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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-05-02 · 278 added, 97 removed, 190 unchanged (66% 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 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.

The following discussion is intended to assist in the understanding of our financial position at June 30, 2022 and December 31, 2021, results of operations for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 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.

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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.

Revenue for the three months ended June 30, 2022 increased by $83.3 million, or 29.9%, to $362.0 million from $278.6 million for the same period in 2021.

Same-unit revenue increased by approximately $31.7 million, or 11.4%, 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.

Revenue from newly acquired operations, net of divestitures, contributed $51.6 million, or 18.5%, of incremental revenue for the three months ended June 30, 2022 as compared to the same period in 2021.

Revenue for the six months ended June 30, 2022 increased by $174.3 million, or 30.1%, to $753.7 million from $579.4 million for the same period in 2021.

Same-unit revenue increased by approximately $60.5 million, or 10.5%, as compared to the same period in 2021.

Revenue from newly acquired operations, net of divestitures, contributed $113.8 million, or 19.6%, of incremental revenue for the six months ended June 30, 2022 as compared to the same period in 2021.

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

Income from continuing operations was $31.3 million, or $0.60 per diluted share, in the second quarter of 2022, compared to $8.6 million, or $0.16 per diluted share, in the second quarter of 2021.

For the six months ended June 30, 2022, income from continuing operations was $89.4 million, or $1.70 per diluted share, compared to $58.8 million, or $1.09 per diluted share, for the same period in 2021.

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.

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.

During the six months ended June 30, 2022, we completed one acquisition for $72.5 million in cash.

We also repurchased 1.1 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $42.8 million in the six months ended June 30, 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.

The shares may be purchased in the open

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

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

RESULTS OF OPERATIONS – CONTINUING OPERATIONS

The following tables summarize total revenue for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following tables summarize total revenue for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Total 2021 % of

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Total CBIZ $ 361,952 100.0 % $ 278,648 100.0 % $ 83,304 29.9 %

Six Months Ended June 30,

Total 2021 % of

(Amounts in thousands, except percentages)

Financial Services $ 548,054 72.7 % $ 390,738 67.4 % $ 157,316 40.3 %

Benefits and Insurance Services 184,194 24.4 % 169,859 29.3 % 14,335 8.4 %

National Practices 21,426 2.9 % 18,781 3.3 % 2,645 14.1 %

Total CBIZ $ 753,674 100.0 % $ 579,378 100.0 % $ 174,296 30.1 %

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

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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, 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.

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 unaudited 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,

Income and expenses related to the deferred compensation plan for the three and six months end June 30, 2022 and 2021 are as follows:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(Amounts in thousands)

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Other (expense) income, net (15,149) 7,611 (21,627) 12,723

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,

Excluding the impact of the above-mentioned income and expenses related to the deferred compensation plan, the operating results for the three and six months ended June 30, 2022 and 2021 are as follows:

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Gross margin $ 72,216 $ (13,338) $ 58,878 16.3 % $ 41,714 $ 6,761 $ 48,475 17.4 %

Operating income 85,114 (6,478) 78,636 20.1 % 62,276 5,112 67,388 22.4 %

Operating income (expense) 61,290 (15,149) 46,141 12.7 % (2,570) 7,611 5,041 1.8 %

Other (expense) income, net (15,898) 15,149 (749) (0.2) % 8,373 (7,611) 762 0.3 %

Income from continuing operations before income tax expense 43,882 — 43,882 12.1 % 11,229 — 11,229 4.0 %

Six Months Ended June 30,

(Amounts in thousands, except percentages)

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

Gross margin $ 173,639 $ (19,005) $ 154,634 20.5 % $ 118,473 $ 11,377 $ 129,850 22.4 %

Operating income (expense) 146,404 (21,627) 124,777 16.6 % 59,706 12,723 72,429 12.5 %

Other (expense) income, net (22,301) 21,627 (674) (0.1) % 13,162 (12,723) 439 0.1 %

Income from continuing operations before income tax expense 121,334 — 121,334 16.1 % 77,417 — 77,417 13.4 %

Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

Operating expenses by segment:

Operating expenses (income) by segment:

Financial Services $ 209,643 $ 150,920 $ 58,723 38.9 %

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compensation % of revenue 83.7 % 82.6 %

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.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Operating expenses (income) by segment:

Financial Services $ 419,443 $ 292,666 $ 126,777 43.3 %

Benefits and Insurance Services 147,677 134,709 12,968 9.6 %

National Practices 19,475 17,028 2,447 14.4 %

Corporate and Other (6,560) 16,502 (23,062) (139.8) %

Total Operating expenses $ 580,035 $ 460,905 $ 119,130 25.8 %

Operating expenses % of revenue 77.0 % 79.6 %

Operating expenses excluding deferred compensation $ 599,040 $ 449,528 $ 149,512 33.3 %

Operating expenses excluding deferred

compensation % of revenue 79.5 % 77.6 %

Three months ended June 30, 2022 compared to June 30, 2021.

Total operating expenses for the three months ended June 30, 2022 increased by $52.8 million, or 22.3%, to $289.7 million as compared to $236.9 million in the same period of 2021.

The non-qualified deferred compensation plan decreased operating expenses by $13.3 million for the three months ended June 30, 2022, and increased operating expense by $6.8 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 $303.1 million and $230.2 million, or 83.7% and 82.6% of revenue, for the three months ended June 30, 2022 and 2021, respectively.

In addition, operating expense for the three months ended June 30, 2022 included approximately $1.8 million 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.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by approximately $72.9 million during the three months ended June 30, 2022 as compared to the same period in 2021, primarily driven by $56.8 million higher personnel costs (of which $32.3 million was the result of acquisitions), $3.7 million higher travel and entertainment costs, $2.9 million higher technology related costs, $2.8 million higher facility costs, $1.6 million higher depreciation and amortization expense, and $1.5 million higher professional services costs, as well as $3.7 million higher other discretionary spending to support business growth.

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

Six months ended June 30, 2022 compared to June 30, 2021 .

Total operating expenses for the six months ended June 30, 2022 increased by $119.1 million, or 25.8%, to $580.0 million as compared to $460.9 million in the same period of 2021.

The non-qualified deferred compensation plan decreased operating expenses by $19.0 million for the six months ended June 30, 2022, and increased operating expenses by $11.4 million during the same period in 2021.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by $149.5 million during the six months ended June 30, 2022 as compared to the same period in 2021.

Operating expense for the six months ended June 30, 2022 included approximately $6.2 million non-recurring integration and retention costs related to the Marks Paneth acquisition.

The increase in operating expense was primarily driven by personnel costs increase of $118.3 million (of which $69.6 million was the result of acquisitions), $6.4 million higher travel and entertainment costs, $6.3 million higher facility costs, $4.6 million higher technology related costs, $3.5 million higher depreciation and amortization expense, and $2.5 million higher professional services costs, as well as $7.9 million higher other discretionary spending to support business growth.

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

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 3.5 % 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

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,

Six Months Ended June 30,

(Amounts in thousands, except percentages)

G&A expenses $ 27,235 $ 28,299 $ (1,064) (3.8) %

G&A expenses % of revenue 3.6 % 4.9 %

G&A expenses excluding deferred compensation $ 29,857 $ 26,953 $ 2,904 10.8 %

G&A expenses excluding deferred compensation % of revenue 4.0 % 4.7 %

Three months ended June 30, 2022 compared to June 30, 2021.

The deferred compensation plan decreased G&A expenses by $1.8 million for the three months ended June 30, 2022, but increased G&A expenses by $0.9 million during the same period in 2021.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $12.7 million, or 3.5% of revenue, for the three months ended June 30, 2022, compared to $13.0 million, or 4.7% of revenue, for the same period in 2021.

Six months ended June 30, 2022 compared to June 30, 2021.

The deferred compensation plan decreased G&A expense by $2.6 million for the six months ended June 30, 2022, but increased G&A expenses by $1.3 million during the same period in 2021.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $29.9 million, or 4.0% of revenue, for the six months ended June 30, 2022, compared to $27.0 million, or 4.7% of revenue, for the same period in 2021.

The increase in G&A expenses was primarily due to approximately $1.9 million non-recurring transaction and integration costs related to the Marks Paneth acquisition, as well as higher legal and other professional services costs.

Legal Settlement, net

Three and six months ended June 30, 2022 compared with June 30, 2021.

During the three and six months ended June 30, 2021, we reached a settlement agreement with University of Pittsburgh Medical Center ("UPMC") pertaining a lawsuit filed in the U.S.

District Court for the Western District of Pennsylvania.

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

Other (Expense) Income, Net

Three Months Ended June 30,

(Amounts in thousands, except percentages)

Interest expense $ (1,645) $ (959) $ (686) 71.5 %

Gain on sale of operations, net 135 6,385 (6,250) N/M

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.

(15,898) 8,373 (24,271) N/M

Total other (expense) income, net $ (17,408) $ 13,799 $ (31,207) N/M

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Interest expense $ (2,904) $ (1,836) $ (1,068) 58.2 %

Gain on sale of operations, net 135 6,385 (6,250) N/M

Other (expense) income, net (2)

(22,301) 13,162 (35,463) N/M

Total other (expense) income, net $ (25,070) $ 17,711 $ (42,781) N/M

(1) Other (expense) income, net includes a net loss of $15.1 million during the three months ended June 30, 2022, compared to a net gain of $7.6 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.

In addition, included in Other (expense) income, net for the three months ended June 30, 2022 and 2021, 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 (expense) income, net includes a net loss of $21.6 million during the six months ended June 30, 2022, compared to a net gain of $12.7 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.

In addition, included in Other (expense) income, net for the six months ended June 30, 2022 and 2021, is expense of $1.5 million and $0.8 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, 2022 compared with June 30, 2021.

Our primary financing arrangement is the credit facility which was amended and restated in May of 2022.

During the three months ended June 30, 2022, our average debt balance and weighted average effective interest rate was $283.6 million and 2.04%, compared to $164.6 million and 1.84% for the same period of 2021.

The increase in interest expense for the three months ended June 30, 2022 as compared to the same period in 2021 was primarily driven by higher average debt balance as well as higher weighted average effective interest rate.

During the six months ended June 30, 2022, our average debt balance and interest rate was $264.2 million and 1.93% compared to $146.5 million and 1.95% for the same period of 2021.

The increase in interest expense for the six months ended June 30, 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.

Gain on Sale of Operations, Net

Three and six months ended June 30, 2022 compared with June 30, 2021.

During the three and six months ended June 30, 2021, we sold a small book of business and a business unit in the Benefits and Insurance practice group.

Total proceeds from the sales were $9.8 million.

As a result, we recorded a net gain of $6.4 million from the sales for the three and six months ended in June 30, 2021.

Other (Expense) Income, Net

Three and six months ended June 30, 2022 compared with June 30, 2021.

For the three months ended June 30, 2022, other expense, net includes a net loss of $15.1 million associated with the non-qualified deferred compensation plan.

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

Excluding the impact of the deferred compensation plan, other (expense) income increased by $1.5 million in 2022 as compared to 2021 due to $0.8 million higher adjustment to the fair value of the contingent purchase price liability.

In addition, other expense, net for the same period in 2021 included a $0.7 million gain on the sale of certain assets which did not recur in 2022.

For the six months ended June 30, 2022, other expense, net includes a net loss of $21.6 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other income, net includes a net gain of $12.7 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other (expense) income increased by $1.1 million in 2022 as compared to 2021 due to $0.7 million higher adjustment to the fair value of the contingent purchase price liability.

In addition, other expense, net for the same period in 2021 included a $0.6 million gain on the sale of certain assets which did not recur in 2022.

The increase in other expense was offset by $0.3 million higher miscellaneous income.

Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Effective tax rate 28.8 % 23.3 %

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.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Income tax expense $ 31,943 $ 18,588 $ 13,355 71.8 %

Effective tax rate 26.3 % 24.0 %

Three and six months ended June 30, 2022 compared with June 30, 2021.

The effective tax rate for the three months ended June 30, 2022 was 28.8%, compared to an effective tax rate of 23.3% for the comparable period in 2021.

The increase in the effective tax rate year over year was primarily due to a lower tax benefit recognized related to stock-based compensation expense which adversely affected the effective tax rate as related to pre-tax income.

In addition, we incurred higher non-deductible expenses during the second quarter of 2022 as compared to the same period in 2021 which also contributed to the increase in the effective tax rate.

The effective tax rate for the six months ended June 30, 2022 was 26.3%, compared to an effective tax rate of 24.0% for the same period in 2021.

The increase in the effective tax rate year over year was primarily due to the effect of higher pre-tax income on our tax benefit related to stock-based compensation.

In addition, we incurred higher non-deductible expenses during the six months ended June 30, 2022 as compared to the same period in 2021 which also contributed to the increase in the effective tax rate.

Operating Practice Groups

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Financial Services

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Gross margin percent 19.2 % 19.1 %

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.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit $ 433,079 $ 390,738 $ 42,341 10.8 %

Acquired businesses 114,975 — 114,975

Total revenue $ 548,054 $ 390,738 $ 157,316 40.3 %

Operating expenses 419,443 292,666 126,777 43.3 %

Gross margin / Operating income $ 128,611 $ 98,072 $ 30,539 31.1 %

Total other income, net 306 292 14 4.8 %

Income from continuing operations before income tax expenses 128,917 98,364 30,553 31.1 %

Gross margin percent 23.5 % 25.1 %

Three months ended June 30, 2022 compared to June 30, 2021

The Financial Services practice group revenue for the three months ended June 30, 2022 grew by 39.0% to $259.3 million from $186.6 million during the same period in 2021.

Same-unit revenue grew by $20.7 million, or 11.1%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $11.5 million, those units that provide project-oriented advisory services, which increased by $4.5 million, and an increase of $4.3 million in government healthcare compliance business.

The impact of acquired

businesses contributed $52.1 million, or 20.1% of 2022 revenue, of which Marks Paneth contributed $37.6 million, or 14.5% 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.

Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $61.0 million and $45.2 million for the three months ended June 30, 2022 and 2021, respectively.

Operating Expenses

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Personnel costs increased by $43.3 million, or 28.7%, with acquisitions contributing approximately $34.8 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.

Compared to the same period in 2021, facility costs, depreciation and amortization costs, technology costs, professional and consulting services, as well as marketing and recruiting costs increased by approximately $3.2 million, $1.9 million, $1.6 million, $1.1 million, and $0.9 million, respectively, primarily due to the Marks Paneth acquisition.

In addition, travel and entertainment costs increase by approximately $2.3 million and other discretionary costs increased by approximately $4.4 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.

Operating expense as a percentage of revenue decreased to 80.8% for the three months ended June 30, 2022 from 80.9% of revenue for the prior year quarter.

Six months ended June 30, 2022 compared to June 30, 2021

Revenue for the six months ended June 30, 2022 grew by 40.3% to $548.1 million from $390.7 million during the same period in 2021.

Same-unit revenue grew by $42.3 million, or 10.8%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $23.5 million, those units that provide project-oriented advisory services, which increased by $10.6 million, and an increase of $8.2 million in government healthcare compliance business.

The impact of acquired businesses contributed $115.0 million, or 21.0% of 2022 revenue, of which Marks Paneth contributed $79.2 million, or 14.4% of 2022 revenue.

Fees earned under the ASAs, as described above, were approximately $137.0 million and $100.0 million for the six months ended June 30, 2022 and 2021, respectively.

Operating Expenses

Operating expenses increased by $126.8 million, or 43.3%, as compared to the same period last year.

Personnel costs increased by $95.5 million, or 32.6%, with acquisitions contributing approximately $76.0 million to the increase.

Compared to the same period in 2021, facility costs, depreciation and amortization costs, technology costs, professional and consulting services, as well as marketing and recruiting costs increased by approximately $6.6 million, $4.1 million, $2.8 million, $2.2 million, and $2.1 million, respectively, primarily due to the Marks Paneth acquisition.

In addition, travel and entertainment costs increased by approximately $4.0 million and other discretionary costs increased by approximately $9.5 million to support the business growth.

Operating expense as a percentage of revenue increased to 76.5% during the six months ended June 30, 2022 from 74.9% of revenue during the same period in 2021.

Benefits and Insurance Services

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Gross margin percent 18.2 % 18.0 %

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.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit $ 184,194 $ 168,664 $ 15,530 9.2 %

Divested operations — 1,195 (1,195)

Total revenue $ 184,194 $ 169,859 $ 14,335 8.4 %

Operating expenses 147,677 134,709 12,968 9.6 %

Gross margin $ 36,517 $ 35,150 $ 1,367 3.9 %

Total other (expense) income, net (37) 7,257 (7,294) (100.5) %

Income from continuing operations before income tax expenses 36,480 42,407 (5,927) (14.0) %

Gross margin percent 19.8 % 20.7 %

Three months ended June 30, 2022 compared to June 30, 2021

The Benefits and Insurance Services practice group revenue increased by $9.1 million, or 11.0%, to $91.7 million during the three months ended June 30, 2022 compared to $82.6 million for the same period in 2021.

Same-unit revenue increased by $9.5 million, or 11.6% 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.

The increase was across all service lines, primarily driven by $4.8 million increase in the property and casualty services, $2.7 million increase in employee benefit and retirement benefit services lines, as well as growth in our other project based services.

Impact of divested businesses was not material.

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Personnel costs increased by $5.4 million, or 8.0%, 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 $0.6 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.

Bad debt expense increased by $0.3 million.

In addition, other operating expenses, including marketing, recruiting, professional services, technology, and other direct costs increased by approximately $0.5 million to support increased business activities.

Operating expense as a percentage of revenue slightly decreased to 81.8% for the quarter ended June 30, 2022 from 82.0% of revenue for the same period in 2021.

Total Other (Expense) Income, Net

We sold a business unit during the three months ended June 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 three months ended June 30, 2021, of which we recorded a gain of $0.7 million.

Six months ended June 30, 2022 compared to June 30, 2021

The Benefits and Insurance Services practice group revenue increased by $14.3 million, or 8.4%, to $184.2 million during the six months ended June 30, 2022 compared to $169.9 million for the same period in 2021.

Same-unit revenue increased by $15.5 million, or 9.2% when compared to the same period in 2021.

The increase was across all service lines, primarily driven by $7.4 million increase in the property and casualty services, $4.8 million increase in employee benefit and retirement benefit services lines, as well as growth in our other project based services.

Operating Expenses

Operating expenses increased by $13.0 million, or 9.6%, when compared to the same period last year.

Personnel cost increased by $8.8 million, or 6.6%, primarily due to timing of annual merit increases, bonus accrual, as well as investment in producers.

Travel and entertainment cost increased by $1.1 million.

Bad debt expense increased by $0.6 million.

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

Operating expense as a percentage of revenue increased to 80.2% during the six months ended June 30, 2022 from 79.3% of revenue for the same period in 2021.

Total Other Income, Net

We sold a business unit during the six months ended June 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 six months ended June 30, 2021, of which we recorded a gain of $0.7 million.

National Practices

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Gross margin / Operating Income $ 1,037 $ 952 $ 85 8.9 %

Total other income, net 1 — 1 NM

Income from continuing operations before income tax expense 1,038 952 86 9.0 %

Gross margin percent 9.5 % 10.1 %

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit revenue $ 21,426 $ 18,781 $ 2,645 14.1 %

Operating expenses 19,475 17,028 2,447 14.4 %

Gross margin / Operating Income $ 1,951 $ 1,753 $ 198 11.3 %

Total other income, net 1 — 1 NM

Income from continuing operations before income tax expenses 1,952 1,753 199 11.4 %

Gross margin percent 9.1 % 9.3 %

Three and six months ended June 30, 2022 compared with June 30, 2021

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 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%.

During the three and six months ended June 30, 2022, revenue increased by $1.5 million, or 15.9%, and $2.6 million, or

14.1%, respectively, while operating expenses increased by $1.4 million, or 16.6%, and $2.4 million, or 14.4%, respectively.

Corporate and Other

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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,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

Operating expenses $ (1,734) $ 6,751 (8,485) (125.7) %

Operating (income) expenses $ (4,826) $ 9,751 (14,577) (149.5) %

Corporate general and administrative expenses 10,926 13,816 (2,890) (20.9) %

Legal settlement, net — 30,468 (30,468) (100.0) %

Operating loss (6,100) (54,035) 47,935 (88.7) %

Total other (expense) income, net (7,724) 3,640 (11,364) N/M

Total other (expense) income, net (17,616) 6,522 (24,138) (370.1) %

Loss from continuing operations before income tax expense (23,716) (47,513) 23,797 (50.1) %

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.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Operating (income) expenses $ (6,560) $ 16,502 (23,062) (139.8) %

Corporate general and administrative expenses 27,235 28,299 (1,064) (3.8) %

Legal settlement, net — 30,468 (30,468) (100.0) %

Operating loss (20,675) (75,269) 54,594 (72.5) %

Total other (expense) income, net (25,340) 10,162 (35,502) (349.4) %

Loss from continuing operations before income tax expenses (46,015) (65,107) 19,092 (29.3) %

Three months ended June 30, 2022 compared to June 30, 2021

Total operating expenses decreased by $14.6 million, or 149.5%, during the three months ended June 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased operating expenses by $13.3 million for the three months ended June 30, 2022 and increased operating expenses by $6.8 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $5.5 million, primarily driven by higher personnel and facility costs to support business growth.

Total corporate general and administrative expenses decreased by $2.9 million, or 20.9%, during the three months ended June 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased corporate general and administrative expenses by $1.8 million for the three months ended June 30, 2022, and increased by $0.9 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense decreased by approximately $0.2 million, primarily driven by $0.6 million lower personnel costs, offset by $0.3 million transaction and integration related professional services costs associated with the Marks Paneth acquisition in 2022.

During the three months ended June 30, 2021, we reached a settlement agreement with UPMC pertaining a lawsuit filed in the U.S.

District Court for the Western District of Pennsylvania.

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

Total other (expense) income, net increased by $24.1 million during the three months ended June 30, 2022, as compared to the same period in 2021.

For the three months ended June 30, 2022, total other expense, net includes a net loss of $15.1 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other income, net includes a net gain of $7.6 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.

Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been $2.5 million in 2022 and $1.1 million in 2021, a change of $1.4 million primarily attributed to $0.7 million higher interest expense and $0.8 million higher fair value adjustments to the contingent purchase price.

Six months ended June 30, 2022 compared to June 30, 2021

Total operating expenses increased by $23.1 million, or 139.8%, during the six months ended June 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased operating expenses by $19.0 million for the six months ended June 30, 2022, and increased operating expense by $11.4 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $7.3 million, primarily driven by higher personnel costs and facility costs to support business growth.

Total G&A expenses decreased by $1.1 million, or 3.8%, during the six months ended June 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased G&A expenses by $2.6 million for the six months ended June 30, 2022, and increased G&A expense by $1.3 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, G&A expense increased by approximately $2.9 million, primarily driven by $1.9 million higher transaction and integration related professional services costs associated with the Marks Paneth acquisition, $0.4 million higher travel and entertainment costs, and $0.6 million higher other discretionary costs to support the business growth.

During the six months ended June 30, 2021, we reached a settlement agreement with UPMC pertaining a lawsuit filed in the U.S.

District Court for the Western District of Pennsylvania.

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

Total other income (expense), net increased by $35.5 million, or 349.4%, during the six months ended June 30, 2022, as compared to the same period in 2020.

Total other income (expense), net for the six months ended June 30, 2022 includes a net loss of $21.6 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other income, net includes a net gain of $12.7 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 $1.2 million, primarily due to $1.1 million higher interest expense due to higher average outstanding balance and interest rates during 2022 as compared to 2021.

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

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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.

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

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

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

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.

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 88 days and 84 days at June 30, 2022 and 2021, respectively.

DSO at December 31, 2021 was 71 days.

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

Three Months Ended March 31,

Six Months Ended June 30,

(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 operating activities $ 28,508 $ 66,294

Net cash used in investing activities (89,756) (40,137)

Net cash provided by (used in) financing activities 91,655 (42,582)

Net increase (decrease) in cash, cash equivalents and restricted cash $ 30,407 $ (16,425)

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.

Operating Activities - Cash provided by operating activities was $28.5 million during the six months ended June 30, 2022 and primarily due to net income of $89.4 million and certain non-cash items, such as depreciation and amortization expense of $16.5 million, deferred income tax of $4.7 million, and stock-based compensation expense of $6.4 million.

The cash inflow was offset by working capital use of $91.3 million.

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

The cash inflow was offset by working capital use of $10.4 million.

Investing Activities - Cash used in investing activities during the six months ended June 30, 2022 was $89.8 million and consisted primarily of $72.5 million used for business acquisition, $3.6 million in capital expenditures, $12.2 million net activity related to funds held for clients, and $1.6 million in other activities related to working capital payments and notes receivable.

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

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

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.

Financing Activities - Cash provided by financing activities during the six months ended June 30, 2022 was $91.7 million and primarily consisted of $110.7 million in net proceeds from the credit facility, $29.0 million net increase in client fund obligations and $3.9 million proceeds from exercise of stock options, partially offset by $41.6 million in share repurchases and $8.2 million in contingent consideration payments related to prior acquisitions.

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 credit facilities and $5.4 million proceeds from exercise of stock options during the six months ended June 30, 2021.

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.

Credit Facility - At June 30, 2022, we had $266.0 million outstanding under the 2022 credit facility as well as $5.7 million outstanding letters of credit.

Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $323.2 million at June 30, 2022.

The weighted average interest rate under the credit facility was 1.93% during the six months ended June 30, 2022, compared to 1.95% for the same period in 2021.

The 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 2022 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.

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.

Debt Covenant Compliance - Under the 2022 credit facility, we are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) interest charge coverage ratio.

We are in compliance with our financial covenants as of June 30, 2022.

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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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.

During the first quarter of 2022, we completed the acquisition of Marks Paneth for $72.5 million in cash.

We also repurchased 1.1 million shares of our common stock at a total cost of approximately $42.8 million during the six months ended June 30, 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.

Cash Requirements for 2022 - Cash requirements for the remainder of 2022 will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent purchase price 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.

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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.

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 June 30, 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.

The amount of license bonds outstanding was $2.3 million and $2.3 million at June 30, 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.

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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 March 31, 2022, we are not aware of any material obligations arising under indemnification agreements that would require payment.

As of June 30, 2022, 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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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.

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.

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

We have not made any changes 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.

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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