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Item 2. Management’s Discussion and Analysis

2022-10-28 compared with 2022-07-29 · 177 added, 189 removed, 279 unchanged (57% of the section changed)

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

The following discussion is intended to assist in the understanding of our financial position at June 30, 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.

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

Revenue for the three months ended September 30, 2022 increased by $80.5 million, or 28.5%, to $363.3 million from $282.7 million for the same period in 2021.

Same-unit revenue increased by approximately $34.8 million, or 12.3%, as compared to the same period in 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.

Revenue from newly acquired operations, net of divestitures, contributed $45.7 million, or 16.2%, of incremental revenue for the three months ended September 30, 2022 as compared to the same period in 2021.

Revenue for the nine months ended September 30, 2022 increased by $254.8 million, or 29.6%, to $1,116.9 million from $862.1 million for the same period in 2021.

Same-unit revenue increased by approximately $95.3 million, or 11.1%, 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.

Revenue from newly acquired operations, net of divestitures, contributed $159.5 million, or 18.5%, of incremental revenue for the nine months ended September 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.

Income from continuing operations was $27.5 million, or $0.53 per diluted share, in the third quarter of 2022, compared to $21.7 million, or $0.41 per diluted share, in the third quarter of 2021.

For the nine months ended September 30, 2022, income from continuing operations was $116.9 million, or $2.22 per diluted share, compared to $80.5 million, or $1.50 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 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.

During the nine months ended September 30, 2022, we completed two acquisitions for $79.1 million in cash.

We also repurchased 1.8 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $75.3 million in the nine months ended September 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, and pursuant to Rule 10b5-1 trading plans, which may include purchases from our employees, officers and directors, in accordance with the Securities and Exchange Commission (the “SEC”) rules.

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

RESULTS OF OPERATIONS – CONTINUING OPERATIONS

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

Three Months Ended June 30,

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

Three Months Ended September 30,

Total 2021 % of

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Total CBIZ $ 363,262 100.0 % $ 282,719 100.0 % $ 80,543 28.5 %

Six Months Ended June 30,

Nine Months Ended September 30,

Total 2021 % of

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

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

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

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

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

2022 2021 2022 2021

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Other (expense) income, net (4,692) (298) (26,319) 12,425

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,

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

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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Gross margin $ 57,245 $ (3,995) $ 53,250 14.7 % $ 44,391 $ (212) $ 44,179 15.6 %

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

Operating income 41,352 (4,692) 36,660 10.1 % 31,356 (298) 31,058 11.0 %

Other (expense) income, net (2,618) 4,692 2,074 0.6 % (1,133) 298 (835) (0.3) %

Income from continuing operations before income tax expense 36,605 — 36,605 10.1 % 29,207 — 29,207 10.3 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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Gross margin $ 230,884 $ (23,000) $ 207,884 18.6 % $ 162,864 $ 11,165 $ 174,029 20.2 %

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

Operating income 187,756 (26,319) 161,437 14.5 % 91,062 12,425 103,487 12.0 %

Other (expense) income, net (24,919) 26,319 1,400 0.1 % 12,029 (12,425) (396) — %

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Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

Operating expenses (income) by segment:

Operating expenses by segment:

Financial Services $ 220,337 $ 156,178 $ 64,159 41.1 %

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compensation % of revenue 85.3 % 84.4 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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National Practices 29,218 25,542 3,676 14.4 %

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

Corporate and Other (3,944) 21,099 (25,043) N/M

Total Operating expenses $ 886,052 $ 699,233 $ 186,819 26.7 %

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compensation % of revenue 81.4 % 79.8 %

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.

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

Total operating expenses for the three months ended September 30, 2022 increased by $67.7 million, or 28.4%, to $306.0 million as compared to $238.3 million in the same period of 2021.

The non-qualified deferred compensation plan decreased operating expenses by $4.0 million for the three months ended September 30, 2022, and by $0.2 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 $310.0 million and $238.5 million, or 85.3% and 84.4% of revenue, for the three months ended September 30, 2022 and 2021, respectively.

In addition, operating expense for the three months ended September 30, 2022 included approximately $1.3 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 $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.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by approximately $71.5 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily driven by $60.9 million higher personnel costs (of which $33.7 million was the result of acquisitions), $3.0 million higher travel and entertainment costs, $2.7 million higher facility costs, $1.4 million higher technology related costs, $1.2 million higher depreciation and amortization expense, and $1.2 million higher professional services costs, as well as $1.1 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.

Nine months ended September 30, 2022 compared to September 30, 2021 .

Total operating expenses for the nine months ended September 30, 2022 increased by $186.8 million, or 26.7%, to $886.1 million as compared to $699.2 million in the same period of 2021.

The non-qualified deferred compensation plan decreased operating expenses by $23.0 million for the nine months ended September 30, 2022, and increased operating expenses by $11.2 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 $221.0 million during the nine months ended September 30, 2022 as compared to the same period in 2021.

Operating expense for the nine months ended September 30, 2022 included approximately $8.0 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 $179.2 million (of which $109.0 million was the result of acquisitions), $9.4 million higher travel and entertainment costs, $9.0 million higher facility costs, $6.0 million higher technology related costs, $4.7 million higher depreciation and amortization expense, and $3.7 million higher professional services costs, as well as $9.0 million higher other discretionary spending to support business growth.

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

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 4.2 % 4.6 %

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.

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

The deferred compensation plan decreased G&A expenses by $0.7 million for the three months ended September 30, 2022, and decreased G&A expenses by $0.1 million during the same period in 2021.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $16.6 million, or 4.6% of revenue, for the three months ended September 30, 2022, compared to $13.1 million, or 4.6% of revenue, for the same period in 2021, an increase of approximately $3.5 million.

The increase was primarily due to a $3.9 million increase in personnel costs as a result of adjustment to the performance-based variable compensations due to improved financial results.

Nine months ended September 30, 2022 compared to September 30, 2021.

The deferred compensation plan decreased G&A expense by $3.3 million for the nine months ended September 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 $46.4 million, or 4.2% of revenue, for the nine months ended September 30, 2022, compared to $40.1 million, or 4.6% of revenue, for the same period in 2021.

The increase in G&A expenses was primarily due to approximately $3.7 million higher personnel costs as a result of adjustment to the performance-based variable compensations due to improved financial results, a $1.9 million non-recurring transaction and integration costs related to the Marks Paneth acquisition, as well as $0.7 million higher other discretionary costs to support business growth.

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.

Three and nine months ended September 30, 2022 compared with September 30, 2021.

During the nine months ended September 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.

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

Other (Expense) Income, Net

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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

Interest expense $ (2,305) $ (1,016) $ (1,289) N/M

Gain on sale of operations, net 176 — 176 N/M

Other (expense) income, net (1)

Other expense, net (1)

(2,618) (1,133) (1,485) N/M

Total other (expense) income, net $ (4,747) $ (2,149) $ (2,598) N/M

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Interest expense $ (5,209) $ (2,852) $ (2,357) 82.6 %

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

Gain on sale of operations, net 311 6,385 (6,074) (95.1) %

Other (expense) income, net (2)

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Total other (expense) income, net $ (29,817) $ 15,562 $ (45,379) 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.

(1) Other expense, net includes a net loss of $4.7 million during the three months ended September 30, 2022, compared to a net loss of $0.3 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 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, net for the three months ended September 30, 2022 and 2021, is expense of $0.4 million and $0.8 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 $26.3 million during the nine months ended September 30, 2022, compared to a net gain of $12.4 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.

In addition, included in Other (expense) income, net for the nine months ended September 30, 2022 and 2021, is expense of $1.9 million and $1.6 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.

Three and nine months ended September 30, 2022 compared with September 30, 2021.

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

During the three months ended September 30, 2022, our average debt balance and weighted average effective interest rate was $273.2 million and 2.97%, compared to $176.5 million and 1.80% for the same period of 2021.

The increase in interest expense for the three months ended September 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 nine months ended September 30, 2022, our average debt balance and interest rate was $267.2 million and 2.29% compared to $156.6 million and 1.89% for the same period of 2021.

The increase in interest expense for the nine months ended September 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.

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

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.

Three and nine months ended September 30, 2022 compared with September 30, 2021.

During the nine months ended September 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.

As a result, we recorded a net gain of $6.4 million from the sales for the nine months ended September 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.

Three and nine months ended September 30, 2022 compared with September 30, 2021.

For the three months ended September 30, 2022, other (expense) income, net includes a net loss of $4.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other (expense) income, net includes a net loss of $0.3 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other (expense) income, net decreased by $2.9 million in 2022 as compared to 2021 primarily due to a $2.4 million gain related to the sale of a book of business as well as $0.4 million lower adjustment to the fair value of the contingent purchase price liability.

For the nine months ended September 30, 2022, other (expense) income, net includes a net loss of $26.3 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other (expense) income, net includes a net gain of $12.4 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other (expense) income, net decreased by $1.8 million in 2022 as compared to 2021 due to a $2.4 million gain related to the sale of a book of business in 2022 as compared to an immaterial gain from the sale of certain assets in 2021.

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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Effective tax rate 24.9 % 25.7 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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Effective tax rate 26.0 % 24.5 %

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.

Three and nine months ended September 30, 2022 compared with September 30, 2021.

The effective tax rate for the three months ended September 30, 2022 was 24.9%, compared to an effective tax rate of 25.7% for the comparable period in 2021.

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

This tax benefit was partially offset by the tax effect of higher non-deductible expenses during the third quarter of 2022 as compared to the same period in 2021.

The effective tax rate for the nine months ended September 30, 2022 was 26.0%, compared to an effective tax rate of 24.5% 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.

In addition, we incurred higher non-deductible expenses during the nine months ended September 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 June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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Gross margin / Operating income $ 39,661 $ 31,054 $ 8,607 27.7 %

Total other income, net 220 194 26 13.4 %

Total other income, net 279 18 261 N/M

Income from continuing operations before income tax expense 39,940 31,072 8,868 28.5 %

Gross margin percent 15.3 % 16.6 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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Gross margin percent 20.8 % 22.3 %

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.

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

The Financial Services practice group revenue for the three months ended September 30, 2022 grew by 38.9% to $260.0 million from $187.2 million during the same period in 2021.

Same-unit revenue grew by $27.0 million, or 14.4%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $19.4 million, and an increase of $7.1 million in government healthcare compliance business, as well as an increase of approximately $0.5 million in those units that provide project-oriented advisory services.

The impact of acquired businesses contributed $45.7 million, or 17.6% of 2022 revenue, of which Marks Paneth and Stinnett contributed a total of $40.7 million, or 15.7% 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 $61.0 million and $45.2 million for the three months ended June 30, 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 $54.1 million and $39.7 million for the three months ended September 30, 2022 and 2021, respectively.

Operating Expenses

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Personnel costs increased by $51.1 million, or 32.7%, with acquisitions contributing approximately $33.7 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 $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 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.

Compared to the same period in 2021, facility costs, depreciation and amortization costs, professional and consulting services, technology costs, as well as marketing and recruiting costs increased by approximately $2.9 million, $1.4 million, $1.4 million, $0.9 million, and $0.8 million respectively.

In addition, travel and entertainment costs increase by approximately $2.0 million and other discretionary costs increased by approximately $3.7 million

to support the business growth.

Operating expense as a percentage of revenue decreased to 84.7% for the three months ended September 30, 2022 from 83.4% of revenue for the prior year quarter.

Nine months ended September 30, 2022 compared to September 30, 2021

Revenue for the nine months ended September 30, 2022 grew by 39.8% to $808.1 million from $578.0 million during the same period in 2021.

Same-unit revenue grew by $69.4 million, or 12.0%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $42.8 million, an increase of $15.3 million in government healthcare compliance business, and an increase of approximately $11.0 million in those units that provide project-oriented advisory services.

The impact of acquired businesses contributed $160.7 million, or 19.9% of 2022 revenue, of which Marks Paneth and Stinnett contributed a total of $119.9 million, or 14.8% of 2022 revenue.

Fees earned under the ASAs, as described above, were approximately $191.1 million and $139.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Operating Expenses

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In addition, travel and entertainment costs increased by approximately $6.0 million and other discretionary costs increased by approximately $12.4 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.

Operating expense as a percentage of revenue increased to 79.2% during the nine months ended September 30, 2022 from 77.7% of revenue during the same period in 2021.

Benefits and Insurance Services

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

Same-unit $ 92,067 $ 85,797 $ 6,270 7.3 %

Divested operations — 434 (434)

Total revenue $ 92,067 $ 85,797 $ 6,270 7.3 %

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Gross margin / Operating income $ 18,746 $ 16,758 $ 1,988 11.9 %

Total other (expense) income, net (13) 7,083 (7,096) (100.2) %

Total other (expense) income, net 2,398 (9) 2,407 N/M

Income from continuing operations before income tax expense 21,144 16,749 4,395 26.2 %

Gross margin percent 20.4 % 19.5 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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Operating expenses 220,998 203,748 17,250 8.5 %

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

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

Gross margin/ Operating income $ 55,263 $ 51,908 $ 3,355 6.5 %

Total other income, net 2,361 7,248 (4,887) (67.4) %

Income from continuing operations before income tax expenses 57,624 59,156 (1,532) (2.6) %

Gross margin percent 20.0 % 20.3 %

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 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.

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

The Benefits and Insurance Services practice group revenue increased by $6.3 million, or 7.3%, to $92.1 million during the three months ended September 30, 2022 compared to $85.8 million for the same period in 2021.

The increase was across all service lines, primarily driven by $3.5 million increase in employee benefit and retirement benefit services lines, $1.3 million increase in the property and casualty services, and $0.8 million in payroll related services, as well as growth in our other project based services.

Operating Expenses

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Personnel costs increased by $3.5 million, or 5.1%, primarily due to timing of annual merit increases as well as investment in producers.

Travel and entertainment cost increased by $0.6 million.

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.

Compared to the same period in 2021, travel and entertainment cost, technology costs, as well as marketing and recruiting costs increased by approximately $0.3 million, $0.2 million, and $0.2 million, respectively.

In addition, other operating expenses and other direct costs increased by approximately $0.3 million to support increased business activities, offset by $0.2 million lower bad debt expense as compared to the same period in 2021.

Operating expense as a percentage of revenue slightly improved to 79.6% for the quarter ended September 30, 2022 from 80.5% 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.

We sold a small book of business in our property and casualty service line during the three months ended September 30, 2022 for total proceeds of $2.5 million.

Net gain from the sale was approximately $2.4 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.

Nine months ended September 30, 2022 compared to September 30, 2021

The Benefits and Insurance Services practice group revenue increased by $20.6 million, or 8.1%, to $276.3 million during the nine months ended September 30, 2022 compared to $255.7 million for the same period in 2021.

Same-unit revenue increased by $21.8 million, or 8.6% 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.

The increase was across all service lines, primarily driven by $8.7 million increase in the property and casualty services, $8.4 million increase in employee benefit and retirement benefit services lines, and $1.6 million in payroll related services as well as growth in our other project based services.

Operating Expenses

1 unchanged sentence

Personnel cost increased by $12.4 million, or 6.1%, 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.

Compared to the same period in 2021, travel and entertainment cost, technology costs, marketing and recruiting costs, as well as bad debt expense increased by approximately $1.4 million, $0.6 million, $0.5 million and $0.5 million, respectively.

In addition, other operating expenses and other direct costs increased by approximately $2.0 million to support increased business activities.

Operating expense as a percentage of revenue

remained relatively unchanged at 80.0% during the nine months ended September 30, 2022 as compared to 79.7% 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.

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

Net gain from the sale was approximately $6.4 million.

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

We also sold a small book of business in our property and casualty service line during the nine months ended September 30, 2022 for total proceeds of $2.5 million and recorded a net gain of approximately $2.4 million from the sale.

National Practices

Three Months Ended June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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Gross margin / Operating income $ 1,454 $ 1,176 $ 278 23.6 %

Total other income, net 1 — 1 NM

Total other income, net 8 1 7 N/M

Income from continuing operations before income tax expense 1,462 1,177 285 24.2 %

Gross margin percent 13.0 % 12.1 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

2 unchanged sentences

Gross margin / Operating income $ 3,405 $ 2,929 $ 476 16.3 %

Total other income, net 1 — 1 NM

Total other income, net 9 1 8 N/M

Income from continuing operations before income tax expenses 3,414 2,930 484 16.5 %

Gross margin percent 10.4 % 10.3 %

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

Three and nine months ended September 30, 2022 compared with September 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 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.

During the three and nine months ended September 30, 2022, revenue increased by $1.5 million, or 15.6%, and $4.2 million, or 14.6%, respectively, while operating expenses increased by $1.2 million, or 14.4%, and $3.7 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 June 30,

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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

Operating expenses $ 2,616 $ 4,597 (1,981) (43.1) %

Corporate general and administrative expenses 15,893 13,035 2,858 21.9 %

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

Operating loss (18,509) (17,632) (877) 5.0 %

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

Total other expense, net (7,432) (2,159) (5,273) N/M

Loss from continuing operations before income tax expense (25,941) (19,791) (6,150) 31.1 %

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

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

Operating (income) expenses $ (3,944) $ 21,099 (25,043) N/M

Corporate general and administrative expenses 43,128 41,334 1,794 4.3 %

1 unchanged sentence

Operating loss (39,184) (92,901) 53,717 (57.8) %

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

Total other (expense) income, net (32,772) 8,003 (40,775) N/M

Loss from continuing operations before income tax expenses (71,956) (84,898) 12,942 (15.2) %

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.

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

Total operating expenses decreased by $2.0 million, or 43.1%, during the three months ended September 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased operating expenses by $4.0 million for the three months ended September 30, 2022 and decreased operating expenses by $0.2 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $1.8 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 $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.

Total corporate general and administrative expenses increased by $2.9 million, or 21.9%, during the three months ended September 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased corporate general and administrative expenses by $0.7 million for the three months ended September 30, 2022, and by $0.1 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense increased by approximately $3.5 million, primarily driven by $3.9 million higher personnel costs, offset by $0.4 million lower costs primarily lower professional services costs as compared to the same period in 2021.

Total other (expense) income, net increased by $5.3 million during the three months ended September 30, 2022, as compared to the same period in 2021.

For the three months ended September 30, 2022, total other expense, net includes a net loss of $4.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, other income, net includes a net loss of $0.3 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 $2.7 million in 2022 and $1.9 million in 2021, a change of $0.8 million primarily attributed to $1.3 million higher interest expense, offset by $0.4 million lower fair value adjustments to the contingent purchase price.

Nine months ended September 30, 2022 compared to September 30, 2021

Total operating expenses decreased by $25.0 million, or 118.7%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased operating expenses by $23.0 million for the nine months ended September 30, 2022, and increased operating expense by $11.2 million during the same period in 2021.

Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately $9.1 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.

Total G&A expenses increased by $1.8 million, or 4.3%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

The non-qualified deferred compensation plan decreased G&A expenses by $3.3 million for the nine months ended September 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 $6.4 million, primarily driven by $3.7 million higher personnel costs, $1.9 million higher transaction and integration related professional services costs associated with the Marks Paneth acquisition, $0.5 million higher travel and entertainment costs, and $0.3 million higher other discretionary costs to support the business growth.

During the nine months ended September 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.

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

Total other (expense) income, net increased by $40.8 million, or 509.5%, during the nine months ended September 30, 2022, as compared to the same period in 2021.

Total other (expense) income, net for the nine months ended September 30, 2022 includes a net loss of $26.3 million associated with the non-qualified deferred compensation plan.

For the same period in 2021, total other income, net includes a net gain of $12.4 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 $2.0 million, primarily due to $2.4 million higher interest expense due to higher average outstanding balance and interest rates during 2022 as compared to 2021, offset by $0.4 million decrease in miscellaneous expenses.

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 six months revenue generated by the Financial Services practice group.

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

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

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

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

DSO was 93 days and 88 days at September 30, 2022 and 2021, respectively.

DSO at December 31, 2021 was 71 days.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

(Amounts in thousands)

1 unchanged sentence

Net cash used in investing activities (95,550) (70,728)

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 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.

Net cash provided by financing activities 6,025 1,678

Net (decrease) increase in cash, cash equivalents and restricted cash $ (29,466) $ 11,896

Operating Activities - Cash provided by operating activities was $60.1 million during the nine months ended September 30, 2022 and primarily due to net income of $116.9 million and certain non-cash items, such as depreciation and amortization expense of $24.7 million, deferred income tax of $5.7 million, and stock-based compensation expense of $12.0 million.

The cash inflow was offset by working capital use of $100.0 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.

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

The cash inflow was offset by working capital use of $30.4 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.

Investing Activities - Cash used in investing activities during the nine months ended September 30, 2022 was $95.6 million and consisted primarily of $79.3 million used for business acquisition, $6.0 million in capital expenditures, $8.4 million net activity related to funds held for clients, and $4.7 million in other activities related to working capital payments and notes receivable.

The use of cash was offset by $2.9 million cash inflow primarily related to $2.5 million proceeds from the sale of a small book of business as well as receipts of cash payments related to certain prior divestitures.

Cash used in investing activities during the nine months ended September 30, 2021 was $70.7 million and consisted primarily of $66.2 million used for business acquisitions, $6.5 million in capital expenditures, and $8.0 million net activity related to funds held for clients.

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

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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 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.

Financing Activities - Cash provided by financing activities during the nine months ended September 30, 2022 was $6.0 million and primarily consisted of $115.8 million in net proceeds from the credit facility and $8.0 million proceeds from exercise of stock options, partially offset by $73.3 million in share repurchases, $30.0 million net decrease in client fund obligations, $12.4 million in contingent consideration payments related to prior acquisitions and $2.1 million paid as deferred financing costs related to the 2022 credit facility.

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

CAPITAL RESOURCES

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.

Credit Facility - At September 30, 2022, we had $271.1 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 $310.9 million at September 30, 2022.

The weighted average interest rate under the credit facility was 2.29% during the nine months ended September 30, 2022, compared to 1.89% 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.

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.

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

During the nine months ended September 30, 2022, we completed two acquisitions for $79.1 million in cash.

We also repurchased 1.8 million shares of our common stock at a total cost of approximately $75.3 million during the nine months ended September 30, 2022.

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

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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 June 30, 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 September 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 June 30, 2022 and December 31, 2021, respectively.

The amount of license bonds outstanding was $2.3 million and $2.3 million at September 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 June 30, 2022, we are not aware of any material obligations arising under indemnification agreements that would require payment.

As of September 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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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.

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.

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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