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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 211 added, 130 removed, 219 unchanged (61% of the section changed)

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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 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.

The following discussion is intended to assist in the understanding of our financial position at September 30, 2021 and December 31, 2020, results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 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.

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EXECUTIVE SUMMARY

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 $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.

Revenue for the three months ended September 30, 2021 increased by $44.3 million, or 18.6%, to $282.7 million from $238.4 million for the same period in 2020.

Same-unit revenue increased by approximately $19.8 million million, or 8.3% as compared to the same period in 2020.

Revenue from newly acquired operations, net of divestitures, contributed $24.6 million, or 10.3%, of incremental revenue for the three months ended September 30, 2021 as compared to the same period in 2020.

Revenue for the nine months ended September 30, 2021 increased by $109.3 million, or 14.5%, to $862.1 million from $752.8 million for the same period in 2020.

Same-unit revenue increased by approximately $54.5 million, or 7.3% as compared to the same period in 2020.

Revenue from newly acquired operations, net of divestitures, contributed $54.8 million, or 7.3%, of incremental revenue for the nine months ended September 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.

Income from continuing operations was $21.7 million, or $0.41 per diluted share, in the third quarter of 2021, compared to $20.1 million, or $0.36 per diluted share, in the third quarter of 2020.

For the nine months ended September 30, 2021, income from continuing operations was $80.5 million, or $1.50 per diluted share, compared to $78.4 million, or $1.41 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.

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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 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.

We have completed five acquisitions for $66.1 million in cash and $6.9 million in our common stock.

We also repurchased 2.8 million shares of our common stock at a total cost of approximately $87.9 million in the nine months ended September 30, 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 and six months ended June 30, 2021 and 2020 (in thousands except percentages).

Three Months Ended June 30,

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

Three Months Ended September 30,

Total 2020 % of

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Total CBIZ $ 282,719 100.0 % $ 238,389 100.0 % $ 44,330 18.6 %

Six Months Ended June 30,

Nine Months Ended September 30,

Total 2020 % of

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We sponsor a non-qualified deferred compensation plan, under which a CBIZ employee’s compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee.

Income and expenses related to the non-qualified deferred compensation plan are included in “Operating expenses”, “Gross margin” and “Corporate general and administrative expenses” and are directly offset by deferred compensation gains or losses in “Other income, (expense) net” in the accompanying Condensed Consolidated Statements of Comprehensive Income.

Income and expenses related to the non-qualified deferred compensation plan, which are recorded in "Corporate and Other" for segment reporting purposes, are included in “Operating expenses”, “Gross margin” and “Corporate general and administrative expenses” and are directly offset by deferred compensation gains or losses in “Other income (expense), net” in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The non-qualified deferred compensation plan has no impact on “Income from continuing operations before income tax expense” or diluted earnings per share from continuing operations.

Income and expenses related to the deferred compensation plan for the three and nine months end September 30, 2021 and 2020 are as follows (in thousands):

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

2021 2020 2021 2020

(In thousands)

Operating (income) expenses $ (212) $ 5,364 $ 11,165 $ 2,796

Corporate general and administrative expenses (86) 672 1,260 343

Other income (expense), net (298) 6,036 12,425 3,139

Excluding the impact of the above-mentioned Income and expenses related to the deferred compensation plan, the operating results for the three and nine months end September 30, 2021 and 2020 are as follows (in thousands except percentages):

Three Months Ended September 30,

As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue

Gross margin $ 44,391 $ (212) $ 44,179 15.6 % $ 33,629 $ 5,364 $ 38,993 16.4 %

Operating (loss) income 31,356 (298) 31,058 11.0 % 22,290 6,036 28,326 11.9 %

Other income (expense), net (1,133) 298 (835) (0.3) % 5,914 (6,036) (122) (0.1) %

Income from continuing operations before income tax expense 29,207 — 29,207 10.3 % 27,156 — 27,156 11.4 %

Nine Months Ended September 30,

As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue

Gross margin $ 162,864 $ 11,165 $ 174,029 20.2 % $ 139,184 $ 2,796 $ 141,980 18.9 %

Operating income 91,062 12,425 103,487 12.0 % 106,196 3,139 109,335 14.5 %

Other income (expense), net 12,029 (12,425) (396) — % 3,450 (3,139) 311 — %

Income from continuing operations before income tax expense 106,624 — 106,624 12.4 % 105,557 — 105,557 14.0 %

Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

Operating expenses $ 236,934 $ 209,016 $ 27,918 13.4 %

Total Operating expenses $ 238,328 $ 204,760 $ 33,568 16.4 %

Operating expenses % of revenue 84.3 % 85.9 %

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compensation % of revenue 84.4 % 83.6 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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

Total Operating expenses $ 699,233 $ 613,603 $ 85,630 14.0 %

Operating expenses % of revenue 81.1 % 81.5 %

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compensation % of revenue 79.8 % 81.1 %

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.

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

Total operating expenses for the three months ended September 30, 2021 increased by $33.6 million, or 16.4%, to $238.3 million as compared to $204.8 million in the same period of 2020.

The non-qualified deferred compensation plan decreased operating expenses by $0.2 million for the three months ended September 30, 2021, and increased operating expense by $5.4 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $238.5 million and $199.4 million, or 84.4% and 83.6% of revenue, for the three months ended September 30, 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 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.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased during the three months ended September 30, 2021 as compared to the same period in 2020, primarily driven by $29.4 million higher personnel costs, $1.8 million higher travel and entertainment costs, $1.1 million higher marketing expenses, $2.6 million higher computer and facility related costs, $1.2 higher depreciation and amortization expense, 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.

Nine months ended September 30, 2021 compared to September 30, 2020 .

Total operating expenses for the nine months ended September 30, 2021 increased by $85.6 million, or 14.0%, to $699.2 million as compared to $613.6 million in the same period of 2020.

The non-qualified deferred compensation plan added $11.2 million of expenses for the nine months ended September 30, 2021, and increased operating expenses by $2.8 million during the same period in 2020.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, the operating expense increase was primarily attributed to personnel costs increase of $70.5 million, $3.0 million higher computer and facility related costs, $1.7 million higher marketing expense, as well as $2.5 million higher depreciation and amortization expense.

These increases in operating expense were offset by $2.3 million lower travel and entertainment costs and $2.6 million lower bad debt expense.

Other discretionary spending increased approximately $4.5 million to support business activities.

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

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 4.6 % 4.5 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 4.6 % 4.3 %

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

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

The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of $1.3 million and $1.1 million higher expense for professional services.

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

Nine months ended September 30, 2021 compared to September 30, 2020.

The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of $5.0 million and $2.3 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.

On June 24, 2021, we reached a settlement agreement with University of Pittsburgh Medical Center 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.

Under the terms of the settlement agreement, we paid a total settlement amount of $41.5 million and recorded a settlement loss of $30.5 million for the nine months ended September 30, 2021.

Other Income (Expense), Net

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

Interest expense $ (1,016) $ (974) $ (42) 4.3 %

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

Other income, net (1)

Loss on sale of operations, net — (74) 74 N/M

Other (expense) income, net (1)

(1,133) 5,914 (7,047) (119.2) %

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

Six Months Ended June 30,

Total other (expense) income, net $ (2,149) $ 4,866 $ (7,015) N/M

Nine Months Ended September 30,

(In thousands, except percentages)

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Gain on sale of operations, net 6,385 78 6,307 N/M

Other income (expense), net (2)

Other income, net (2)

12,029 3,450 8,579 N/M

Total other income (expense), net $ 15,562 $ (639) $ 16,201 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.

(1) Other (expense) income, net includes a net loss of $0.3 million during the three months ended September 30, 2021, compared to a net gain of $6.0 million for the same period in 2020, associated with the value of investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes.

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.

(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.

In addition, included in Other (expense) income, net for the three months ended September 30, 2021 and 2020, is expense of $0.8 million and $0.1 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

(2) Other income, net includes a net gain of $12.4 million during the nine months ended September 30, 2021, compared to a net gain of $3.1 million for the same period in 2020, associated with the value of investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes.

In addition, included in Other income, net for the nine months ended September 30, 2021 and 2020, is expense of $1.6 million and income of $0.1 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

Interest Expense

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

Three and nine months ended September 30, 2021 compared with September 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.

During the three months ended September 30, 2021, our average debt balance and interest rate was $176.5 million and 1.80%, compared to $106.2 million and 2.60% for the same period of 2020.

During the nine months ended September 30, 2021, our average debt balance and interest rate was $156.6 million and 1.89% compared to $170.5 million and 2.46% for the same period of 2020.

The increase in interest expense for the three months ended September 30, 2021 as compared to the same period in 2020 was primarily driven by higher average debt balance, and the decrease in interest expense for the nine months ended September 30, 2021 as compared to the same period in 2020 was primarily driven by lower average debt balance

as well as lower interest rates.

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.

Three and nine months ended September 30, 2021 compared with September 30, 2020.

We sold a small book of business and a business unit in the Benefits and Insurance practice group during the nine months ended September 30, 2021.

Total proceeds from the sales were $9.8 million.

Net gain from the sale was approximately $6.4 million.

Net gain from the sales were approximately $6.4 million.

During the nine months ended September 30, 2020, we sold a small book of business in the Benefits and Insurance practice group and a small accounting firm in the Financial Services practice group for a net gain of $0.1 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.

Three and nine months ended September 30, 2021 compared with September 30, 2020.

For the three months ended September 30, 2021, other expense, net includes a net loss of $0.3 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income, net, includes a net gain of $6.0 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.

For the nine months ended September 30, 2021, other income, net includes a net gain of $12.4 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income, net includes a net gain of $3.1 million associated with the non-qualified deferred compensation plan.

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

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Effective tax rate 25.7 % 26.0 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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Effective tax rate 24.5 % 25.7 %

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.

Three and nine months ended September 30, 2021 compared with September 30, 2020.

The effective tax rate for the three months ended September 30, 2021 was 25.7%, compared to an effective tax rate of 26.0% for the comparable period in 2020.

The effective tax rate for the nine months ended September 30, 2021 was 24.5%, compared to an effective tax rate of 25.7% 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.

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Financial Services

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

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Operating expenses 156,178 129,922 26,256 20.2 %

Gross margin $ 35,669 $ 26,666 $ 9,003 33.8 %

Gross margin / Operating income $ 31,054 $ 25,577 $ 5,477 21.4 %

Total other income (expense), net 18 (90) 108 (120.0) %

Income from continuing operations before income tax expenses 31,072 25,487 5,585 21.9 %

Gross margin percent 16.6 % 16.4 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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Operating expenses 448,844 395,937 52,907 13.4 %

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

Gross margin / Operating income $ 129,126 $ 102,422 $ 26,704 26.1 %

Total other income, net 310 7 303 NM

Income from continuing operations before income tax expenses 129,436 102,429 27,007 26.4 %

Gross margin percent 22.3 % 20.6 %

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.

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

The Financial Services practice group revenue for the three months ended September 30, 2021 grew by 20.4% to $187.2 million from $155.5 million during the same period in 2020.

Same-unit revenue grew by $14.2 million, or 9.2%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $6.3 million, and those units that provide project-oriented advisory services, which increased by $7.1 million, as well as an increase of $0.7 million in government healthcare compliance business.

The impact of acquired businesses, net of divestitures, contributed $17.5 million, or 9.3% 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 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.

Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $39.7 million and $35.0 million for the three months ended September 30, 2021 and 2020, respectively.

Operating Expenses

Operating expenses increased by $26.3 million, or 20.2%, 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.

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.

Personnel costs increased by $20.2 million, or 15.5%, with acquisitions contributing approximately $11.2 million to the increase, as well as $1.1 million higher travel and entertainment costs.

In addition, other operating expenses, including marketing, recruiting, professional services, technology, facilities, and depreciation and amortization expenses increased by approximately $3.3 million to support the business growth.

Operating expense as a

percentage of revenue decreased to 83.4% for the quarter ended September 30, 2021 from 83.6% of revenue for the prior year quarter.

Nine months ended September 30, 2021 compared to September 30, 2020

Revenue for the nine months ended September 30, 2021 grew by 16.0% to $578.0 million from $498.4 million during the same period in 2020.

Same-unit revenue grew by $43.1 million, or 8.7%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $24.5 million, and those units that provide project-oriented advisory services, which increased by $14.1 million, as well as an increase of $4.0 million in government healthcare compliance business.

The impact of acquired businesses, net of divestitures, contributed $36.5 million, or 6.3% 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.

Fees earned under the ASAs, as described above, were approximately $139.7 million and $127.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Operating Expenses

Operating expenses increased by $52.9 million, or 13.4%, 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.

Personnel costs increased by $51.2 million, or 12.9%, with acquisitions contributing approximately $24.3 million to the increase.

The increase in operating expenses was offset by $0.9 million lower travel and entertainment spending and $2.7 million lower bad debt expense.

In the first half of 2020, due to the COVID-19 pandemic, we recorded bad debt expense of $2.2 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.

Operating expense as a percentage of revenue decreased to 77.7% during the nine months ended September 30, 2021 from 79.4% of revenue during the same period in 2020.

Benefits and Insurance Services

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

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Operating expenses 69,039 62,013 7,026 11.3 %

Gross margin $ 14,844 $ 12,657 $ 2,187 17.3 %

Gross margin / Operating income $ 16,758 $ 11,868 $ 4,890 41.2 %

Total other expense, net (9) (44) 35 (79.5) %

Income from continuing operations before income tax expenses 16,749 11,824 4,925 41.7 %

Gross margin percent 19.5 % 16.1 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

5 unchanged sentences

Gross margin $ 51,908 $ 38,914 $ 12,994 33.4 %

Total other income, net 7,248 263 6,985 NM

Income from continuing operations before income tax expenses 59,156 39,177 19,979 51.0 %

Gross margin percent 20.3 % 17.1 %

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.

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

The Benefits and Insurance Services practice group revenue increased by $11.9 million, or 16.1%, to $85.8 million during the three months ended September 30, 2021 compared to $73.9 million for the same period in 2020.

The increase was primarily driven by the property and casualty and retirement benefit services lines as well as growth in our other project based services.

Acquired businesses, net of divestitures, contributed $7.1 million in incremental revenue for the three months ended September 30, 2021.

Same-unit revenue increased by $4.8 million, or 6.6% when compared to the same period in 2020.

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Operating expenses increased by $7.0 million, or 11.3%, when compared to the same period last year.

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.

Personnel costs increased by $5.1 million, or 8.3%, primarily related to $3.6 million contributed by acquired businesses.

In addition, other operating expenses, including marketing, recruiting, professional services, technology, depreciation and amortization expenses, and other direct costs increased by approximately $1.1 million to support increased business activities.

Travel and entertainment cost increased by $0.4 million.

Operating expense as a percentage of revenue decreased to 80.5% for the quarter ended September 30, 2021 from 83.9% of revenue for the same period in 2020.

Nine months ended September 30, 2021 compared to September 30, 2020

The Benefits and Insurance Services practice group revenue increased by $28.2 million, or 12.4%, to $255.7 million during the nine months ended September 30, 2021 compared to $227.4 million for the same period in 2020, primarily driven by acquired businesses, net of divestitures, which contributed $18.2 million in incremental revenue.

Same-unit revenue increased by $10.0 million, or 4.4% when compared to the same period in 2020, primarily driven by growth in property and casualty, employee benefits, retirement benefit services, and human capital management service lines as well as other project based services.

Operating Expenses

Operating expenses increased by $15.2 million, or 8.1%, 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.

Personnel cost increased by $12.3 million, or 6.5%, primarily related to $10.2 million contributed by acqauired business.

In addition, other operating expenses, including marketing, recruiting, professional services, technology, depreciation and amortization expenses, and other direct costs increased by approximately $3.6 million to support increased business activities.

The increase in operating expense was offset by $0.6 million lower travel and entertainment spending.

Operating expense as a percentage of revenue decreased to 79.7% during the nine months ended September 30, 2021 from 82.9% of revenue for the same period in 2020.

Total Other Income, Net

We sold a business unit during the nine months ended September 30, 2021 for total proceeds of $9.8 million.

Net gain from the sale was approximately $6.4 million.

We also sold a small book of business during the nine months ended September 30, 2021, of which we recorded a gain of $0.7 million.

National Practices

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands, except percentages)

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Operating expenses 8,514 8,070 444 5.5 %

Gross margin $ 952 $ 930 $ 22 2.4 %

Gross margin / Operating Income $ 1,176 $ 939 $ 237 25.2 %

Total other income, net 1 — 1 NM

Income from continuing operations before income tax expenses 1,177 939 238 25.3 %

Gross margin percent 12.1 % 10.4 %

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands, except percentages)

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Operating expenses 25,542 24,343 1,199 4.9 %

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

Gross margin / Operating Income $ 2,929 $ 2,652 $ 277 10.4 %

Total other income, net 1 1 — — %

Income from continuing operations before income tax expenses 2,930 2,653 277 10.4 %

Gross margin percent 10.3 % 9.8 %

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

Three and nine months ended September 30, 2021 compared with September 30, 2020

Revenue and Operating Expenses

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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.

During the three and nine months ended September 30, 2021, revenue increased by $0.7 million, or 7.6%, and $1.5 million, or 5.5%, respectively, while operating expenses increased by $0.4 million, or 5.5%, and $1.2 million, or 4.9%, respectively.

Corporate and Other

Corporate and Other are operating expenses that are not directly allocated to the individual business units.

These expenses primarily consist of certain health care costs, gains or losses attributable to assets held in our non-qualified deferred compensation plan, stock-based compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses.

Three Months Ended September 30,

(In thousands, except percentages)

Operating expenses $ 4,597 $ 4,755 (158) (3.3) %

Corporate general and administrative expenses 13,035 11,339 1,696 15.0 %

Operating loss (17,632) (16,094) (1,538) 9.6 %

Total other (expense) income, net (2,159) 5,000 (7,159) (143.2) %

Loss from continuing operations before income tax expenses (19,791) (11,094) (8,697) 78.4 %

Nine Months Ended September 30,

(In thousands, except percentages)

Operating expenses $ 21,099 $ 4,804 16,295 339.2 %

Corporate general and administrative expenses 41,334 32,988 8,346 25.3 %

Legal settlement, net 30,468 — 30,468 NM

Operating loss (92,901) (37,792) (55,109) 145.8 %

Total other income (expense), net 8,003 (910) 8,913 (979.5) %

Loss from continuing operations before income tax expenses (84,898) (38,702) (46,196) 119.4 %

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

Total operating expenses decreased by $0.2 million, or 3.3%, during the three months ended September 30, 2021, as compared to the same period in 2020.

The non-qualified deferred compensation plan decreased operating expenses by $0.2 million for the three months ended September 30, 2021 and increased operating expenses by $5.4 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $5.4 million, primarily driven by $4.3 million higher personnel costs and $1.0 million higher computer and technology costs to support business growth.

Total Corporate general and administrative expenses increased by $1.7 million, or 15.0%, during the three months ended September 30, 2021, as compared to the same period in 2020.

The non-qualified deferred compensation plan increased G&A expenses by $1.3 million for the three months ended September 30, 2021, and by $0.3 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, G&A expense increased by approximately $7.4 million, primarily driven by higher personnel costs of $5.0 million and $2.1 million higher expense for professional services.

Total other (expense) income, net increased by $7.2 million, or 143.2%, during the three months ended September 30, 2021, as compared to the same period in 2020.

Total other (expense) income, net for the three months ended September 30, 2021 includes a net loss of $0.3 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income, net includes a net gain of $6.0 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the non-qualified deferred compensation plan, total other (expense) income, net increased by $0.8 million, primarily due to higher fair value adjustment related to the contingent purchase price considerations.

Nine months ended September 30, 2021 compared to September 30, 2020

Total operating expenses increased by $16.3 million, or 339.2%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

The non-qualified deferred compensation plan increased operating expenses by $11.2 million for the nine months ended September 30, 2021, and by $2.8 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $7.9 million, primarily driven by $6.7 million higher personnel costs and $1.1 million higher marketing costs to support business growth.

Total G&A expenses increased by $8.3 million, or 25.3%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

The non-qualified deferred compensation plan decreased G&A expenses by $0.1 million for the nine months ended September 30, 2021, and increased G&A expense by $0.7 million during the same period in 2020.

Excluding the non-qualified deferred compensation expenses, G&A expense increased by approximately $2.5 million, primarily driven by higher personnel costs of $1.3 million and $1.1 million higher expense for professional services.

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

District Court for the Western District of Pennsylvania.

Under the terms of the settlement agreement, we paid a total settlement amount of $41.5 million and recorded a settlement loss of $30.5 million for the nine months ended September 30, 2021.

Total other income (expense), net increased by $8.9 million, or 979.5%, during the nine months ended September 30, 2021, as compared to the same period in 2020.

Total other income (expense), net for the nine months ended September 30, 2021 includes a net gain of $12.4 million associated with the non-qualified deferred compensation plan.

For the same period in 2020, other income, net includes a net gain of $3.1 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the non-qualified deferred compensation plan, total other income (expense), net decreased by $0.4 million, primarily due to $1.7 million higher fair value adjustment related to the contingent purchase price considerations, offset by $1.3 million lower interest expense due to lower average outstanding balance and interest rates during 2021 as compared to 2020.

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

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We historically experience a use of cash to fund working capital requirements during the first quarter of each fiscal year.

This is primarily due to the seasonal accounting and tax services period under the Financial Services practice group.

This is primarily due to the seasonal accounting and tax services period under the Financial Services practice group, as well as payment of accrued employees' incentives programs.

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 six months revenue generated by the Financial Services practice group.

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

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

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

DSO was 88 days and 87 days at September 30, 2021 and 2020, respectively.

DSO at December 31, 2020 was 72 days.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash provided by operating activities $ 80,946 $ 81,796

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.

Net cash used in investing activities (70,728) (9,491)

Net cash provided by (used in) financing activities 1,678 (94,058)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 11,896 $ (21,753)

Operating Activities - Cash provided by operating activities was $80.9 million during the nine months ended September 30, 2021, primarily due to net income of $80.5 million and certain non-cash items, such as depreciation and amortization expense of $19.9 million, deferred income tax of $7.1 million, and stock-based compensation expense of $8.4 million.

The cash inflow was offset by working capital use of $26.3 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.

Cash provided by operating activities was $81.8 million during the nine months ended September 30, 2020, primarily due to $78.4 million of net income and certain non-cash items, such as depreciation and amortization expense, totaling $24.0 million.

This cash inflow was offset by $20.6 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.

Investing Activities - Cash used in investing activities during the nine months ended September 30, 2021 was $70.7 million and consisted primarily of $66.2 million used for business acquisitions, $6.5 million in capital expenditures, and $8.0 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.

Cash used in investing activities during the nine months ended September 30, 2020 consisted primarily of $33.8 million net cash used for acquisitions, $9.5 million capital expenditures, offset by proceeds from sales and maturities of client fund investments of $33.0 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 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.

Financing Activities - Cash provided by financing activities during the nine months ended September 30, 2021 was $1.7 million and primarily consisted of $82.2 million in net proceeds from the credit facility, $8.4 million net increase in client fund obligations and $7.1 million proceeds from exercise of stock options, partially offset by $88.0 million in share repurchases and $7.9 million in contingent consideration payments related to prior acquisitions.

Cash used in financing activities during the nine months ended September 30, 2020 primarily consisted of $57.5 million net decrease in client fund obligations, $34.1 million used to repurchase our common stock, as well as $11.2 million in contingent consideration payments related to prior acquisitions, partially offset by $4.5 million in net borrowings under our 2018 credit facility.

CAPITAL RESOURCES

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.

Credit Facility - At September 30, 2021, we had $190.2 million outstanding under the 2018 credit facility as well as $3.4 million letters of credit.

Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately $201.6 million at September 30, 2021.

The weighted average interest rate under the 2018 credit facility was 1.89% in the first nine months of 2021, compared to 2.46% 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 financial covenants as of June 30, 2021.

We are in compliance with our financial covenants as of September 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.

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

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.

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 five acquisitions for $66.1 million in cash and $6.9 million in our common stock.

We also repurchased 2.8 million shares of our common stock at a total cost of approximately $87.9 million during the nine months ended September 30, 2021.

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

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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 June 30, 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 $3.4 million and $1.7 million at September 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 June 30, 2021 and December 31, 2020, respectively.

The amount of license bonds outstanding was $2.3 million and $2.2 million at September 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.

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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