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Item 1. Financial Statements

2023-07-27 compared with 2023-04-28 · 218 added, 95 removed, 471 unchanged (40% of the section changed)

55 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Revenue $ 398,502 $ 361,952 $ 853,108 $ 753,674

3 unchanged sentences

Operating income 38,722 61,290 136,719 146,404

Other income (expense):

Other (expense) income:

Interest expense ( 5,534 ) ( 1,645 ) ( 9,175 ) ( 2,904 )

1 unchanged sentence

Other income (expense), net 5,421 ( 15,903 ) 10,533 ( 22,310 )

Total other income (expense), net 1,570 ( 7,666 )

Total other (expense) income, net ( 113 ) ( 17,413 ) 1,457 ( 25,079 )

Income before income tax expense 38,609 43,877 138,176 121,325

8 unchanged sentences

Net income $ 26,863 $ 31,255 $ 100,023 $ 89,382

Other comprehensive (loss) income, net of tax ( 1,213 ) 1,925

Other comprehensive income, net of tax 1,537 480 324 2,405

Comprehensive income $ 28,400 $ 31,735 $ 100,347 $ 91,787

11 unchanged sentences

Income Totals

March 31, 2023 137,024 86,712 $ 1,370 $ 814,686 $ 807,276 $ ( 853,793 ) $ 2,391 $ 771,930

Net income — — — — 26,863 — — 26,863

Other comprehensive income — — — — — — 1,537 1,537

Share repurchases — 547 — — — ( 27,737 ) — ( 27,737 )

Restricted stock units and awards 21 — — — — — — —

Stock options exercised 32 — 1 622 — — — 623

Stock-based compensation — — — 2,788 — — — 2,788

Business acquisitions 4 — — 210 — — — 210

Excise tax on share repurchases — — — 387 — ( 558 ) — ( 171 )

June 30, 2023 137,081 87,259 $ 1,371 $ 818,693 $ 834,139 $ ( 882,088 ) $ 3,928 $ 776,043

Shares Treasury

Shares Common

Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Income Totals

March 31, 2022 135,756 83,462 $ 1,358 $ 777,731 $ 686,889 $ ( 707,088 ) $ 958 $ 759,848

Net income — — — — 31,255 — — 31,255

Other comprehensive income — — — — — — 480 480

Share repurchases — 736 — — — ( 29,555 ) — ( 29,555 )

Indirect repurchase of shares for minimum tax withholding — 23 — — — ( 916 ) — ( 916 )

Restricted stock units and awards 27 — — — — — — —

Stock options exercised 40 — — 672 — — — 672

Stock-based compensation — — — 2,739 — — — 2,739

June 30, 2022 135,823 84,221 $ 1,358 $ 781,142 $ 718,144 $ ( 737,559 ) $ 1,438 $ 764,523

See the accompanying notes to the unaudited condensed consolidated financial statement

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

Shares Treasury

Shares Common

Stock Additional

Capital Retained

Earnings Treasury

Stock Accumulated

Comprehensive

Income Totals

December 31, 2022 136,295 86,115 $ 1,363 $ 799,147 $ 734,116 $ ( 824,778 ) $ 3,604 $ 713,452

Net income — — — — 100,023 — — 100,023

Other comprehensive loss — — — — — — ( 1,213 ) ( 1,213 )

Other comprehensive income — — — — — — 324 324

Share repurchases — 975 — — — ( 48,528 ) — ( 48,528 )

5 unchanged sentences

Business acquisitions 177 — 2 8,294 — — — 8,296

March 31, 2023 137,024 86,712 $ 1,370 $ 814,686 $ 807,276 $ ( 853,793 ) $ 2,391 $ 771,930

Excise tax on share repurchases — — — 387 — ( 558 ) — ( 171 )

June 30, 2023 137,081 87,259 $ 1,371 $ 818,693 $ 834,139 $ ( 882,088 ) $ 3,928 $ 776,043

Shares Treasury

4 unchanged sentences

Stock Accumulated

Comprehensive (Loss)

Income Totals

Comprehensive

(Loss) Income Totals

December 31, 2021 135,187 83,149 $ 1,352 $ 770,117 $ 628,762 $ ( 694,716 ) $ ( 967 ) $ 704,548

8 unchanged sentences

Business acquisitions 19 — — 707 — — — 707

March 31, 2022 135,756 83,462 $ 1,358 $ 777,731 $ 686,889 $ ( 707,088 ) $ 958 $ 759,848

See the accompanying notes to the unaudited condensed consolidated financial statement

June 30, 2022 135,823 84,221 $ 1,358 $ 781,142 $ 718,144 $ ( 737,559 ) $ 1,438 $ 764,523

See the accompanying notes to the unaudited condensed consolidated financial statements

AND SUBSIDIARIES

1 unchanged sentence

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net income $ 100,023 $ 89,382

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization expense 17,831 16,465

12 unchanged sentences

Other liabilities 5,450 ( 8,822 )

Net cash used in operating activities ( 44,511 ) ( 50,890 )

Net cash provided by operating activities 29,729 28,508

Cash flows from investing activities:

15 unchanged sentences

Payment of contingent consideration for acquisitions and client lists ( 29,973 ) ( 8,240 )

Other, net — ( 2,072 )

Net cash provided by financing activities 21,793 91,655

26 unchanged sentences

A further description of products and services offered by each of the practice groups is provided in Note 12, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements.

Effective April 1, 2023, CBIZ formed Rockside Insurance Company, Inc.

("Rockside"), a captive insurance company licensed in Vermont.

Rockside, wholly owned by CBIZ, provides insurance coverages for a portion of the retention deductibles from CBIZ's certain insurance programs with third party insurers.

Basis of Consolidation:

11 unchanged sentences

Changes in Accounting Policies:

We have consistently applied the accounting policies for the periods presented as described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

We have consistently applied the accounting policies for the periods presented as described in Note 1, Basis of Presentation and Significant Accounting Policies, to the

consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Reclassifications:

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We assess and review the impact of all issued ASUs.

During the three months ended March 31, 2023, we have implemented all new ASUs that are in effect and that may impact our consolidated financial statements.

During the six months ended June 30, 2023, we have implemented all new ASUs that are in effect and that may impact our consolidated financial statements.

ACCOUNTS RECEIVABLE, NET

3 unchanged sentences

Receivables are charged-off against the allowance when the balance is deemed uncollectible.

Accounts receivable, net, at March 31, 2023 and December 31, 2022 was as follows (in thousands):

Accounts receivable, net, at June 30, 2023 and December 31, 2022 was as follows (in thousands):

2023 December 31,

4 unchanged sentences

Accounts receivable, net $ 456,397 $ 334,498

Changes to the allowance for doubtful accounts for the three months ended March 31, 2023 and twelve months ended December 31, 2022 were as follows (in thousands):

Changes to the allowance for doubtful accounts for the six months ended June 30, 2023 and twelve months ended December 31, 2022 were as follows (in thousands):

2023 December 31,

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The 2022 credit facility matures on May 4, 2027.

The balance outstanding under the 2022 credit facility was $ 403.7 million and $ 265.7 million at March 31, 2023 and December 31, 2022, respectively.

The combined effective interest rates under the 2018 and 2022 credit facilities, including the impact of interest rate swaps associated with those credit facilities, for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended

The balance outstanding under the 2022 credit facility was $ 410.6 million and $ 265.7 million at June 30, 2023 and December 31, 2022, respectively.

The combined effective interest rates under the 2018 and 2022 credit facilities, including the impact of interest rate swaps associated with those credit facilities, for the six months ended June 30, 2023 and 2022 were as follows:

Six Months Ended

Weighted average rates 4.94 % 1.93 %

1 unchanged sentence

1.08 % - 3.67 %

We had approximately $ 190.0 million of available funds under the 2022 credit facility at March 31, 2023, net of outstanding letters of credit of $ 5.0 million.

We had approximately $ 177.5 million of available funds under the 2022 credit facility at June 30, 2023, net of outstanding letters of credit of $ 4.4 million.

Available funds under the credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization as defined in the credit facility, and are reduced by letters of credit, other indebtedness and outstanding borrowings under the credit facility.

6 unchanged sentences

In addition, the 2022 credit facility contains financial covenants that require us to meet certain requirements with respect to (i) a total leverage ratio and (ii) minimum interest coverage ratio which may limit our ability to borrow up to the total commitment amount.

As of March 31, 2023, we are in compliance with all covenants.

As of June 30, 2023, we are in compliance with all covenants.

Other Line of Credit - We have an unsecured $ 20.0 million line of credit by and among CBIZ Benefits and Insurance, Inc.

1 unchanged sentence

We utilize this line to support our short-term funding requirements of payroll client fund obligations due to the investment of client funds, rather than liquidating client funds that have already been invested in available-for-sale securities.

The line of credit, which was renewed on August 1, 2022 and will terminate on August 3, 2023, did no t have a balance outstanding at March 31, 2023.

Interest Expense - Interest expense, including amortization of deferred financing costs, commitment fees, line of credit fees, and other applicable bank charges, for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended March 31,

The line of credit, which was renewed on August 1, 2022 and will terminate on August 3, 2023, did no t have a balance outstanding at June 30, 2023.

We intend to renew this line of credit.

Interest Expense - Interest expense, including amortization of deferred financing costs, commitment fees, line of credit fees, and other applicable bank charges, for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended June 30,

Credit facilities $ 5,498 $ 1,644

Other line of credit — 1

Total $ 5,534 $ 1,645

Six Months Ended June 30,

Credit facilities $ 9,138 $ 2,903

Other line of credit — 1

Total $ 9,175 $ 2,904

COMMITMENTS AND CONTINGENCIES

Letters of Credit and Guarantees - We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $ 5.0 million and $ 5.0 million at March 31, 2023 and December 31, 2022, respectively.

Letters of Credit and Guarantees - We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $ 4.4 million and $ 5.0 million at June 30, 2023 and December 31, 2022, respectively.

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

The amount of license bonds outstanding was $ 2.2 million and $ 2.3 million at March 31, 2023 and December 31, 2022, respectively.

The amount of license bonds outstanding was $ 2.3 million and $ 2.3 million at June 30, 2023 and December 31, 2022, respectively.

Legal Proceedings - On December 19, 2016, CBIZ Operations, Inc.

1 unchanged sentence

After various amendments, the lawsuit asserted claims under Indiana law for securities, statutory and common law fraud or deception, unjust enrichment, breach of contract, and vicarious liability against CBIZ Operations and a former employee of CBIZ MMP in connection with the sale of the CBIZ MMP medical billing practice to Zotec.

The plaintiff claimed that CBIZ Operations had a duty to disclose the fact, unknown to employees of CBIZ Operations at the time of the transaction, that the former employee had a financial arrangement with a Zotec vendor at the time CBIZ Operations sold CBIZ

MMP to Zotec.

The plaintiff sought damages of up to $ 177.0 million out of the $ 200.0 million transaction price.

11 unchanged sentences

These investments, primarily consisting of corporate and municipal bonds, are classified as available-for-sale and are included in the “Funds held for clients” line item on the accompanying unaudited Condensed Consolidated Balance Sheets.

The par value of these investments totaled $ 43.9 million and $ 44.4 million at March 31, 2023 and December 31, 2022, respectively, and had maturity or callable dates ranging from April 2023 through November 2025.

At March 31, 2023, unrealized losses on the securities were not material and have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value.

The par value of these investments totaled $ 41.2 million and $ 44.4 million at June 30, 2023 and December 31, 2022, respectively, and had maturity or callable dates ranging from July 2023 through November 2025.

At June 30, 2023, unrealized losses on the securities were not material and have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value.

The bond issuers continue to make timely principal and interest payments.

The following table summarizes activities related to these investments for the three months ended March 31, 2023 and the twelve months ended December 31, 2022 (in thousands):

Three Months Ended March 31, 2023 Twelve Months Ended December 31, 2022

The following table summarizes activities related to these investments for the six months ended June 30, 2023 and the twelve months ended December 31, 2022 (in thousands):

Six Months Ended June 30, 2023 Twelve Months Ended December 31, 2022

Fair value at beginning of period $ 43,485 $ 38,670

5 unchanged sentences

Fair value at end of period $ 40,383 $ 43,485

In addition to the available-for-sale debt securities discussed above, we also held other depository assets in the amount of $ 1.0 million and $ 0.9 million at March 31, 2023 and December 31, 2022, respectively.

In addition to the available-for-sale debt securities discussed above, we also held other depository assets in the amount of $ 0.9 million and $ 0.9 million at June 30, 2023 and December 31, 2022, respectively.

Those depository assets are classified as Level 1 in the fair value hierarchy.

3 unchanged sentences

During the first quarter of 2023, we entered into a new 5-year interest rate swap with a notional value of $ 25.0 million and fixed rate of 3.669 %.

As of March 31, 2023, we have five interest rate swaps outstanding.

During the second quarter of 2023, one interest rate swap expired with a notional value of $ 15.0 million.

As of June 30, 2023, we have four interest rate swaps outstanding.

Under the terms of the interest rate swaps, we pay interest at a fixed rate of interest plus applicable margin as stated in the amended agreements, and receive interest that varies with the one-month Term SOFR.

The following table summarizes our outstanding interest rate swaps and their classification in the accompanying unaudited Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 (amounts in thousands):

March 31, 2023

The following table summarizes our outstanding interest rate swaps and their classification in the accompanying unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022 (amounts in thousands):

June 30, 2023

Amount Fixed Rate Expiration Fair

Value Balance Sheet Location

Interest rate swap $ 15,000 2.571 % 6/1/2023 $ 58 Other current asset

Interest rate swap $ 50,000 0.834 % 4/14/2025 $ 3,427 Other non-current asset

1 unchanged sentence

Interest rate swap $ 20,000 2.450 % 8/14/2027 $ 1,193 Other non-current asset

Interest rate swap $ 25,000 3.669 % 4/14/2028 $ ( 394 ) Other non-current liability

Interest rate swap $ 25,000 3.669 % 4/14/2028 $ 259 Other non-current asset

December 31, 2022

6 unchanged sentences

Refer to Note 7, Fair Value Measurements, for additional disclosures regarding fair value measurements.

The following table summarizes the effects of the interest rate swaps on the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022 (in thousands):

(Loss) Gain Recognized

The following table summarizes the effects of the interest rate swaps on the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022 (in thousands):

Gain Recognized

in AOCI, net of tax Gain (Loss) Reclassified

1 unchanged sentence

Three Months Ended

March 31, Three Months Ended

June 30, Three Months Ended

2023 2022 2023 2022

Interest rate swaps $ 2,187 $ 587 $ 1,073 $ ( 155 )

Six Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Interest rate swaps $ 1,472 $ 3,194 $ 1,970 $ ( 498 )

FAIR VALUE MEASUREMENTS

The following table summarizes our assets and (liabilities) at March 31, 2023 and December 31, 2022, respectively, that are measured at fair value on a recurring basis subsequent to initial recognition and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (in thousands):

Level March 31, 2023 December 31, 2022

The following table summarizes our assets and (liabilities) at June 30, 2023 and December 31, 2022, respectively, that are measured at fair value on a recurring basis subsequent to initial recognition and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (in thousands):

Level June 30, 2023 December 31, 2022

Deferred compensation plan assets 1 $ 136,463 $ 118,862

4 unchanged sentences

Contingent purchase price liabilities 3 ( 130,465 ) ( 132,010 )

During the three months ended March 31, 2023 and 2022, there were no transfers between the valuation hierarchy Levels 1, 2 and 3.

The following table summarizes the change in Level 3 fair values of our contingent purchase price liabilities for the three months ended March 31, 2023 and 2022 (pre-tax basis) (in thousands):

During the six months ended June 30, 2023 and 2022, there were no transfers between the valuation hierarchy Levels 1, 2 and 3.

The following table summarizes the change in Level 3 fair values of our contingent purchase price liabilities for the six months ended June 30, 2023 and 2022 (pre-tax basis) (in thousands):

Beginning balance – December 31 $ ( 132,010 ) $ ( 79,139 )

3 unchanged sentences

Change in net present value of contingencies ( 1,430 ) ( 1,595 )

Ending balance – March 31 $ ( 125,756 ) $ ( 136,534 )

Ending balance – June 30 $ ( 130,465 ) $ ( 136,435 )

Contingent purchase price liabilities result from our business acquisitions and are recorded at fair value at the time of acquisition and are presented as “Contingent purchase price liabilities — current” and “Contingent purchase price liabilities — non-current” in the accompanying unaudited Condensed Consolidated Balance Sheets.

8 unchanged sentences

As a result, the fair value measurement of our bank debt is considered to be Level 2 under the fair value hierarchy.

OTHER COMPREHENSIVE (LOSS) INCOME

The following table is a summary of other comprehensive (loss) income and discloses the tax impact of each component of other comprehensive (loss) income for the three months ended March 31, 2023 and 2022 (in thousands):

OTHER COMPREHENSIVE INCOME

The following table is a summary of other comprehensive income and discloses the tax impact of each component of other comprehensive income for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net unrealized gain (loss) on available-for-sale securities, net of income taxes (1)

$ 159 $ ( 218 ) $ 338 $ ( 1,157 )

Net unrealized (loss) gain on interest rate swaps, net of income taxes (2)

Net unrealized gain (loss) on interest rate swaps, net of income taxes (2)

1,383 705 ( 5 ) 3,571

Foreign currency translation ( 5 ) ( 7 ) ( 9 ) ( 9 )

Total other comprehensive (loss) income $ ( 1,213 ) $ 1,925

(1) Net of income tax expense of $ 71 and income tax benefit of $ 352 for the three months ended March 31, 2023 and 2022, respectively.

(2) Net of income tax benefit of $ 463 and income tax expense of $ 928 for the three months ended March 31, 2023 and 2022, respectively.

Total other comprehensive income $ 1,537 $ 480 $ 324 $ 2,405

(1) Net of income tax expense of $ 64 and income tax benefit of $ 81 for the three months ended June 30, 2023 and 2022, respectively, and net of income tax expense of $ 135 and income tax benefit of $ 433 for the six months ended June 30, 2023 and 2022, respectively.

(2) Net of income tax expense of $ 449 and income tax expense of $ 250 for the three months ended June 30, 2023 and 2022, respectively, and net of income tax benefit of $ 14 and income tax expense of $ 1,178 for the six months ended June 30, 2023 and 2022, respectively.

EMPLOYEE STOCK PLANS

The 2019 Stock Omnibus Incentive Plan (the “2019 Plan”), which expires in 2029, permits the grant of various forms of stock-based awards.

On May 10, 2023, the shareholders of the Company approved an amendment to the 2019 Stock Omnibus Incentive Plan (the “2019 Plan”).

The amendment added 1.5 million shares to the total number of shares that may be issued under the 2019 Plan.

All other respects of the Plan remain unchanged.

The 2019 Plan, which expires in 2029, permits the grant of various forms of stock-based awards.

A maximum of 4.6 million stock options, restricted stock or other stock-based compensation awards may be granted.

The terms and vesting schedules for the stock-based awards vary by type and date of grant.

A maximum of 3.1 million stock options, restricted stock or other stock-

based compensation awards may be granted.

Shares subject to award under the 2019 Plan may be either authorized but unissued shares of our common stock or treasury shares.

Refer to the Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion on the 2019 Plan.

Compensation expense for stock-based awards recognized during the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Compensation expense for stock-based awards recognized during the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Stock options $ — $ 75 $ 768 $ 248

2 unchanged sentences

Total stock-based compensation expense $ 2,788 $ 2,739 $ 6,619 $ 6,428

Stock Options and Restricted Stock Units and Awards – The following table presents our stock options and restricted stock units and awards activity during the three months ended March 31, 2023 (in thousands, except per share data):

Stock Options and Restricted Stock Units and Awards – The following table presents our stock options and restricted stock units and awards activity during the six months ended June 30, 2023 (in thousands, except per share data):

Stock Options Restricted Stock Units and Awards

5 unchanged sentences

Exercised or released ( 221 ) $ 19.24 ( 154 ) $ 31.25

Outstanding at March 31, 2023 414 $ 25.16 242 $ 39.76

Exercisable at March 31, 2023 414 $ 25.16

Outstanding at June 30, 2023 382 $ 25.64 232 $ 41.09

Exercisable at June 30, 2023 382 $ 25.64

(1) Represents weighted average market value of the shares;

3 unchanged sentences

The following weighted average assumptions were utilized:

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Expected volatility (1) 28.57 %

8 unchanged sentences

Performance Share Units (“PSUs”) – PSUs are earned based on our financial performance over a contractual term of three years and the associated expense is recognized over that period based on the fair value of the award.

A three-year cliff vesting schedule of the PSUs is dependent upon the Company’s performance relative to pre-established goals based on an earnings per share target

(weighted 70 %) and total growth in revenue (weighted 30 %).

A three-year cliff vesting schedule of the PSUs is dependent upon the Company’s performance relative to pre-established goals based on an earnings per share target (weighted 70 %) and total growth in revenue (weighted 30 %).

The fair value of PSUs is calculated using the market value of a share of our common stock on the date of grant.

For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 200 % of the number of PSUs initially granted.

The following table presents our PSU award activity during the three months ended March 31, 2023 (in thousands, except per share data):

The following table presents our PSUs activity during the six months ended June 30, 2023 (in thousands, except per share data):

Share Units Weighted

2 unchanged sentences

Vested ( 244 ) $ 25.75

Outstanding at March 31, 2023 326 $ 36.46

Outstanding at June 30, 2023 326 $ 36.46

(1) Represents weighted average market value of the performance share units;

1 unchanged sentence

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022 (in thousands, except per share data):

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except per share data):

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net Income $ 26,863 $ 31,255 $ 100,023 $ 89,382

1 unchanged sentence

Stock options (1)

198 508 235 564

Restricted stock units and awards (1)

79 112 95 157

Performance share units 106 — 106 —

Contingent shares (2)

4 unchanged sentences

Diluted earnings per share $ 0.53 $ 0.60 $ 1.98 $ 1.70

(1) A total of 80 thousand and 55 thousand shares of stock-based awards were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2023 and 2022, as their effect would be anti-dilutive.

(1) A total of 12 thousand and 53 thousand shares of stock-based awards were excluded from the calculation of diluted earnings per share for three and six months ended June 30, 2023, respectively, as their effect would be anti-dilutive.

A total of 17 thousand and 86 thousand shares of stock-based awards were excluded from the calculation of diluted earnings per share for three and six months ended June 30, 2022, respectively, as their effect would be anti-dilutive.

(2) Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by us once future considerations have been met.

Refer to Note 11, Business Combinations, for further details.

(3) The denominator used in calculating diluted earnings per share did not include 326 thousand and 363 thousand performance share units for both the three months ended March 31, 2023 and 2022, respectively.

The performance conditions associated with these performance share units were not met and consequently none of these performance share units were considered as issuable for the three months ended March 31, 2023 and 2022.

(3) The denominator used in calculating diluted earnings per share did not include 220 thousand PSUs for both the three and six months ended June 30, 2023, and the denominator used in calculating diluted earnings per share did not include 360 thousand PSUs for both the three and six months ended June 30, 2022.

The performance conditions associated with these performance share units were not met and consequently none of these PSUs were considered as issuable for the three and six months ended June 30, 2023 and 2022.

BUSINESS COMBINATIONS

Business Combinations

During the three months ended March 31, 2023, we completed the following acquisitions:

During the six months ended June 30, 2023, we completed the following acquisitions:

• Effective January 1, 2023, we acquired all of the assets of Danenhauer and Danenhauer, Inc ("Danenhauer and Danenhauer").

Danenhauer and Danenhauer, based in California, is a provider of forensic accounting, business valuation, expert witness testimony, and other services for businesses and individuals.

Danenhauer and Danenhauer is included as a component of our Financial Services practice group.

Operating results are reported in the Financial Services practice group.

Operating results for Danenhauer and Danenhauer are reported in the Financial Services practice group.

• Effective February 1, 2023, we acquired the non-attest assets of Somerset CPAs and Advisors ("Somerset").

Somerset, based in Indianapolis, IN, is a provider of a full range of accounting, tax, and financial advisory services to clients in a wide array of industries.

Somerset is included as a component of our Financial Services practice group.

Operating results are reported in the Financial Services practice group.

During the three months ended March 31, 2022, we completed the following acquisition:

Somerset, based in Indianapolis, Indiana, is a provider of a full range of accounting, tax, and financial advisory services to clients in a wide array of industries.

Operating results for Somerset are reported in the Financial Services practice group.

• Effective June 1, 2023, we acquired all of the assets of Pivot Point Security ("PPS").

PPS, based in Hamilton, New Jersey, is a provider of cyber and information security, and compliance services for small and middle market businesses.

Operating results for PPS are reported in the Financial Services practice group.

• Effective June 1, 2023, we acquired all of the assets of Ickovic and Co.

PC ("Ickovic and Co.").

Ickovic and Co., based in Denver, Colorado, is a provider of bespoke services and solutions for high-net-worth individuals, business owners and executives.

Operating results for Ickovic and Co.

are reported in the Financial Services practice group.

During the six months ended June 30, 2022, we completed the following acquisition:

• Effective January 1, 2022, we acquired all of the non-attest assets of Marks Paneth LLP ("Marks Paneth").

2 unchanged sentences

Operating results are reported in the Financial Services practice group.

The 2023 acquisitions are expected to add approximately $ 56.1 million annualized revenue in 2023.

For the three months ended March 31, 2023, we recorded approximately $ 1.6 million in non-recurring transaction, retention and integration related costs associated with the Somerset acquisition.

Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material, either individually or in aggregate, to our total revenue and net income for the three months ended March 31, 2023 and 2022, respectively.

The following table summarizes the consideration and purchase price allocation for the acquisitions completed during the three months ended March 31, 2023 and 2022, respectively (in thousands):

The acquisitions of Danenhauer and Danenhauer, Somerset, PPS and Ickovic and Co.

(together, the “2023 Acquisitions”) are expected to add approximately $ 64.4 million annualized revenue in 2023.

For the six months ended June 30, 2023, we recorded approximately $ 2.5 million in non-recurring transaction, retention and integration related costs associated with the Somerset acquisition.

Pro forma results of operations for these acquisitions have not been presented because the effects of these acquisitions were not material, either individually or in aggregate, to our total revenue and net income for the three and six months ended June 30, 2023 and 2022, respectively.

The following table summarizes the consideration and purchase price allocation for the acquisitions completed during the six months ended June 30, 2023 and 2022, respectively (in thousands):

Common stock issued (number) 102 —

15 unchanged sentences

Provisional estimates of fair value are established at the time of each acquisition and are subsequently reviewed within the first year of operations subsequent to the acquisition date to determine the necessity for adjustments.

Fair value estimates of the 2023 acquisitions were provisional as of March 31, 2023, primarily related to the value established for certain identifiable intangible assets and contingent purchase price consideration.

The following table summarizes the goodwill and intangible asset amounts resulting from those acquisitions for the three months ended March 31, 2023 and 2022, respectively (in thousands):

Three Months Ended March 31,

Financial Services Financial Services

Fair value estimates of the 2023 Acquisitions were provisional as of June 30, 2023, primarily related to the value established for certain identifiable intangible assets and contingent purchase price consideration.

The following table summarizes the goodwill and intangible asset amounts resulting from those acquisitions for the six months ended June 30, 2023 and 2022, respectively (in thousands):

Six Months Ended June 30,

Financial Services Benefits and Insurance Services Financial Services Benefits and Insurance Services

Goodwill $ 41,031 $ — $ 67,506 $ —

7 unchanged sentences

Client lists and non-compete agreements are valued using a discounted cash flow model based on management estimates of future cash flows from such assets.

The following table summarizes the changes in contingent purchase price consideration for previous acquisitions and contingent payments made for previous business acquisitions in the three months ended March 31, 2023 and 2022, respectively (in thousands):

Three Months Ended March 31,

The following table summarizes the changes in contingent purchase price consideration for previous acquisitions and contingent payments made for previous business acquisitions in the three and six months ended June 30, 2023 and 2022, respectively (in thousands):

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

2023 2022 2023 2022

Net expense $ 815 $ 836 $ 1,445 $ 1,478

17 unchanged sentences

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

These expenses primarily consist of certain health care costs, gains or losses attributable to assets held in our non-qualified deferred compensation plan, stock-based

compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses.

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.

Accounting policies of the practice groups are the same as those described in Note 1, Basis of Presentation and Significant Accounting Policies, to the Annual Report on Form 10-K for the year ended December 31, 2022.

1 unchanged sentence

Performance of the practice groups is evaluated on income (loss) before income tax expense (benefit) excluding those costs listed above, which are reported in the “Corporate and Other”.

Segment information for the three months ended March 31, 2023 and 2022 is presented below.

Segment information for the three and six months ended June 30, 2023 and 2022 is presented below.

We do not manage our assets on a segment basis, therefore segment assets are not presented below.

The following table disaggregates our revenue by source (in thousands):

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Services Benefits and

7 unchanged sentences

Total revenue $ 290,930 $ 95,838 $ 11,734 $ 398,502

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Services Benefits and

7 unchanged sentences

Total revenue $ 259,308 $ 91,708 $ 10,936 $ 361,952

Segment information for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Services Benefits and

Insurance Services National

Practices Consolidated

Accounting, tax, advisory and consulting $ 634,016 — — $ 634,016

Core benefits and insurance services — 187,648 — 187,648

Non-core benefits and insurance services — 8,244 — 8,244

Managed networking, hardware services — — 18,021 18,021

National practices consulting — — 5,179 5,179

Total revenue $ 634,016 $ 195,892 $ 23,200 $ 853,108

Six Months Ended June 30, 2022

Services Benefits and

Insurance Services National

Practices Consolidated

Accounting, tax, advisory and consulting $ 548,054 — — $ 548,054

Core benefits and insurance services — 176,302 — 176,302

Non-core benefits and insurance services — 7,892 — 7,892

Managed networking, hardware services — — 16,254 16,254

National practices consulting — — 5,172 5,172

Total revenue $ 548,054 $ 184,194 $ 21,426 $ 753,674

Segment information for the three months ended June 30, 2023 and 2022 was as follows (in thousands):

Three Months Ended June 30, 2023

Services Benefits

8 unchanged sentences

Interest expense — — — ( 5,534 ) ( 5,534 )

Other income, net 235 153 1 5,032 5,421

Total other income (expense), net 235 153 1 ( 502 ) ( 113 )

Income (loss) before income tax expense $ 47,720 $ 17,617 $ 1,190 $ ( 27,918 ) $ 38,609

Three Months Ended June 30, 2022

Services Benefits

Services National

Practices Corporate

Revenue $ 259,308 $ 91,708 $ 10,936 $ — $ 361,952

Operating expenses 209,643 75,020 9,899 ( 4,826 ) 289,736

Gross margin 49,665 16,688 1,037 4,826 72,216

Corporate general and administrative expenses — — — 10,926 10,926

Operating income (loss) 49,665 16,688 1,037 ( 6,100 ) 61,290

Other income (expense):

Interest expense — ( 1 ) — ( 1,644 ) ( 1,645 )

Gain on sale of operations, net 135 — — — 135

Other income (expense), net 85 ( 12 ) 1 ( 15,977 ) ( 15,903 )

Total other income (expense), net 220 ( 13 ) 1 ( 17,621 ) ( 17,413 )

Income (loss) before income tax expense $ 49,885 $ 16,675 $ 1,038 $ ( 23,721 ) $ 43,877

Segment information for the six months ended June 30, 2023 and 2022 was as follows (in thousands):

Six Months Ended June 30, 2023

Services Benefits

Services National

Practices Corporate

Revenue $ 634,016 $ 195,892 $ 23,200 $ — $ 853,108

Operating expenses 487,888 155,297 21,128 20,685 684,998

Gross margin 146,128 40,595 2,072 ( 20,685 ) 168,110

Corporate general and administrative expenses — — — 31,391 31,391

Operating income (loss) 146,128 40,595 2,072 ( 52,076 ) 136,719

Other income (expense):

Interest expense — ( 1 ) — ( 9,174 ) ( 9,175 )

Gain on sale of operations, net 99 — — — 99

Other income, net 490 330 1 9,712 10,533

1 unchanged sentence

Income (loss) before income tax expense $ 146,717 $ 40,924 $ 2,073 $ ( 51,538 ) $ 138,176

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Services Benefits

8 unchanged sentences

Interest expense — ( 1 ) — ( 2,903 ) ( 2,904 )

Gain on sale of operations, net 135 — — — 135

Other income (expense), net 171 ( 36 ) 1 ( 22,446 ) ( 22,310 )

1 unchanged sentence

Income (loss) before income tax expense $ 128,917 $ 36,480 $ 1,952 $ ( 46,024 ) $ 121,325

SUBSEQUENT EVENTS

Subsequent to March 31, 2023 and up to April 26, 2023, we repurchased approximately 0.2 million shares of our common stock in the open market at a total cost of approximately $ 10.6 million.

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 1. Financial Statements