What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 206 added, 91 removed, 143 unchanged (68% of the section changed)

1 unchanged sentence

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we”, “us”, “our”, "CBIZ" or the "Company" shall mean CBIZ, Inc., a Delaware corporation, and its operating subsidiaries.

The following discussion is intended to assist in the understanding of our financial position at March 31, 2021 and December 31, 2020, results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020, and should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2020.

The following discussion is intended to assist in the understanding of our financial position at June 30, 2021 and December 31, 2020, results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020, and should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2020.

This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A.

4 unchanged sentences

Financial Services, Benefits and Insurance Services, and National Practices.

Refer to Note 12.

Segment Disclosures, to the accompanying condensed consolidated financial statements for a general description of services provided by each practice group.

Refer to Note 12, Segment Disclosures, to the accompanying condensed consolidated financial statements for a general description of services provided by each practice group.

Refer to the Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations.

EXECUTIVE SUMMARY

Revenue for the three months ended March 31, 2021 increased by $23.2 million, or 8.4%, to $300.7 million from $277.5 million for the same period in 2020.

Revenue for the three months ended June 30, 2021 increased by $41.7 million, or 17.6%, to $278.6 million from $236.9 million for the same period in 2020.

Same-unit revenue increased by approximately $24.8 million, or 10.5%.

Revenue from newly acquired operations, net of divestitures, contributed $13.3 million, or 4.8%, of incremental revenue for the three months ended March 31, 2021 as compared to the same period in 2020.

Income from continuing operations was $50.2 million, or $0.92 per diluted share, in the first quarter of 2021, compared to $36.9 million, or $0.66 per diluted share, in the first quarter of 2020.

Revenue from newly acquired operations, net of divestitures, contributed $16.9 million, or 7.1%, of incremental revenue for the three months ended June 30, 2021 as compared to the same period in 2020.

Revenue for the six months ended June 30, 2021 increased by $65.0 million, or 12.6%, to $579.4 million from $514.4 million for the same period in 2020.Same-unit revenue increased by approximately $34.8 million, or 6.8%.

Revenue from newly acquired operations, net of divestitures, contributed $30.2 million, or 5.9%, of incremental revenue for the six months ended June 30, 2021 as compared to the same period in 2020.

A detailed discussion of revenue by practice group is included under "Operating Practice Groups".

Income from continuing operations was $8.6 million, or $0.16 per diluted share, in the second quarter of 2021, compared to $21.5 million, or $0.39 per diluted share, in the second quarter of 2020.

For the first half of 2021, income from continuing operations was $58.8 million, or $1.09 per diluted share, compared to $58.3 million, or $1.05 per diluted share, for the same period in 2020.

Refer to “Results of Operations – Continuing Operations” for a detailed discussion of the components of income from continuing operations.

Strategic Use of Capital

Our first priority for use of capital is to make strategic acquisition.

Our first priority for use of capital is to make strategic acquisitions.

We also have the financing flexibility and the capacity to actively repurchase shares of our common stock.

We believe that repurchasing shares of our common stock can be a prudent use of our financial resources, and that investing in our stock is an attractive use of capital and an efficient means to provide value to our stockholders.

We have completed one acquisition for approximately $3.5 million and repurchased 1.2 million shares of our common stock at a total cost of approximately $34.1 million in the three months ended March 31, 2021.

Refer to Note 11.

Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions.

We have completed four acquisitions for $43.1 million in cash and $4.1 million in our common stock.

We also repurchased 2.1 million shares of our common stock at a total cost of approximately $66.5 million in the first half of 2021.

Refer to Note 11, Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions.

During the first quarter of 2021, the CBIZ Board of Directors authorized the purchase of up to 5.0 million shares of our common stock under our Share Repurchase Program (the “Share Repurchase Program”), which may be suspended or discontinued at any time and expires on April 1, 2022.

The shares may be purchased in the open market, in privately negotiated transactions, or pursuant to Rule 10b5-1 trading plans, which may include purchases from our employees, officers and directors, in accordance with the Securities and Exchange Commission (the “SEC”) rules.

The shares may be purchased in the open market, in privately negotiated transactions, or pursuant to Rule 10b5-1 trading plans, which may include purchases

from our employees, officers and directors, in accordance with the Securities and Exchange Commission (the “SEC”) rules.

CBIZ management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors.

RESULTS OF OPERATIONS – CONTINUING OPERATIONS

The following tables summarize total revenue for the three months ended March 31, 2021 and 2020 (in thousands except percentages).

Three Months Ended March 31,

The following tables summarize total revenue for the three and six months ended June 30, 2021 and 2020 (in thousands except percentages).

Three Months Ended June 30,

Total 2020 % of

3 unchanged sentences

Total CBIZ $ 278,648 100.0 % $ 236,943 100.0 % $ 41,705 17.6 %

Six Months Ended June 30,

Total 2020 % of

Financial Services $ 390,738 67.4 % $ 342,860 66.6 % $ 47,878 14.0 %

Benefits and Insurance Services 169,859 29.3 % 153,552 29.9 % 16,307 10.6 %

National Practices 18,781 3.3 % 17,986 3.5 % 795 4.4 %

Total CBIZ $ 579,378 100.0 % $ 514,398 100 % $ 64,980 12.6 %

A detailed discussion of same-unit revenue by practice group is included under “Operating Practice Groups.”

4 unchanged sentences

Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

4 unchanged sentences

compensation % of revenue 82.6 % 83.1 %

Deferred compensation plan increased operating expenses by $4.6 million in the first quarter of 2021, but decreased operating expenses by $14.8 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, operating expenses would have been $219.4 million and $214.6 million, or 72.9% and 77.4%% of revenue, for the first quarter of 2021 and 2020, respectively.

Six Months Ended June 30,

(In thousands, except percentages)

Operating expenses $ 460,905 $ 408,843 $ 52,062 12.7 %

Operating expenses % of revenue 79.6 % 79.5 %

Operating expenses excluding deferred compensation $ 449,528 $ 411,411 $ 38,117 9.3 %

Operating expenses excluding deferred

compensation % of revenue 77.6 % 80.0 %

Three months ended June 30, 2021 compared to June 30, 2020.

Total operating expenses for the second quarter of 2021 increased by $27.9 million, or 13.4%, to $236.9 million as compared to $209.0 million in the second quarter of 2020.

The non-qualified deferred compensation plan increased operating expenses by $6.8 million in the second quarter of 2021, and by $12.2 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, operating expenses would have been $230.2 million and $196.8 million, or 82.6% and 83.1%% of revenue, for the second quarter of 2021 and 2020, respectively.

The majority of our operating expenses relate to personnel costs, which includes (i) salaries and benefits, (ii) commissions paid to producers, (iii) incentive compensation, and (iv) stock-based compensation.

Excluding the impact of deferred compensation, operating expense increased during the first quarter of 2021 as compared to the same period in 2020, primarily driven by $13.6 million higher personnel costs, offset by lower travel and entertainment costs of approximately $5.5 million, bad debt expense of approximately $2.2 million, as well as $1.2 million lower other discretionary spending.

Excluding the impact of deferred compensation, operating expense increased during the second quarter of 2021 as compared to the same period in 2020, primarily driven by $27.5 million higher personnel costs, $1.5 million higher travel and entertainment costs, $1.0 million higher marketing expenses, as well as $3.0 million higher other discretionary spending.

Personnel costs are discussed in further detail under “Operating Practice Groups”.

Six months ended June 30, 2021 compared to June 30, 2020 .

Total operating expenses for the six months ended June 30, 2021 increased by $52.1 million, or 12.7%, to $460.9 million as compared to $408.8 million in the same period of 2020.

The non-qualified deferred compensation plan added $11.4 million of expenses for the six months ended June 30, 2021, but decreased operating expenses by $2.6 million during the same period in 2020.

Excluding the impact of deferred compensation, operating expense increase was primarily attributed to personnel costs increase of $41.1 million, offset by $4.1 million lower travel and entertainment costs, and $3.0 million lower bad debt expense.

Other discretionary spending increased approximately $4.0 million to support business activities.

Corporate General & Administrative (“G&A”) Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

3 unchanged sentences

G&A expenses excluding deferred compensation % of revenue 4.7 % 4.1 %

The deferred compensation plan increased G&A expenses by $0.5 million in the first quarter of 2021, but decreased G&A expenses by $1.8 million during the same period in 2020.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $14.0 million, or 4.7% of revenue, for the first quarter of 2021, compared to $12.3 million, or 4.4% of revenue, for the first quarter of 2020.

The increase in our G&A expenses excluding deferred compensation is primarily due to higher personnel costs of $1.2 million and $0.5 million higher other costs to support business growth.

Six Months Ended June 30,

(In thousands, except percentages)

G&A expenses $ 28,299 $ 21,649 $ 6,650 30.7 %

G&A expenses % of revenue 4.9 % 4.2 %

G&A expenses excluding deferred compensation $ 26,953 $ 21,979 $ 4,974 22.6 %

G&A expenses excluding deferred compensation % of revenue 4.7 % 4.3 %

Three months ended June 30, 2021 compared to June 30, 2020.

The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of $2.3 million and $0.8 million higher expense for professional services.

Six months ended June 30, 2021 compared to June 30, 2020.

The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of $3.7 million and $1.2 million higher expenses for professional services.

Legal Settlement, net

Three and six months ended June 30, 2021 compared with June 30, 2020.

On June 24, 2021, we reached a settlement agreement with University of Pittsburgh Medical Center (UPMC) pertaining a lawsuit filed in the U.S.

District Court for the Western District of Pennsylvania.

Under the terms of the settlement agreement, we will pay a total settlement amount of $41.5 million, the impact of which will be mitigated by available errors and omissions insurance proceeds.

As a result, we recorded a settlement loss of $30.5 million for the three and six months ended June 30, 2021.

Other Income (Expense), Net

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

Interest expense $ (959) $ (2,074) $ 1,115 (53.8) %

Gain on sale of operations, net — 95 (95) (100.0) %

Other income (expense), net (1)

Gain on sale of operations, net 6,385 57 6,328 N/M

Other income, net (1)

8,373 13,336 (4,963) (37.2) %

Total other income, net $ 3,912 $ (16,824) $ 20,736 (123.3) %

(1) Other income (expense), net includes a net gain of $5.1 million in the first quarter of 2021, compared to a net loss of $16.6 million for the same period in 2020, associated with the value of investments held in a rabbi trust related to the deferred compensation plan.

Total other income, net $ 13,799 $ 11,319 $ 2,480 N/M

Six Months Ended June 30,

(In thousands, except percentages)

Interest expense $ (1,836) $ (3,193) $ 1,357 (42.5) %

Gain on sale of operations, net 6,385 152 6,233 N/M

Other income (expense), net (2)

13,162 (2,464) 15,626 N/M

Total other income (expense), net $ 17,711 $ (5,505) $ 23,216 N/M

(1) Other income, net includes a net gain of $7.6 million in the second quarter of 2021, compared to a net gain of $13.7 million for the same period in 2020, associated with the value of investments held in a rabbi trust related to the deferred compensation plan.

The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as “Operating expenses” and “G&A expenses.” The deferred compensation plan has no impact on “Income from continuing operations before income tax expense” or diluted earnings per share from continuing operations.

Interest Expense - Our primary financing arrangement is the 2018 credit facility.

Our average debt balance and interest rate was $128.2 million and 2.10% at March 31, 2021, compared to $145.2 million and 2.50% for the same period of 2020.

Gain on Sale of Operations, Net - We sold a small book of business in the Benefits and Insurance practice group during the first quarter of 2021 and 2020, respectively.

Net gain from the sale of the book of business was not material.

Other Income (expense), Net - For the first quarter of 2021, other income (expense), net includes a net gain of $5.1 million associated with the non-qualified deferred compensation plan and a $0.7 million net increase to the fair value of our contingent purchase price liability related to prior acquisitions.

For the same period in 2020, other income (expense), net includes a net loss of $16.6 million associated with the non-qualified deferred compensation plan and a $0.7 million net decrease to the fair value of our contingent purchase price liability related to prior acquisitions.

(2) Other income (expense), net includes a net gain of $12.7 million during the six months ended June 30, 2021, compared to a net loss of $2.9 million for the same period in 2020, associated with the value of investments held in a rabbi trust related to the deferred compensation plan.

Interest Expense

Three and six months ended June 30, 2021 compared with June 30, 2020.

Our primary financing arrangement is the 2018 credit facility.

During the three months ended June 30, 2021, our average debt balance and interest rate

was $164.6 million and 1.95%, compared to $260.8 million and 2.39% for the same period of 2020.

During the six months ended June 30, 2021, our average debt balance and interest rate was $146.5 million and 1.95% compared to $203.0 million and 2.43% for the same period of 2020.

The decrease in interest expense for the three and six months ended June 30, 2021 as compared to the same periods in 2020 was primarily driven by lower average debt balances.

Our indebtedness is further discussed in Note 4, Debt and Financing Arrangements, to the accompanying condensed consolidated financial statements.

Gain on Sale of Operations, Net

Three and six months ended June 30, 2021 compared with June 30, 2020.

We sold a small book of business and a business unit in the Benefits and Insurance practice group during the first half of 2021.

Total proceeds from the sales were $9.8 million.

Net gain from the sale was approximately $6.4 million.

Other Income (Expense), Net

Three and six months ended June 30, 2021 compared with June 30, 2020.

For the second quarter of 2021, other income, net includes a net gain of $7.6 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income, net includes a net gain of $13.7 million associated with the non-qualified deferred compensation plan.

For the first half of 2021, other income (expense), net, includes a net gain of $12.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income (expense), net, includes a net loss of $2.9 million associated with the non-qualified deferred compensation plan.

Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

1 unchanged sentence

Effective tax rate 23.3 % 23.5 %

The effective tax rate for the first quarter of 2021 was 24.1%, compared to an effective tax rate of 26.7% for the comparable period in 2020.

Six Months Ended June 30,

(In thousands, except percentages)

Income tax expense $ 18,588 $ 20,060 $ (1,472) (7.3) %

Effective tax rate 24.0 % 25.6 %

Three and six months ended June 30, 2021 compared with June 30, 2020.

The effective tax rate for the second quarter of 2021 was 23.3%, compared to an effective tax rate of 23.5% for the comparable period in 2020.

The effective tax rate for the first half of 2021 was 24.0%, compared to an effective tax rate of 25.6% for the same period in 2020.

The decrease in the effective tax rate year over year was primarily due to a larger tax benefit recognized in the current year related to stock-based compensation.

Operating Practice Groups

5 unchanged sentences

Financial Services

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

6 unchanged sentences

Gross margin percent 19.1 % 17.3 %

Three months ended March 31, 2021 compared to March 31, 2020 - The Financial Services practice group revenue for the three months ended March 31, 2021 grew by 8.1% to $204.1 million from $188.8 million during the same period in 2020.

Same-unit revenue grew by $8.5 million, or 4.5%, primarily driven by those units that provide traditional accounting and tax-related services, which increased $7.9 million, as well as moderate growth of $1.4 million in government healthcare compliance business, offset by approximately $0.8 million decrease in project-oriented and other businesses.

Six Months Ended June 30,

(In thousands, except percentages)

Same-unit $ 369,754 $ 340,922 $ 28,832 8.5 %

Acquired businesses 20,984 — 20,984

Divested operations — 1,938 (1,938)

Total revenue $ 390,738 $ 342,860 $ 47,878 14.0 %

Operating expenses 292,666 266,015 26,651 10.0 %

Gross margin $ 98,072 $ 76,845 $ 21,227 27.6 %

Gross margin percent 25.1 % 22.4 %

Three months ended June 30, 2021 compared to June 30, 2020

The Financial Services practice group revenue for the three months ended June 30, 2021 grew by 21.1% to $186.6 million from $154.1 million during the same period in 2020.

Same-unit revenue grew by $20.4 million, or 13.3%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $10.3 million, and those units that provide project-oriented advisory services, which increased by $8.0 million, as well as moderate growth of $1.9 million in government healthcare compliance business.

The impact of acquired businesses, net of divestitures, contributed $12.2 million, or 6.5% of 2021 revenue.

We provide a range of services to affiliated CPA firms under joint referral and administrative service agreements (“ASAs”).

Fees earned under the ASAs are recorded as revenue and were approximately $54.9 million and $52.7 million for the three months ended March 31, 2021 and 2020, respectively.

Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $45.2 million and $39.7 million for the three months ended June 30, 2021 and 2020, respectively.

Operating Expenses

Operating expenses increased by $23.5 million, or 18.4%, as compared to the same period last year.

The increase in operating expense was primarily attributed to higher personnel costs of $20.8 million, or 13.8%, with acquisitions contributing approximately $8.9 million to the increase in personnel costs.

The increase in personnel costs was offset by $4.0 million lower travel and discretionary spending and $2.3 million lower bad debt expense.

In the first quarter of 2020, due to the COVID-19 pandemic, we recorded bad debt expense of $2.0 million, which did not recur in 2021.

Operating expense as a percentage of revenue decreased to 69.4% for the quarter ended March 31, 2021 from 73.4% of revenue for the prior year quarter.

In addition, travel and entertainment, professional services, and other discretionary spending increased by approximately $1.7 million.

The increase in personnel costs was offset by $0.5 million lower bad debt expense.

Operating expense as a percentage of revenue decreased to 80.9% for the quarter ended June 30, 2021 from 82.7% of revenue for the prior year quarter.

Six months ended June 30, 2021 compared to June 30, 2020

Revenue for the six months ended June 30, 2021 grew by 14.0% to $390.7 million from $342.9 million during the same period in 2020.

Same-unit revenue grew by $28.8 million, or 8.5%, across all service lines, primarily driven by

those units that provide traditional accounting and tax-related services, which increased $18.2 million, and those units that provide project-oriented advisory services, which increased by $7.0 million, as well as an increase of $3.3 million in government healthcare compliance business.

The impact of acquired businesses, net of divestitures, contributed $19.0 million, or 4.9% of 2021 revenue.

Fees earned under the ASAs, as described above, were approximately $100.0 million and $92.4 million for the six months ended June 30, 2021 and 2020, respectively.

Operating Expenses

Operating expenses increased by $26.7 million, or 10.0%, as compared to the same period last year.

The increase in operating expenses was primarily attributed to higher personnel costs of $31.1 million, or 10.6%, with acquisitions contributing approximately $13.1 million to the increase in personnel costs.

The increase in personnel costs was offset by $2.0 million lower travel and entertainment spending and $2.8 million lower bad debt expense.

In the first half of 2020, due to the COVID-19 pandemic, we recorded bad debt expense of $2.0 million, which did not recur in 2021.

Operating expense as a percentage of revenue decreased to 74.9% during the six months ended June 30, 2021 from 77.6% of revenue during the same period in 2020.

Benefits and Insurance Services

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

6 unchanged sentences

Gross margin percent 18.0 % 17.1 %

Three months ended March 31, 2021 compared to March 31, 2020 - The Benefits and Insurance Services practice group revenue increased by $7.6 million, or 9.6%, to $87.2 million during the three months ended March 31, 2021 compared to $79.6 million for the same period in 2020, primarily driven by acquired businesses, net of divestitures, which contributed $6.4 million in incremental revenue for the three months ended March 31, 2021.

Six Months Ended June 30,

(In thousands, except percentages)

Same-unit $ 158,250 $ 153,110 $ 5,140 3.4 %

Acquired businesses 11,609 11,609

Divested operations — 442 (442)

Total revenue $ 169,859 $ 153,552 $ 16,307 10.6 %

Operating expenses 134,709 126,506 8,203 6.5 %

Gross margin $ 35,150 $ 27,046 $ 8,104 30.0 %

Gross margin percent 20.7 % 17.6 %

Three months ended June 30, 2021 compared to June 30, 2020

The Benefits and Insurance Services practice group revenue increased by $8.7 million, or 11.7%, to $82.6 million during the three months ended June 30, 2021 compared to $73.9 million for the same period in 2020.

The increase was primarily driven by the property and casualty and human capital management service lines as well as growth in our project based services.

Acquired businesses, net of divestitures, contributed $4.8 million in incremental revenue for the three months ended June 30, 2021.

Same-unit revenue increased by $3.9 million, or 5.3% when compared to the same period in 2020.

Operating Expenses

Operating expenses increased by $6.5 million, or 10.6%, when compared to the same period last year.

The increase in operating expense was mostly attributable to higher personnel costs of $2.9 million, or 5.8%, primarily related to acquired businesses.

The increase in personnel costs was offset by lower travel and discretionary spending of approximately $1.4 million.

Operating expense as a percentage of revenue decreased to 76.7% for the quarter ended March 31, 2021 from 81.9% of revenue for the same period in 2020.

The increase in operating expense was mostly attributable to higher personnel costs of $4.3 million, or 6.3%, primarily related to acquired businesses, which contributed $3.3 million of the increase in personnel costs.

In addition, travel and entertainment and other discretionary spending increased by $1.4 million to support increased business activities.

Operating expense as a percentage of revenue decreased to 82.0% for the quarter ended June 30, 2021 from 82.9% of revenue for the same period in 2020.

Six months ended June 30, 2021 compared to June 30, 2020

The Benefits and Insurance Services practice group revenue increased by $16.3 million, or 10.6%, to $169.9 million during the six months ended June 30, 2021 compared to $153.6 million for the same period in 2020, primarily driven by acquired businesses, net of divestitures, which contributed $11.2 million in incremental revenue.

Same-unit revenue increased by $5.1 million, or 3.4% when compared to the same period in 2020, primarily driven by growth property and casualty, employee benefits, and human capital management service lines as well as our project based services.

Operating Expenses

Operating expenses increased by $8.2 million, or 6.5%, when compared to the same period last year.

The increase in operating expense was mostly attributable to higher personnel costs of $7.2 million, or 5.3%, primarily related to acquired businesses, which contributed $6.6 million of the increase in personnel costs, as well as $1.2 million in other discretionary spending to support increased business activities.

The increase in personnel costs was offset by $1.0 million lower travel and entertainment spending.

Operating expense as a percentage of revenue decreased to 79.3% during the six months ended June 30, 2021 from 82.4% of revenue for the same period in 2020.

National Practices

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands, except percentages)

3 unchanged sentences

Gross margin percent 10.1 % 10.4 %

Three months ended March 31, 2021 compared to March 31, 2020 - The National Practices group is primarily driven by a cost-plus contract with a single client, which has existed since 1999.

Six Months Ended June 30,

(In thousands, except percentages)

Same-unit revenue $ 18,781 $ 17,986 $ 795 4.4 %

Operating expenses 17,028 16,273 755 4.6 %

Gross margin $ 1,753 $ 1,713 $ 40 2.3 %

Gross margin percent 9.3 % 9.5 %

Three and six months ended June 30, 2021 compared with June 30, 2020

Revenue and Operating Expenses

The National Practices group is primarily driven by a cost-plus contract with a single client, which has existed since 1999.

The cost-plus contract is a five-year contract with the most recent renewal through December 31, 2023.

Revenues from this single client accounted for approximately 75% of the National Practice group’s revenue.

During the three and six months ended June 30, 2021, revenue increased by $0.5 million, or 5.8%, and increased by $0.8 million, or 4.4%, respectively, while operating expenses increased by $0.5 million, or 6.2%, and increased by $0.8 million, or 4.6%, respectively.

Our principal sources of liquidity are cash generated from operating activities and financing activities.

4 unchanged sentences

Upon completion of the seasonal accounting and tax services period, cash provided by operations during the remaining three quarters of the fiscal year substantially exceeds the use of cash in the first quarter of the fiscal year.

Accounts receivable balances increase in response to the first quarter revenue generated by the Financial Services practice group.

Accounts receivable balances increase in response to the first six months revenue generated by the Financial Services practice group.

A significant amount of this revenue is billed and collected in subsequent quarters.

1 unchanged sentence

We provide DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of our ability to collect on receivables in a timely manner.

DSO was 91 days and 94 days at March 31, 2021 and 2020, respectively.

DSO was 84 days and 87 days at June 30, 2021 and 2020, respectively.

DSO at December 31, 2020 was 72 days.

1 unchanged sentence

For additional details, refer to the accompanying Condensed Consolidated Statements of Cash Flows.

Three Months Ended March 31,

Net cash used in operating activities $ (14,827) $ (18,647)

Net cash provided by investing activities 229 4,355

Net cash (used in) provided by financing activities (2,960) 207,772

Net (decrease) increase in cash, cash equivalents and restricted cash $ (17,558) $ 193,480

Operating Activities- Cash used in operating activities was $14.8 million during the three months ended March 31, 2021 and primarily consisted of working capital use of $76.1 million, which was offset by net income of $50.2 million and certain non-cash items, such as depreciation and amortization expense of $6.3 million, deferred income tax of $3.3 million, and stock-based compensation expense of $2.9 million.

Cash used in operating activities was $18.6 million during the three months ended March 31, 2020.

Changes in assets and liabilities, net of acquisition and divestitures contributed $64.5 million use of cash, offset by net income of $36.8 million and certain non-cash items, such as depreciation and amortization expense of $5.7 million.

Investing Activities - Cash provided by investing activities for the three months ended March 31, 2021 was $0.2 million and consisted primarily of proceeds from sales and maturities of client fund investments of $3.1 million, offset by $2.0 million cash used for business acquisitions and $1.1 million in capital expenditures.

Cash provided by investing activities for the three months ended March 31, 2020 consisted primarily of proceeds from the sales and maturities of client fund investments of $17.1 million and a net increase in funds held for clients of $0.8 million.

Six Months Ended June 30,

Net cash provided by operating activities $ 66,294 $ 55,523

Net cash (used in) provided by investing activities (40,137) 12,807

Net cash used in financing activities (42,582) (70,560)

Net decrease in cash, cash equivalents and restricted cash $ (16,425) $ (2,230)

Operating Activities- Cash provided by operating activities was $66.3 million during the six months ended June 30, 2021 and primarily due to net income of $58.8 million and certain non-cash items, such as depreciation and amortization expense of $12.9 million, deferred income tax of $5.4 million, and stock-based compensation expense of $5.5 million.

The cash inflow was offset by working capital use of $7.0 million.

Cash provided by operating activities was $55.5 million during the six months ended June 30, 2020 primarily due to $58.3 million of net income and certain non-cash items, such as depreciation and amortization expense, totaling $18.5 million.

This cash inflow was offset by $21.3 million cash used to fund working capital needs.

Investing Activities - Cash used in investing activities during the six months ended June 30, 2021 was $40.1 million and consisted primarily of $43.2 million used for business acquisitions, $3.3 million in capital expenditures, and $4.0 million net activity related to funds held for clients.

The use of cash was offset by other investing activities, such as proceeds from sales of divested operations of $9.8 million.

Cash provided by investing activities during the six months ended June 30, 2020 consisted primarily of proceeds from the sales and maturities of client fund investments of $25.3 million and a net increase in funds held for clients of $3.1 million.

This was offset by net cash used in investing activities for business acquisitions of $7.9 million, purchases of client fund investments of $3.4 million and capital expenditures of $5.3 million.

The balances in funds held for clients and client fund obligations can fluctuate with the timing of cash receipts and the related cash payments.

The nature of these accounts is further described in Note 1.

Organization and Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Financing Activities - Cash used in financing activities for the three months ended March 31, 2021 was $3.0 million and primarily consisted of $33.1 million in share repurchases, $26.5 million net decrease in client fund obligations, and $1.7 million in contingent consideration payments related to prior acquisitions.

The use of cash was partially offset by $54.0 million in net proceeds from additional borrowings under our 2018 credit facility and $4.4 million proceeds from exercise of stock options during the quarter.

Cash provided by financing activities for the three months ended March 31, 2020 consisted of $277.5 million in net proceeds from the 2018 credit facility, partially offset by a decrease in client fund obligations of $38.5 million and $29.5 million in share repurchases.

The nature of these accounts is further described in Note 1, Organization and Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Financing Activities - Cash used in financing activities during the six months ended June 30, 2021 was $42.6 million and primarily consisted of $64.5 million in share repurchases, $27.8 million net decrease in client fund obligations, and $7.9 million in contingent consideration payments related to prior acquisitions.

The use of cash was partially offset by $55.3 million in net proceeds from additional borrowings under our 2018 credit facility and $5.4 million proceeds from exercise of stock options during the six months ended June 30, 2021.

Cash used in financing

activities during the six months ended June 30, 2020 primarily consisted of $50.8 million net decrease in client fund obligations, $31.1 million used to repurchase our common stock, as well as $6.2 million in contingent consideration payments related to prior acquisitions, partially offset by $14.5 million in net proceeds from additional borrowings under our 2018 credit facility.

CAPITAL RESOURCES

Credit Facility - At March 31, 2021, we had $162.0 million outstanding under the 2018 credit facility as well as letters of credit and performance guarantees totaling $5.3 million.

Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately $228.7 million at March 31, 2021.

The weighted average interest rate under the 2018 credit facility was 2.10% in the first quarter of 2021, compared to 2.50% for the same period in 2020.

The 2018 credit facility allows for the allocation of funds for future strategic initiatives,

including acquisitions and the repurchase of our common stock, subject to the terms and conditions of the 2018 credit facility.

Credit Facility - At June 30, 2021, we had $163.3 million outstanding under the 2018 credit facility as well as letters of credit and performance guarantees totaling $5.3 million.

Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately $233.4 million at June 30, 2021.

The weighted average interest rate under the 2018 credit facility was 1.95% in the first half of 2021, compared to 2.43% for the same period in 2020.

The 2018 credit facility allows for the allocation of funds for future strategic initiatives, including acquisitions and the repurchase of our common stock, subject to the terms and conditions of the 2018 credit facility.

Debt Covenant Compliance - We are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) a minimum fixed charge coverage ratio.

We are in compliance with our covenants as of March 31, 2021.

We are in compliance with our financial covenants as of June 30, 2021.

Our ability to service our debt and to fund future strategic initiatives will depend upon our ability to generate cash in the future.

For further discussion regarding our 2018 credit facility and debt, refer to Note 4.

Debt and Financing Arrangements, to the accompanying condensed consolidated financial statements.

For further discussion regarding our 2018 credit facility and debt, refer to Note 4, Debt and Financing Arrangements, to the accompanying condensed consolidated financial statements.

Use of Capital - Our first priority for use of capital is to make strategic acquisitions.

1 unchanged sentence

Refer to Note 11.

Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions.

We have completed four acquisitions for $43.1 million in cash and $4.1 million in our common stock.

We also repurchased 2.1 million shares of our common stock at a total cost of approximately $66.5 million during the six months ended June 30, 2021.

Refer to Note 11, Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions.

OFF-BALANCE SHEET ARRANGEMENTS

We maintain administrative service agreements with independent CPA firms (as described more fully under “Business – Financial Services” and in Note 1.

Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020), which qualify as variable interest entities.

We maintain administrative service agreements with independent CPA firms (as described more fully under “Business – Financial Services” and in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020), which qualify as variable interest entities.

The accompanying condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations, or cash flows of CBIZ.

We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $3.0 million and $1.7 million at March 31, 2021 and December 31, 2020, respectively.

We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $3.0 million and $1.7 million at June 30, 2021 and December 31, 2020, respectively.

In addition, we provide license bonds to various state agencies to meet certain licensing requirements.

The amount of license bonds outstanding was $2.3 million and $2.2 million at March 31, 2021 and December 31, 2020, respectively.

We have various agreements under which it may be obligated to indemnify the other party with respect to certain matters.

The amount of license bonds outstanding was $2.3 million and $2.2 million at June 30, 2021 and December 31, 2020, respectively.

We have various agreements under which we may be obligated to indemnify the other party with respect to certain matters.

Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters.

4 unchanged sentences

Historically, we have not made any payments under these agreements that have been material individually or in the aggregate.

As of March 31, 2021, we are not aware of any material obligations arising under indemnification agreements that would require payment.

CRITICAL ACCOUNTING POLICIES

As of June 30, 2021, we are not aware of any material obligations arising under indemnification agreements that would require payment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The SEC defines critical accounting policies as those that are most important to the portrayal of a company’s financial condition and results and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

1 unchanged sentence

generally accepted accounting principles.

The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the financial statements.

As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions.

We have not made any changes in estimates or

judgments that have had a significant effect on the reported amounts as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We have not made any changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 2.

New Accounting Pronouncements, to the accompanying condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.

Refer to Note 2, New Accounting Pronouncements, to the accompanying condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.

FORWARD-LOOKING STATEMENTS

14 unchanged sentences

Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.

Should one or more of these risks or assumptions materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

Should one or more of these risks materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

Consequently, no forward-looking statement can be guaranteed.

A more detailed description of risk factors may be found in “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.

A more detailed description of risk factors may be found in “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Except as required by the federal securities laws, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis