damage caused by extreme weather conditions, electrical power outage, geopolitical events, or other disruption could have a material adverse effect on our business, financial condition and results of operations.

Although we have disaster recovery procedures in place and insurance to protect against such contingencies, we cannot be sure that insurance or these services will continue to be available, cover all our losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide business services.

We may not be able to acquire and finance additional businesses which may limit our ability to pursue our business strategy.

We acquired seven businesses and four client lists during 2020, and maintain a healthy pipeline of potential businesses for acquisition.

Targeted acquisitions are part of our growth strategy, and it is our intention to selectively acquire businesses or client lists that are complementary to existing service offerings in our target markets.

However, we cannot be certain that we will be able to continue identifying appropriate acquisition candidates and acquire them on satisfactory terms, and we cannot be assured that such acquisitions, even if completed, will perform as expected or will contribute significant synergies, revenues or profits.

In addition, we may also face increased competition for acquisition opportunities, which may inhibit our ability to complete transactions on terms that are favorable to us.

As discussed above, there are certain provisions under our credit facility that may limit our ability to acquire additional businesses.

In the event that we are not in compliance with certain covenants as specified in our credit facility, we could be restricted from making acquisitions, restricted from borrowing funds from our credit facility for other uses, or required to pay down the outstanding balance on the line of credit.

However, management believes that funds available under the credit facility, along with cash generated from operations, will be sufficient to meet our liquidity needs, including planned acquisition activity in the foreseeable future.

To the extent we are unable to find suitable acquisition candidates, an important component of our growth strategy may not be realized.

We require a significant amount of cash for interest payments on our debt and to expand our business as planned.

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(ii) limit our ability to borrow additional funds or to obtain other financing in the future for working capital, capital expenditures, acquisitions, investments and general corporate purposes;

(iii) limit our ability to dispose of our assets, to

create liens on our assets, to extend credit or to issue dividends to our stockholders;

(iii) limit our ability to dispose of our assets, to create liens on our assets, to extend credit or to issue dividends to our stockholders;

and (iv) make us more vulnerable to economic downturns and reduce our flexibility in responding to changing business and economic conditions.

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If the lenders accelerate the repayment of borrowings, we may not have sufficient assets to repay our debt.

We are reliant on information processing systems and any failure or disruptions of these systems could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to acquire and finance additional businesses which may limit our ability to pursue our business strategy.

We acquired six businesses and one client list during 2019, and maintain a healthy pipeline of potential businesses for acquisition.

In addition, we may also face increased competition for acquisition opportunities, which may inhibit our ability to complete transactions on terms that are favorable to us.

As discussed above, there are certain provisions under our credit facility that may limit our ability to acquire additional businesses.

To the extent we are unable to find suitable acquisition candidates, an important component of our growth strategy may not be realized.

The business services industry is competitive and fragmented.

If we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted.

We face competition from a number of sources in the business services industry.

Many of our competitors are large companies that may have greater financial, technical, marketing and other resources.

Our principal competitors include financial and management consulting firms, the consulting practices of major accounting firms, local and regional business services companies, independent contractors, the in-house or former in-house resources of our clients, as well as new entrants into our markets.

Although we intend to monitor industry trends and respond accordingly, we cannot assure you that we will be able to anticipate and successfully respond to such trends in a timely manner.

Risk Factors Related to Ownership of Our Common Stock

We may be more sensitive to revenue fluctuations than other companies, which could result in fluctuations in the market price of our common stock.

A substantial majority of our operating expenses, such as personnel and related costs and occupancy costs, are relatively fixed in the short term.

As a result, we may not be able to

quickly reduce costs in response to any decrease in revenue.

This factor could cause our quarterly results to be lower than expectations of securities analysts and stockholders, which could result in a decline in the price of our common stock.

The future issuance of additional shares could adversely affect the price of our common stock.

We have authorized 250 million shares of common stock, and have approximately 55.7 million shares of common stock outstanding at January 31, 2021.

A substantial number of these shares have been issued in connection with acquisitions.

As part of many acquisition transactions, shares are contractually restricted from sale for a one-year period, and as of January 31, 2021, approximately 0.3 million shares of our common stock were under lock-up contractual restrictions that expire by December 31, 2021.

We cannot be sure when sales by holders of our stock will occur, how many shares will be sold or the effect that sales may have on the market price of our common stock.

Our principal stockholders may have substantial control over our operations.

There is volatility in our stock price.

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These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.

Given our levels of share-based compensation, our tax rate may vary significantly depending on our stock price.

We apply FASB Accounting Standard s Codification 718, Compensation - Stock Compensation under which t he tax effects of the accounting for share-based compensation may significantly impact our effective tax rate from period to period.

In future periods in which our stock price is lower than the grant price of the share-based compensation vesting in that period, our effective tax rate may increase.

These tax effects are dependent on our stock price and exercise activity , which we do not control, and a decline in our stock price could significantly increase our effective tax rate and adversely affect our financial results.