CBIZ, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, 2022 and December 31, 2021, results of operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021, and should be read in conjunction with the unaudited 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, 2021. 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. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2021. OVERVIEW We provide professional business services, products and solutions that help our clients grow and succeed by better managing their finances and employees. These services are provided to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and parts of Canada. We deliver integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 12, Segment Disclosures, to the accompanying unaudited 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, 2021 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, 2022 increased by $91.0 million, or 30.3%, to $391.7 million from $300.7 million for the same period in 2021. Same-unit revenue increased by approximately $28.8 million, or 9.6% as compared to the same period in 2021. Revenue from newly acquired operations, net of divestitures, contributed $62.2 million, or 20.7%, of incremental revenue for the three months ended March 31, 2022 as compared to the same period in 2021. Income from continuing operations was $58.1 million, or $1.10 per diluted share, in the first quarter of 2022, compared to $50.2 million, or $0.92 per diluted share, in the first quarter of 2021. 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 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. During the first quarter of 2022, we completed one acquisition for $72.5 million in cash. We also repurchased 0.3 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $12.4 million in the three months ended March 31, 2022. Refer to Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions. During the first quarter of 2022, 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, 2023. 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. 19 RESULTS OF OPERATIONS – CONTINUING OPERATIONS Revenue The following tables summarize total revenue for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, Three Months Ended March 31, 2022 % of Total 2021 % of Total $ Change % Change (Amounts in thousands, except percentages) Financial Services $ 288,746 73.7 % $ 204,149 67.9 % $ 84,597 41.4 % Benefits and Insurance Services 92,486 23.6 % 87,239 29.0 % 5,247 6.0 % National Practices 10,490 2.7 % 9,342 3.1 % 1,148 12.3 % Total CBIZ $ 391,722 100.0 % $ 300,730 100 % $ 90,992 30.3 % A detailed discussion of same-unit revenue by practice group is included under “Operating Practice Groups.” Non-qualified Deferred Compensation Plan 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, 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 months end March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 2021 (Amounts in thousands) Operating (income) expenses $ (5,667) $ 4,616 Corporate general and administrative (income) expenses (811) 496 Other (expense) income, net (6,478) 5,112 Excluding the impact of the above-mentioned income and expenses related to the deferred compensation plan, the operating results for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, 2022 2021 (Amounts in thousands, except percentages) As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue Gross margin $ 101,423 $ (5,667) $ 95,756 24.4 % $ 76,759 $ 4,616 $ 81,375 27.1 % Operating income 85,114 (6,478) 78,636 20.1 % 62,276 5,112 67,388 22.4 % Other (expense) income, net (6,403) 6,478 75 — % 4,789 (5,112) (323) (0.1) % Income from continuing operations before income tax expense 77,452 — 77,452 19.8 % 66,188 — 66,188 22.0 % 20 Operating Expenses Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Operating expenses by segment: Financial Services $ 209,800 $ 141,746 $ 68,054 48.0 % Benefits and Insurance Services 72,657 66,933 5,724 8.6 % National Practices 9,576 8,541 1,035 12.1 % Corporate and Other (1,734) 6,751 (8,485) (125.7) % Total Operating expenses $ 290,299 $ 223,971 $ 66,328 29.6 % Operating expenses % of revenue 74.1 % 74.5 % Operating expenses excluding deferred compensation $ 295,966 $ 219,355 $ 76,611 34.9 % Operating expenses excluding deferred compensation % of revenue 75.6 % 72.9 % Total operating expenses for the three months ended March 31, 2022 increased by $66.3 million, or 29.6%, to $290.3 million as compared to $224.0 million in the same period of 2021. The non-qualified deferred compensation plan decreased operating expenses by $5.7 million for the three months ended March 31, 2022, and increased operating expense by $4.6 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $296.0 million and $219.4 million, or 75.6% and 72.9% of revenue, for the three months ended March 31, 2022 and 2021, respectively. In addition, operating expense for the three months ended March 31, 2022 included approximately $4.4 million, or 1.1% of revenue, non-recurring integration and retention costs related to the Marks Paneth acquisition. 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, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by approximately $76.6 million during the three months ended March 31, 2022 as compared to the same period in 2021, primarily driven by $61.5 million higher personnel costs (of which $41.3 million was from acquisitions), $3.5 million higher facility costs, $2.8 million higher travel and entertainment costs, $1.8 million higher technology related costs, and $1.0 million higher marketing expenses, $1.8 million higher depreciation and amortization expense, as well as $4.2 million higher other discretionary spending. Personnel costs are discussed in further detail under “Operating Practice Groups”. Corporate General & Administrative (“G&A”) Expenses Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) G&A expenses $ 16,309 $ 14,483 $ 1,826 12.6 % G&A expenses % of revenue 4.2 % 4.8 % G&A expenses excluding deferred compensation $ 17,120 $ 13,987 $ 3,133 22.4 % G&A expenses excluding deferred compensation % of revenue 4.4 % 4.7 % The deferred compensation plan decreased G&A expenses by $0.8 million for the three months ended March 31, 2022, but increased G&A expenses by $0.5 million during the same period in 2021. G&A expenses, excluding the impact of the deferred compensation plan, would have been $17.1 million, or 4.4% of revenue, for the three months ended March 31, 2022, compared to $14.0 million, or 4.7% of revenue, for the same period in 2021. The increase in G&A expense was primarily due to approximately $1.6 million, or 0.4% of revenue, non-recurring transaction and 21 integration costs related to the Marks Paneth acquisition, as well as higher legal and other professional services fees. Other Income (Expense), Net Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Interest expense $ (1,259) $ (877) $ (382) 43.6 % Other (expense) income, net (1) (6,403) 4,789 (11,192) (233.7) % Total other (expense) income, net $ (7,662) $ 3,912 $ (11,574) (295.9) % (1) Other (expense) income, net includes a net loss of $6.5 million during the three months ended March 31, 2022, compared to a net gain of $5.1 million for the same period in 2021, 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. In addition, included in Other (expense) income, net for the three months ended March 31, 2022 and 2021, is expense of $0.6 million and $0.7 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions. Interest Expense - Our primary financing arrangement is the 2018 credit facility. During the three months ended March 31, 2022, our average debt balance and weighted average effective interest rate was $244.7 million and 1.79%, compared to $128.2 million and 2.10% for the same period of 2021. The increase in interest expense for the three months ended March 31, 2022 as compared to the same period in 2021 was primarily driven by higher average debt balance. Our indebtedness is further discussed in Note 4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements. Other (Expense) Income, Net - For the three months ended March 31, 2022, other expense, net includes a net loss of $6.5 million associated with the non-qualified deferred compensation plan. For the same period in 2021, other income, net, includes a net gain of $5.1 million associated with the non-qualified deferred compensation plan. Income Tax Expense Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Income tax expense $ 19,321 $ 15,972 $ 3,349 21.0 % Effective tax rate 24.95 % 24.13 % The effective tax rate for the three months ended March 31, 2022 was 24.95%, compared to an effective tax rate of 24.13% for the comparable period in 2021. The increase in the effective tax rate year over year was primarily due to a higher state effective tax rate. Operating Practice Groups We deliver our integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. A description of these groups' operating results and factors affecting their businesses is provided below. Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. Divested operations represent operations that did not meet the criteria for treatment as discontinued operations. 22 Financial Services Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 225,831 $ 204,149 $ 21,682 10.6 % Acquired businesses 62,915 — 62,915 Total revenue $ 288,746 $ 204,149 $ 84,597 41.4 % Operating expenses 209,800 141,746 68,054 48.0 % Gross margin / Operating income $ 78,946 $ 62,403 $ 16,543 26.5 % Total other income, net 86 98 (12) (12.2) % Income from continuing operations before income tax expense 79,032 62,501 16,531 26.4 % Gross margin percent 27.3 % 30.6 % Revenue The Financial Services practice group revenue for the three months ended March 31, 2022 grew by 41.4% to $288.7 million from $204.1 million during the same period in 2021. Same-unit revenue grew by $21.7 million, or 10.6%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $13.4 million, and those units that provide project-oriented advisory services, which increased by $4.7 million, as well as an increase of $3.9 million in government healthcare compliance business. The impact of acquired businesses contributed $62.9 million, or 21.8% of 2022 revenue, of which Marks Paneth contributed $41.6 million, or 14.4% of 2022 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 $76.1 million and $54.9 million for the three months ended March 31, 2022 and 2021, respectively. Operating Expenses Operating expenses increased by $68.1 million, or 48.0%, as compared to the same period last year. Personnel costs increased by $52.1 million, or 36.8%, with acquisitions contributing approximately $41.3 million to the increase. Compared to the same period in 2021, facility costs, technology costs, professional and consulting services, as well as depreciation and amortization costs increased by approximately $3.4 million, $1.2 million, $1.1 million, and $2.0 million, respectively, primarily due to the Marks Paneth acquisition. In addition, travel and entertainment costs increase by approximately $1.7 million and other discretionary costs increased by approximately $5.9 million to support the business growth. Operating expense as a percentage of revenue increased to 72.7% for the three months ended March 31, 2022 from 69.4% of revenue for the prior year quarter. 23 Benefits and Insurance Services Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 92,486 $ 86,478 $ 6,008 6.9 % Divested operations — 761 (761) Total revenue $ 92,486 $ 87,239 $ 5,247 6.0 % Operating expenses 72,657 66,933 5,724 8.6 % Gross margin / Operating income $ 19,829 $ 20,306 $ (477) (2.3) % Total other (expense) income, net (24) 174 (198) (113.8) % Income from continuing operations before income tax expense 19,805 20,480 (675) (3.3) % Gross margin percent 21.4 % 23.3 % Revenue The Benefits and Insurance Services practice group revenue increased by $5.2 million, or 6.0%, to $92.5 million during the three months ended March 31, 2022 compared to $87.2 million for the same period in 2021. Same-unit revenue increased by $6.0 million, or 6.9% when compared to the same period in 2021. 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. Impact of divested businesses was not material. Operating Expenses Operating expenses increased by $5.7 million, or 8.6%, when compared to the same period last year. Personnel costs increased by $3.4 million, or 5.1%, primarily due to timing of annual merit increases as well as investment in producers. In addition, other operating expenses, including marketing, recruiting, professional services, technology, depreciation and amortization expenses, and other direct costs increased by approximately $1.8 million to support increased business activities. Travel and entertainment cost increased by $0.5 million. Operating expense as a percentage of revenue increased to 78.6% for the quarter ended March 31, 2022 from 76.7% of revenue for the same period in 2021. National Practices Three Months Ended March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Same-unit revenue $ 10,490 $ 9,342 $ 1,148 12.3 % Operating expenses 9,576 8,541 1,035 12.1 % Gross margin / Operating Income $ 914 $ 801 $ 113 14.1 % Income from continuing operations before income tax expense 914 801 113 14.1 % Gross margin percent 8.7 % 8.6 % 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 months ended March 31, 2022, revenue increased by $1.1 million, or 12.3%, while operating expenses increased by $1.0 million, or 12.1%. 24 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 March 31, 2022 2021 $ Change % Change (Amounts in thousands, except percentages) Operating expenses $ (1,734) $ 6,751 (8,485) (125.7) % Corporate general and administrative expenses 16,309 14,483 1,826 12.6 % Operating loss (14,575) (21,234) 6,659 (31.4) % Total other (expense) income, net (7,724) 3,640 (11,364) N/M Loss from continuing operations before income tax expense (22,299) (17,594) (4,705) 26.7 % Total operating expenses decreased by $8.5 million, or 125.7%, during the three months ended March 31, 2022, as compared to the same period in 2021. The non-qualified deferred compensation plan decreased operating expenses by $5.7 million for the three months ended March 31, 2022 and increased operating expenses by $4.6 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $2.1 million, primarily driven by higher personnel and technology costs. Total corporate general and administrative expenses increased by $1.8 million, or 12.6%, during the three months ended March 31, 2022, as compared to the same period in 2021. The non-qualified deferred compensation plan decreased corporate general and administrative expenses by $0.8 million for the three months ended March 31, 2022, and increased by $0.5 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense increased by approximately $3.1 million, primarily driven by higher personnel costs of $0.4 million, $1.6 million higher transaction related professional services costs associated with the Marks Paneth acquisition, and $1.0 million higher legal costs. Total other (expense) income, net increased by $11.4 million during the three months ended March 31, 2022, as compared to the same period in 2021. For the three months ended March 31, 2022, total other expense, net includes a net loss of $6.5 million associated with the non-qualified deferred compensation plan. For the same period in 2021, other income, net includes a net gain of $5.1 million associated with the non-qualified deferred compensation plan. Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been $1.3 million in 2022 and $1.5 million in 2021, an increase of approximately $0.2 million. LIQUIDITY Our principal sources of liquidity are cash generated from operating activities and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements while our cash flows from financing activities are dependent upon our ability to access credit or other capital. We historically maintain low cash levels and apply any available cash to pay down the outstanding debt balance. 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, 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 three months revenue generated by the Financial Services practice group. A significant amount of this revenue is billed and collected in subsequent quarters. Days sales outstanding (“DSO”) from continuing operations represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve months daily revenue. We provide DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure 25 of our ability to collect on receivables in a timely manner. DSO was 94 days and 91 days at March 31, 2022 and 2021, respectively. DSO at December 31, 2021 was 71 days. The following table presents selected cash flow information. For additional details, refer to the accompanying Condensed Consolidated Statements of Cash Flows. Three Months Ended March 31, 2022 2021 (Amounts in thousands) Net cash used in operating activities $ (50,890) $ (14,827) Net cash (used in) provided by investing activities (81,531) 229 Net cash provided by (used in) financing activities 170,446 (2,960) Net increase (decrease) in cash, cash equivalents and restricted cash $ 38,025 $ (17,558) Operating Activities - Cash used in operating activities was $50.9 million during the three months ended March 31, 2022 and primarily consisted of working capital use of $125.1 million, which was offset by net income of $58.1 million and certain non-cash items, such as depreciation and amortization expense of $8.2 million, deferred income tax of $2.9 million, and stock-based compensation expense of $3.7 million. 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. Investing Activities - Cash used in investing activities during the three months ended March 31, 2022 was $81.5 million and consisted primarily of $72.5 million used for business acquisition, $0.8 million in capital expenditures, $6.0 million net activity related to funds held for clients, and $2.3 million in other activities related to working capital payments and notes receivable. Cash provided by investing activities during 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. 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, 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, 2021. Financing Activities - Cash provided by financing activities during the three months ended March 31, 2022 was $170.4 million and primarily consisted of $143.6 million in net proceeds from the credit facility, $42.5 million net increase in client fund obligations and $3.2 million proceeds from exercise of stock options, partially offset by $11.6 million in share repurchases and $7.3 million in contingent consideration payments related to prior acquisitions. Cash used in financing activities during 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. CAPITAL RESOURCES Credit Facility - At March 31, 2022, we had $298.9 million outstanding under the 2018 credit facility as well as $5.7 million outstanding letters of credit. Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately $94.8 million at March 31, 2022. The weighted average interest rate under the 2018 credit facility was 1.79% during the three months ended March 31, 2022, compared to 2.10% for the same period in 2021. 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. On April 12, 2022, we launched efforts to amend our 2018 credit facility which expires in April 2023. The amendment seeks to increase total availability under the current facility to $600 million and will extend the maturity through April 2027. As of April 26, 2022, we have received formal commitments, subject to final documentation, in excess of the $600 million target. The amendment is expected to close in early May 2022. 26 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 March 31, 2022. 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 unaudited condensed consolidated financial statements. Use of Capital - 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. During the first quarter of 2022, we completed one acquisition of Marks Paneth for $72.5 million in cash. We also repurchased 0.3 million shares of our common stock at a total cost of approximately $12.4 million during the three months ended March 31, 2022. Refer to Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions. Cash Requirements for 2022 - Cash requirements for the remainder of 2022 will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent earnout payments for previous acquisitions, share repurchases and capital expenditures. We believe that cash provided by operations, as well as available funds under our credit facility will be sufficient to meet cash requirements. 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, 2021), which qualify as variable interest entities. The accompanying unaudited 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 $5.7 million and $3.4 million at March 31, 2022 and December 31, 2021, 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 $2.3 million at March 31, 2022 and December 31, 2021, 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. Payment by us under such indemnification clauses is generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of March 31, 2022, 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. Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. 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 unaudited condensed consolidated financial statements. As 27 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 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, 2021. NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 2, New Accounting Pronouncements, to the accompanying unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this Quarterly Report, including without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives for future performance are forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are commonly identified by the use of such terms and phrases as "intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements that we make, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, the impact of COVID-19 on the Company’s business and operations and those of our clients; the Company’s ability to adequately manage and sustain its growth; the Company’s dependence on the current trend of outsourcing business services; the Company’s dependence on the services of its CEO and other key employees; competitive pricing pressures; general business and economic conditions; and changes in governmental regulation and tax laws affecting the Company’s insurance business or its business service operations. 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 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, 2021. 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. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the SEC, such as quarterly, periodic and annual reports. 28