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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-28 · 256 added, 99 removed, 186 unchanged (66% of the section changed)

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

The following discussion is intended to assist in the understanding of our financial position at March 31, 2023 and December 31, 2022, results of operations for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022, 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, 2022.

The following discussion is intended to assist in the understanding of our financial position at June 30, 2023 and December 31, 2022, results of operations for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 30, 2023 and 2022, 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, 2022.

This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A.

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EXECUTIVE SUMMARY

Revenue for the three months ended March 31, 2023 increased by $62.9 million, or 16.1%, to $454.6 million from $391.7 million for the same period in 2022.

Revenue for the three months ended June 30, 2023 increased by $36.6 million, or 10.1%, to $398.5 million from $362.0 million for the same period in 2022.

Same-unit revenue increased by approximately $15.0 million, or 4.1%, as compared to the same period in 2022.

Revenue from newly acquired operations, net of divestitures, contributed $23.6 million, or 6.1%, of incremental revenue for the three months ended March 31, 2023 as compared to the same period in 2022.

Revenue from newly acquired operations, net of divestitures, contributed $21.6 million, or 6.0%, of incremental revenue for the three months ended June 30, 2023 as compared to the same period in 2022.

Revenue for the six months ended June 30, 2023 increased by $99.4 million, or 13.2%, to $853.1 million from $753.7 million for the same period in 2022.

Same-unit revenue increased by approximately $53.9 million, or 7.2%, as compared to the same period in 2022.

Revenue from newly acquired operations, net of divestitures, contributed $45.5 million, or 6.0%, of incremental revenue for the six months ended June 30, 2023 as compared to the same period in 2022.

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

Net income was $73.2 million, or $1.44 per diluted share, in the first quarter of 2023, compared to $58.1 million, or $1.10 per diluted share, in the first quarter of 2022.

Net income was $26.9 million, or $0.53 per diluted share, in the second quarter of 2023, compared to $31.3 million, or $0.60 per diluted share, in the second quarter of 2022.

For the six months ended June 30, 2023, net income was $100.0 million, or $1.98 per diluted share, compared to $89.4 million, or $1.70 per diluted share, for the same period in 2022.

Refer to “Results of Operations" for a detailed discussion of the components of net income.

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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 three months ended March 31, 2023, we completed two acquisitions for $39.0 million in cash.

We also repurchased 0.6 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $29.0 million in the three months ended March 31, 2023.

During the six months ended June 30, 2023, we completed four acquisitions for $48.5 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 $56.8 million in the six months ended June 30, 2023.

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

During the first quarter of 2023, 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, 2024.

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.

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

The following tables summarize total revenue for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following tables summarize total revenue for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Total 2022 % of

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Total CBIZ $ 398,502 100.0 % $ 361,952 100.0 % $ 36,550 10.1 %

Six Months Ended June 30,

Total 2022 % of

(Amounts in thousands, except percentages)

Financial Services $ 634,016 74.3 % $ 548,054 72.7 % $ 85,962 15.7 %

Benefits and Insurance Services 195,892 23.0 % 184,194 24.4 % 11,698 6.4 %

National Practices 23,200 2.7 % 21,426 2.9 % 1,774 8.3 %

Total CBIZ $ 853,108 100.0 % $ 753,674 100.0 % $ 99,434 13.2 %

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

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

Income and expenses related to the deferred compensation plan for the three months ended March 31, 2023 and 2022 are as follows:

Three Months Ended March 31,

Income and expenses related to the deferred compensation plan for the three and six months ended June 30, 2023 and 2022 are as follows:

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

2023 2022 2023 2022

(Amounts in thousands)

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Other income (expense), net 5,733 (15,149) 11,135 (21,627)

Excluding the impact of the above-mentioned income and expenses related to the deferred compensation plan, the operating results for the three months ended March 31, 2023 and 2022 are as follows:

Three Months Ended March 31,

Excluding the impact of the above-mentioned income and expenses related to the deferred compensation plan, the operating results for the three and six months ended June 30, 2023 and 2022 are as follows:

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Operating income 38,722 5,733 44,455 11.2 % 61,290 (15,149) 46,141 12.7 %

Other (expense) income, net 5,421 (5,733) (312) (0.1) % (15,903) 15,149 (754) (0.2) %

Income before income tax expense 38,609 — 38,609 9.7 % 43,877 — 43,877 12.1 %

Six Months Ended June 30,

(Amounts in thousands, except percentages)

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

Gross margin $ 168,110 $ 9,862 $ 177,972 20.9 % $ 173,639 $ (19,005) $ 154,634 20.5 %

Operating income 136,719 11,135 147,854 17.3 % 146,404 (21,627) 124,777 16.6 %

Other income (expense), net 10,533 (11,135) (602) (0.1) % (22,310) 21,627 (683) (0.1) %

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Operating Expenses

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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National Practices 10,545 9,899 646 6.5 %

Corporate and Other 9,062 (1,734) 10,796 (622.6) %

Corporate and Other 11,623 (4,826) 16,449 N/M

Total Operating expenses $ 343,987 $ 289,736 $ 54,251 18.7 %

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compensation % of revenue 85.0 % 83.7 %

Total operating expenses for the three months ended March 31, 2023 increased by $50.7 million, or 17.5%, to $341.0 million as compared to $290.3 million in the same period of 2022.

The non-qualified deferred compensation plan increased operating expenses by $4.8 million for the three months ended March 31, 2023, and decreased operating expenses by $5.7 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $336.3 million and $296.0 million, or 74.0% and 75.6% of revenue, for the three months ended March 31, 2023 and 2022, respectively.

In addition, operating expenses for the three months ended March 31, 2023 included approximately $0.4 million non-recurring integration and retention costs associated with the Somerset acquisition, and operating expenses for the three months ended March 31, 2022 included $4.4 million non-recurring integration and retention costs associated with the Marks Paneth acquisition.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Operating expenses (income) by segment:

Financial Services $ 487,888 $ 419,443 $ 68,445 16.3 %

Benefits and Insurance Services 155,297 147,677 7,620 5.2 %

National Practices 21,128 19,475 1,653 8.5 %

Corporate and Other 20,685 (6,560) 27,245 N/M

Total Operating expenses $ 684,998 $ 580,035 $ 104,963 18.1 %

Operating expenses % of revenue 80.3 % 77.0 %

Operating expenses excluding deferred compensation $ 675,136 $ 599,040 $ 76,096 12.7 %

Operating expenses excluding deferred

compensation % of revenue 79.1 % 79.5 %

Three months ended June 30, 2023 compared to June 30, 2022.

Total operating expenses for the three months ended June 30, 2023 increased by $54.3 million, or 18.7%, to $344.0 million as compared to $289.7 million in the same period of 2022.

The non-qualified deferred compensation plan increased operating expenses by $5.1 million for the three months ended June 30, 2023, but decreased operating expenses by $13.3 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $338.9 million and $303.1 million, or 85.0% and 83.7% of revenue, for the three months ended June 30, 2023 and 2022, respectively.

In addition, operating expenses for the three months ended June 30, 2023 included approximately $0.6 million non-recurring integration costs associated with the Somerset acquisition, and operating expenses for the three months ended June 30, 2022 included $1.8 million non-recurring integration and retention costs associated with the Marks Paneth acquisition.

The majority of our operating expenses relate to personnel costs, which include (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 $40.3 million during the three months ended March 31, 2023 as compared to the same period in 2022, driven by $34.0 million higher personnel costs (of which $11.5 million was the result of acquisitions), $2.8 million higher travel and entertainment costs, $1.4 million higher technology related costs, $0.4 million higher depreciation and amortization expense, and $0.2 million higher facility costs, as well as $1.5 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 $35.8 million during the three months ended June 30, 2023 as compared to the same period in 2022, driven by $30.9 million higher personnel costs (of which $14.5 million was the result of acquisitions), $2.1 million higher travel and entertainment costs, $1.2 million higher facility costs, $1.0 million higher marketing costs, $1.0 million higher depreciation and amortization expense, $0.6 million higher technology related costs, offset by approximately $1.0 decrease in other discretionary spending.

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

Six months ended June 30, 2023 compared to June 30, 2022 .

Total operating expenses for the six months ended June 30, 2023 increased by $105.0 million, or 18.1%, to $685.0 million as compared to $580.0 million in the same period of 2022.

The non-qualified deferred compensation plan increased operating expenses by $9.9 million for the six months ended June 30, 2023, but decreased operating expenses by $19.0 million during the same period in 2022.

Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $675.1 million and $599.0 million, or 79.1% and 79.5% of revenue, for the six months ended June 30, 2023 and 2022, respectively, an increase of $76.1 million as compared to the same period in 2022.

In addition, operating expense for the six months ended June 30, 2023 included approximately $1.0 million non-recurring integration costs related to the Somerset acquisition, and operating expenses for the six months ended June 30, 2022 included $6.2 million non-recurring integration and retention costs associated with the Marks Paneth acquisition.

The increase in operating expense was driven by personnel costs increase of $64.9 million (of which $26.0 million was the result of acquisitions), $4.9 million higher travel and entertainment costs, $2.1 million higher technology related costs, $1.4 million higher facility costs, $1.4 million higher depreciation and amortization expense, and $1.1 million higher marketing costs, as well as $0.3 million increase in other discretionary spending to support business growth.

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

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

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 3.8 % 3.5 %

The deferred compensation plan increased G&A expenses by $0.6 million for the three months ended March 31, 2023, and decreased G&A expenses by $0.8 million during the same period in 2022.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $15.0 million, or 3.3% of revenue, for the three months ended March 31, 2023, compared to $17.1 million, or 4.4% of revenue, for the same period in 2022, a decrease of

approximately $2.2 million.

The decrease was primarily driven by $2.0 million lower legal and other professional fees as well as $0.2 million lower personnel costs.

In addition, G&A expense for the three months ended March 31, 2023 included approximately $1.2 million non-recurring transaction and integration costs associated with the Somerset acquisition.

G&A expense for the three months ended March 31, 2022 included $1.6 million non-recurring transaction and integration costs associated with the Marks Paneth acquisition.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

G&A expenses $ 31,391 $ 27,235 $ 4,156 15.3 %

G&A expenses % of revenue 3.7 % 3.6 %

G&A expenses excluding deferred compensation $ 30,118 $ 29,857 $ 261 0.9 %

G&A expenses excluding deferred compensation % of revenue 3.5 % 4.0 %

Three months ended June 30, 2023 compared to June 30, 2022.

The deferred compensation plan increased G&A expenses by $0.6 million for the three months ended June 30, 2023, but decreased G&A expenses by $1.8 million during the same period in 2022.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $15.2 million, or 3.8% of revenue, for the three months ended June 30, 2023, compared to $12.7 million, or 3.5% of revenue, for the same period in 2022, an increase of approximately $2.4 million.

The increase was primarily driven by $1.0 million higher personnel costs as well as a $1.5 million higher legal and other professional related costs.

In addition, G&A expense for the three months ended June 30, 2023 included approximately $0.3 million non-recurring transaction and integration costs associated with the Somerset acquisition.

G&A expense for the three months ended June 30, 2022 included $0.3 million non-recurring transaction and integration costs associated with the Marks Paneth acquisition.

Six months ended June 30, 2023 compared to June 30, 2022.

The deferred compensation plan increased G&A expense by $1.3 million for the six months ended June 30, 2023, but decreased G&A expenses by $2.6 million during the same period in 2022.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $30.1 million, or 3.5% of revenue, for the six months ended June 30, 2023, compared to $29.9 million, or 4.0% of revenue, for the same period in 2022.

The increase in G&A expenses was primarily due to approximately $0.8 million higher personnel costs, offset by $0.5 million lower net discretionary spending and other miscellaneous costs.

In addition, G&A expense for the six months ended June 30, 2023 included a $1.5 million non-recurring transaction and integration costs related to the Somerset acquisition.

G&A expense for the six months ended June 30, 2022 included a $1.9 million non-recurring transaction and integration costs related to the Marks Paneth acquisition.

Other Income (Expense), Net

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

Interest expense $ (3,641) $ (1,259) $ (2,382) N/M

Interest expense $ (5,534) $ (1,645) $ (3,889) 236.4 %

Gain on sale of operations, net — 135 (135) (100.0) %

Other income (expense), net (1)

5,112 (6,407) 11,519 N/M

Total other income (expense), net $ 1,570 $ (7,666) $ 9,236 N/M

(1) Other income (expense), net includes a net gain of $5.4 million during the three months ended March 31, 2023, compared to a net loss of $6.5 million for the same period in 2022, 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.

5,421 (15,903) 21,324 (134.1) %

Total other expense, net $ (113) $ (17,413) $ 17,300 (99.4) %

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Interest expense $ (9,175) $ (2,904) $ (6,271) 215.9 %

Gain on sale of operations, net 99 135 (36) (26.7) %

Other income (expense) income, net (2)

10,533 (22,310) 32,843 (147.2) %

Total other income (expense), net $ 1,457 $ (25,079) $ 26,536 (105.8) %

(1) Other income (expense), net includes a net gain of $5.7 million during the three months ended June 30, 2023, compared to a net loss of $15.1 million for the same period in 2022, 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 before income tax expense” or diluted earnings per share.

In addition, included in Other income (expense), net for the three months ended March 31, 2023 and 2022, is expense of $0.6 million and $0.6 million respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

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

During the three months ended March 31, 2023, our average debt balance and weighted average effective interest rate was $302.2 million and 4.54%, compared to $244.7 million and 1.79% for the same period of 2022.

The increase in interest expense for the three months ended March 31, 2023 as compared to the same period in 2022 was primarily driven by a higher average debt balance as well as a higher weighted average effective interest rate.

In addition, included in Other income (expense), net for the three months ended June 30, 2023 and 2022, is expense of $0.8 million and $0.8 million respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

(2) Other income (expense), net includes a net gain of $11.1 million during the six months ended June 30, 2023, compared to a net loss of $(21.6) million for the same period in 2022, associated with the value of investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes.

In addition, included in Other income (expense), net for the six months ended June 30, 2023 and 2022, is expense of $1.4 million and $1.5 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, 2023 compared with June 30, 2022.

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

During the three months ended June 30, 2023, our average debt balance and weighted average effective interest rate was $403.1 million and 5.24%, compared to $283.6 million and 2.04% for the same period of 2022.

The increase in interest expense for the three months ended June 30, 2023 as compared to the same period in 2022 was primarily driven by a higher average debt balance as well as a higher weighted average effective interest rate.

During the six months ended June 30, 2023, our average debt balance and interest rate was $352.9 million and 4.94% compared to $264.2 million and 1.93% for the same period of 2022.

The increase in interest expense for the six months ended June 30, 2023 as compared to the same period in 2022 was primarily driven by a higher average debt balance as well as a 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.

Other Income (Expense), Net - For the three months ended March 31, 2023, other income (expense), net includes a net gain of $5.4 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other income (expense), net includes a net loss of $6.5 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other income (expense), net decreased by $0.4 million in 2023 as compared to 2022 primarily due to a $0.4 million lower other miscellaneous income in 2023.

Other Income (Expense), Net

Three and six months ended June 30, 2023 compared with June 30, 2022.

For the three months ended June 30, 2023, other income (expense), net includes a net gain of $5.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other (expense) income, net includes a net loss of $15.1 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other income (expense), net increased by $0.4 million in 2023 as compared to 2022 primarily due to a $0.2 million higher miscellaneous income in 2023.

For the six months ended June 30, 2023, other income (expense), net includes a net gain of $11.1 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other (expense) income, net includes a net loss of $21.6 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, other (expense) income, net decreased by $0.1 million in 2023 as compared to 2022.

Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Effective tax rate 30.4 % 28.8 %

The effective tax rate for the three months ended March 31, 2023 was 26.5%, compared to an effective tax rate of 24.9% for the comparable period in 2022.

The increase in the effective tax rate was primarily due to a smaller proportional tax benefit as compared to pre-tax income related to stock-based compensation expense during the three months ended March 31, 2023 as compared to the same quarter in 2022.

The effective tax rate further increased due to the tax effect of higher non-deductible expenses and higher state tax expense during the first quarter of 2023 as compared to the same period in 2022.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Income tax expense $ 38,153 $ 31,943 $ 6,210 19.4 %

Effective tax rate 27.6 % 26.3 %

Three and six months ended June 30, 2023 compared with June 30, 2022.

The effective tax rate for the three months ended June 30, 2023 was 30.4%, compared to an effective tax rate of 28.8% for the comparable period in 2022.

The increase in the effective tax rate was primarily due to a smaller proportional tax benefit as compared to pre-tax income related to stock-based compensation expense during the three months ended June 30, 2023 as compared to the same quarter in 2022.

The effective tax rate further increased due to the tax effect of higher non-deductible expenses and higher state tax expense during the second quarter of 2023 as compared to the same period in 2022.

The effective tax rate for the six months ended June 30, 2023 was 27.6%, compared to an effective tax rate of 26.3% for the same period in 2022.

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 and higher state tax expense during the six months ended June 30, 2023 as compared to the same period in 2022 which also contributed to the increase in the effective tax rate.

Operating Practice Groups

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Financial Services

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Gross margin percent 16.3 % 19.2 %

The Financial Services practice group revenue for the three months ended March 31, 2023 grew by 18.8% to $343.1 million from $288.7 million during the same period in 2022.

Same-unit revenue grew by $30.4 million, or 10.5%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $24.5 million, and an increase of approximately $4.1 million in those units that provide project-oriented advisory services, as well as an increase of $1.8 million in government healthcare compliance business.

The impact of acquired businesses contributed $23.9 million, or 7.0% of 2023 revenue, of which Somerset and Stinnett contributed a total of $23.6 million, or 6.8% of the Financial Services practice group's 2023 revenue.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit $ 588,519 $ 548,054 $ 40,465 7.4 %

Acquired businesses 45,497 — 45,497

Total revenue $ 634,016 $ 548,054 $ 85,962 15.7 %

Operating expenses 487,888 419,443 68,445 16.3 %

Gross margin / Operating income $ 146,128 $ 128,611 $ 17,517 13.6 %

Total other income, net 589 306 283 92.5 %

Income before income tax expenses 146,717 128,917 17,800 13.8 %

Gross margin percent 23.0 % 23.5 %

Three months ended June 30, 2023 compared to June 30, 2022

The Financial Services practice group revenue for the three months ended June 30, 2023 grew by 12.2% to $290.9 million from $259.3 million during the same period in 2022.

Same-unit revenue grew by $10.0 million, or 3.9%, primarily driven by those units that provide traditional accounting and tax-related services, which increased $8.5 million and an increase of approximately $3.8 million in those units that provide project-oriented advisory services.

The increase was offset by a decrease of approximately $2.3 million in government healthcare compliance business due to project delays.

The impact of acquired businesses contributed $21.6 million, or 7.4% of 2023 revenue, of which Somerset and Stinnett & Associates, LLC ("Stinnett"), which was acquired on July 1, 2022, contributed a total of $20.7 million, or 7.2% of the Financial Services practice group's revenue for the three months ended June 30, 2023.

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 $84.8 million and $76.1 million for the three months ended March 31, 2023 and 2022, respectively.

Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $65.9 million and $61.0 million for the three months ended June 30, 2023 and 2022, respectively.

Operating Expenses

Operating expenses increased by $33.8 million, or 16.1%, as compared to the same period last year.

Personnel costs increased by $28.2 million, or 13.4%, with acquisitions contributing approximately $11.5 million to the increase.

Compared to the same period in 2022, travel and entertainment costs, corporate allocated costs, technology costs, depreciation and amortization costs, direct costs, marketing costs, and bad debt increased by approximately $1.9 million, $1.6 million, $0.8 million, $0.5 million, $0.4 million, $0.2 million, and $0.1 million respectively.

In addition, other discretionary costs increased by approximately $2.4 million to support the business growth.

Operating expenses as a percentage of revenue decreased to 71.2% for the three months ended March 31, 2023 from 72.7% of revenue for the prior year quarter.

Personnel costs increased by $28.4 million, of which acquisitions contributed approximately $14.5 million to the increase.

Compared to the same period in 2022, corporate allocated costs, travel and entertainment costs, depreciation and amortization costs, technology costs, facility costs, direct costs, and marketing costs increased by approximately $1.7 million, $1.3 million, $1.0 million, $0.7 million, $0.7 million, $0.5 million, and $0.3 million respectively.

Other discretionary costs, net decreased by approximately $0.8 million, primarily driven by lower professional fees and

recruiting costs.

Operating expenses as a percentage of revenue increased to 83.7% for the three months ended June 30, 2023 from 80.8% of revenue for the prior year quarter.

Six months ended June 30, 2023 compared to June 30, 2022

Revenue for the six months ended June 30, 2023 grew by 15.7% to $634.0 million from $548.1 million during the same period in 2022.

Same-unit revenue grew by $40.5 million, or 7.4%, across almost all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $33.3 million and an increase of approximately $7.6 million in those units that provide project-oriented advisory services.

The increase was offset by approximately $0.5 million decrease in government healthcare compliance business due to project delays.

The impact of acquired businesses contributed $45.5 million, or 7.2% of 2022 revenue, of which Somerset and Stinnett contributed a total of $44.3 million, or 7.0% of Financial Services practice group's revenue for the six months ended June 30, 2023.

Fees earned under the ASAs, as described above, were approximately $150.7 million and $137.0 million for the six months ended June 30, 2023 and 2022, respectively.

Operating Expenses

Operating expenses increased by $68.4 million, or 16.3%, as compared to the same period last year.

Personnel costs increased by $56.6 million, of which acquisitions contributed approximately $26.0 million to the increase.

Compared to the same period in 2022, corporate allocated costs, travel and entertainment costs, technology costs, depreciation and amortization costs, direct costs, facility costs, and marketing costs increased by approximately $3.3 million, $3.2 million, $1.5 million, $1.5 million, $0.9 million, $0.8 million, and $0.5 million respectively.

Other discretionary costs, net increased by approximately $0.1 million.

Operating expense as a percentage of revenue increased to 77.0% during the six months ended June 30, 2023 from 76.5% of revenue during the same period in 2022.

Benefits and Insurance Services

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit $ 95,838 $ 91,708 $ 4,130 4.5 %

Divested operations — 292 (292) N/M

Total revenue $ 95,838 $ 91,708 $ 4,130 4.5 %

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Gross margin percent 18.2 % 18.2 %

The Benefits and Insurance Services practice group revenue increased by $7.6 million, or 8.2%, to $100.1 million during the three months ended March 31, 2023 compared to $92.5 million for the same period in 2022.

The increase was across all service lines, primarily driven by $3.9 million increase in employee benefit and retirement benefit services lines, $2.2 million increase in the property and casualty services, and $1.6 million in payroll related services, offset by $0.1 million decrease in other project based services.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit $ 195,892 $ 184,194 $ 11,698 6.4 %

Total revenue $ 195,892 $ 184,194 $ 11,698 6.4 %

Operating expenses 155,297 147,677 7,620 5.2 %

Gross margin/ Operating income $ 40,595 $ 36,517 $ 4,078 11.2 %

Total other income (expense), net 329 (37) 366 (989.2) %

Income before income tax expenses 40,924 36,480 4,444 12.2 %

Gross margin percent 20.7 % 19.8 %

Three months ended June 30, 2023 compared to June 30, 2022

The Benefits and Insurance Services practice group revenue increased by $4.1 million, or 4.5%, to $95.8 million during the three months ended June 30, 2023 compared to $91.7 million for the same period in 2022.

The increase was across almost all of the major service lines, primarily driven by $2.2 million increase in employee benefit and retirement benefit services lines, $1.2 million in payroll related services, and $0.3 million in property and casualty services.

In addition, revenue from other project based services increased by approximately $0.4 million.

Operating Expenses

Operating expenses increased by $3.4 million, or 4.5%, when compared to the same period last year.

Personnel costs increased by $3.5 million, or 4.9%, primarily due to timing of annual merit increases as well as investment in producers.

Compared to the same period in 2022, travel and entertainment cost, corporate allocated costs, technology costs, marketing and recruiting costs, as well as direct costs increased by approximately $0.5 million, $0.5 million, $0.3 million, $0.1 million, and $0.1 million, respectively.

The increase in operating expenses was offset by $0.3 million lower facility costs, $0.3 million lower depreciation and amortization costs, as well as $0.2 million lower bad debt expense as compared to the same period in 2022.

Operating expenses as a percentage of revenue slightly improved to 76.9% for the quarter ended March 31, 2023 from 78.6% of revenue for the same period in 2022.

Personnel costs increased by $3.1 million primarily due to timing of annual merit increases as well as investment in producers.

Compared to the same period in 2022, corporate allocated costs, travel and entertainment cost, direct costs, as well as marketing costs increased by approximately $0.6 million, $0.4 million, $0.2 million, and $0.1 million, respectively.

The increase in operating expenses was offset by $0.4 million lower bad debt expense, $0.3 million lower depreciation and amortization costs as well as $0.1 million lower facility costs as compared to the same period in 2022.

Operating expenses as a percentage of revenue remained unchanged at 81.8% for the quarter ended June 30, 2023 from 81.8% of revenue for the same period in 2022.

Six months ended June 30, 2023 compared to June 30, 2022

The Benefits and Insurance Services practice group revenue increased by $11.7 million, or 6.4%, to $195.9 million during the six months ended June 30, 2023 compared to $184.2 million for the same period in 2022.

The increase was across almost all of the major service lines, primarily driven by $6.1 million increase in employee benefit and retirement benefit services lines, $2.8 million increase in payroll related services, and $2.5 million increase in the property and casualty services.

In addition, revenue from other project based services increased by approximately $0.3 million.

Operating Expenses

Operating expenses increased by $7.6 million, or 5.2%, when compared to the same period last year.

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

Compared to the same period in 2022, corporate allocated costs, travel and entertainment cost, technology costs, direct costs, as well as marketing costs increased by approximately $1.1 million, $0.9 million, $0.2 million, $0.2 million, and $0.2 million, respectively.

The increase in operating expenses was offset by $0.6 million lower depreciation and amortization costs, $0.6 million lower bad debt expense as well as $0.5 million lower facility costs as compared to the same period in 2022.

Operating expense as a percentage of revenue slightly improved to 79.3% during the six months ended June 30, 2023 from 80.2% of revenue for the same period in 2022.

National Practices

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Operating expenses 10,545 9,899 646 6.5 %

Gross margin / Operating income $ 1,189 $ 1,037 $ 152 14.7 %

Total other income, net 1 1 — N/M

Income before income tax expense 1,190 1,038 152 14.6 %

Gross margin percent 10.1 % 9.5 %

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Same-unit revenue $ 23,200 $ 21,426 $ 1,774 8.3 %

Operating expenses 21,128 19,475 1,653 8.5 %

Gross margin / Operating income $ 2,072 $ 1,951 $ 121 6.2 %

Total other income, net 1 1 — N/M

Income before income tax expenses 2,073 1,952 121 6.2 %

Gross margin percent 8.9 % 9.1 %

Three and six months ended June 30, 2023 compared with June 30, 2022

Revenue and Operating Expenses

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The cost-plus contract is a five-year contract with the most recent renewal through December 31, 2023.

The Company is in the process of renewing the contract.

Revenues from this single client accounted for approximately 75% of the National Practice group’s revenue.

During the three months ended March 31, 2023, revenue increased by $1.0 million, or 9.3%, and operating expenses increased by $1.0 million, or 10.5%, as compared to the same period last year.

During the three and six months ended June 30, 2023, revenue increased by $0.8 million, or 7.3%, and $1.8 million, or 8.3%, respectively, while operating expenses increased by $0.6 million, or 6.5%, and $1.7 million, or 8.5%, respectively.

Corporate and Other

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

Three Months Ended March 31,

Three Months Ended June 30,

(Amounts in thousands, except percentages)

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Corporate general and administrative expenses 15,793 10,926 4,867 44.5 %

Operating loss (24,660) (14,575) (10,085) 69.2 %

Total other income (expense), net 1,040 (7,728) 8,768 N/M

Operating loss (27,416) (6,100) (21,316) N/M

Total other expense, net (502) (17,621) 17,119 (97.2) %

Loss before income tax expense (27,918) (23,721) (4,197) 17.7 %

Total operating expenses increased by $10.8 million during the three months ended March 31, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased operating expenses by $4.8 million for the three months ended March 31, 2023 and decreased operating expenses by $5.7 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, operating expenses for each of the three months ended March 31, 2023 and 2022 would have remained flat at $4.3 million.

Total corporate general and administrative expenses decreased by $0.7 million, or 4.4%, during the three months ended March 31, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased corporate general and administrative expenses by $0.6 million for the three months ended March 31, 2023, but decreased by $0.8 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense decreased by approximately $2.2 million, primarily driven by $2.0 million lower legal and other professional fees as well as $0.2 million lower personnel costs.

Other Income (Expense), Net

Total other income (expense), net increased by $8.8 million during the three months ended March 31, 2023, as compared to the same period in 2022.

For the three months ended March 31, 2023, total other income, net includes a net gain of $5.4 million associated with the non-qualified deferred compensation plan.

Six Months Ended June 30,

(Amounts in thousands, except percentages)

Operating expenses (income) $ 20,685 $ (6,560) 27,245 N/M

Corporate general and administrative expenses 31,391 27,235 4,156 15.3 %

Operating loss (52,076) (20,675) (31,401) 151.9 %

Total other income (expense), net 538 (25,349) 25,887 (102.1) %

Loss before income tax expenses (51,538) (46,024) (5,514) 12.0 %

Three months ended June 30, 2023 compared to June 30, 2022

Total operating expenses increased by $16.4 million during the three months ended June 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased operating expenses by $5.1 million for the three months ended June 30, 2023 and decreased operating expenses by $13.3 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, operating expenses decreased by $1.7 million during the three months ended June 30, 2023 as compared to the same period in 2022.

The decrease was primarily driven by lower personnel costs.

Total corporate general and administrative expenses decreased by $4.9 million, or 44.5%, during the three months ended June 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased corporate general and administrative expenses by $0.6 million for the three months ended June 30, 2023, but decreased by $1.8 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense decreased by approximately $2.4 million, primarily driven by $1.0 million higher personnel costs as well as a $1.5 million higher legal and other professional related costs.

Total other income (expense), net increased by $17.1 million during the three months ended June 30, 2023, as compared to the same period in 2022.

For the three months ended June 30, 2023, total other income, net includes a net gain of $5.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other expense, net includes a net loss of $15.1 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been $4.4 million in 2023 and $1.3 million in 2022, a change of $3.1 million primarily attributed to $2.4 million higher interest expense and $0.7 million lower other miscellaneous income in 2023 as compared to 2022.

Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been $6.2 million in 2023 and $2.5 million in 2022, a change of $3.7 million primarily attributed to $3.9 million higher interest expense in 2023 as compared to 2022, offset by $0.2 million higher income from sale of miscellaneous assets.

Six months ended June 30, 2023 compared to June 30, 2022

Total operating expenses increased by $27.2 million, or 118.7%, during the six months ended June 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased operating expenses by $9.9 million for the six months ended June 30, 2023, and decreased operating expense by $19.0 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, operating expense decreased by approximately $1.6 million, primarily driven by lower personnel costs.

Total G&A expenses increased by $4.2 million, or 15.3%, during the six months ended June 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan decreased G&A expenses by $1.3 million for the six months ended June 30, 2023, and increased G&A expense by $2.6 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, G&A expense increased slightly by approximately $0.3 million, primarily due to approximately $0.8 million higher personnel costs, offset by $0.5 million lower net discretionary spending and other miscellaneous costs

Total other (expense) income, net increased by $25.9 million during the six months ended June 30, 2023, as compared to the same period in 2022.

Total other income (expense), net for the six months ended June 30, 2023 includes a net gain of $11.1 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, total other expense, net includes a net loss of $21.6 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 $6.9 million, primarily due to $6.3 million higher interest expense due to higher average outstanding balance and interest rates during 2023 as compared to 2022 as well as $0.7 million increase 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 three months' revenue generated by the Financial Services practice group.

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

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

sales outstanding (“DSO”) represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve months daily revenue.

Days sales outstanding (“DSO”) represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve months' daily revenue.

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

DSO was 94 days at both March 31, 2023 and 2022.

DSO was 89 days and 88 days at June 30, 2023 and 2022.

DSO at December 31, 2022 was 74 days.

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

Three Months Ended March 31,

Six Months Ended June 30,

(Amounts in thousands)

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

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

Net cash used in investing activities (65,617) (89,756)

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Net (decrease) increase in cash, cash equivalents and restricted cash $ (14,095) $ 30,407

Operating Activities - Cash used in operating activities was $44.5 million during the three months ended March 31, 2023 and primarily consisted of working capital use of $133.9 million, which was offset by net income of $73.2 million and certain non-cash items, such as depreciation and amortization expense of $8.6 million, deferred income tax of $2.6 million, and stock-based compensation expense of $3.8 million.

Cash used in operating activities was $50.9 million during the three months ended March 31, 2022 and primarily consisted of working capital use of $125.1 million, which was offset by net income of $58.1 million and certain non-cash items, such as depreciation and amortization expense of $8.2 million, deferred income tax of $2.9 million, and stock-based compensation expense of $3.7 million.

Investing Activities - Cash used in investing activities during the three months ended March 31, 2023 was $45.9 million and consisted primarily of $39.1 million used for business acquisitions, $3.6 million in capital expenditures, and $3.9 million in other investing activities primarily related to working capital payments and notes receivable.

Operating Activities - Cash provided by operating activities was $29.7 million during the six months ended June 30, 2023, primarily consisted of net income of $100.0 million and certain non-cash items, such as depreciation and amortization expense of $17.8 million, deferred income tax of $4.6 million, and stock-based compensation expense of $6.6 million The cash flow was offset by working capital use of $101.6 million.

Cash provided by

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

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

Investing Activities - Cash used in investing activities during the six months ended June 30, 2023 was $65.6 million and consisted primarily of $48.6 million used for business acquisitions, $11.7 million in capital expenditures, and $9.0 million in other investing activities primarily related to working capital payments and notes receivable.

The use of cash was offset by $3.7 million net cash inflow related to funds held for clients and other activities.

Cash used in investing activities during the three months ended March 31, 2022 was $81.5 million and consisted primarily of $72.5 million used for business acquisition, $0.8 million in capital expenditures, $6.0 million net activity related to funds held for clients, and $2.3 million in other activities related to working capital payments and notes receivable.

Cash 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.

The balances in funds held for clients and client fund obligations can fluctuate with the timing of cash receipts and the related cash payments.

The nature of these accounts is further described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Financing Activities - Cash provided by financing activities during the three months ended March 31, 2023 was $61.8 million and primarily consisted of $138.0 million in net proceeds from the credit facility and $3.6 million proceeds from exercise of stock options, partially offset by $28.0 million in share repurchases, $23.3 million net decrease in client fund obligations and $28.6 million in contingent consideration payments related to prior acquisitions.

Cash provided by financing activities during the three months ended March 31, 2022 was $170.4 million and primarily consisted of $143.6 million in net proceeds from the credit facility, $42.5 million net increase in client fund obligations and $3.2 million proceeds from exercise of stock options, partially offset by $11.6 million in share repurchases and $7.3 million in contingent consideration payments related to prior acquisitions.

Financing Activities - Cash provided by financing activities during the six months ended June 30, 2023 was $21.8 million and primarily consisted of $144.9 million in net proceeds from the credit facility and $4.3 million proceeds from exercise of stock options, partially offset by $57.0 million in share repurchases, $40.4 million net decrease in client fund obligations and $30.0 million in contingent consideration payments related to prior acquisitions.

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.

CAPITAL RESOURCES

Credit Facility - At March 31, 2023, we had $403.7 million outstanding under the 2022 credit facility as well as $5.0 million outstanding letters of credit.

Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $190.0 million at March 31, 2023.

The weighted average interest rate under the credit facility was 4.54% during the three months ended March 31, 2023, compared to 1.79% for the same period in 2022.

Credit Facility - At June 30, 2023, we had $410.6 million outstanding under the 2022 credit facility as well as $4.4 million outstanding letters of credit.

Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $177.5 million at June 30, 2023.

The weighted average interest rate under the credit facility was 4.94% during the six months ended June 30, 2023, compared to 1.93% for the same period in 2022.

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) minimum interest charge coverage ratio.

We are in compliance with our financial covenants as of March 31, 2023.

We are in compliance with our financial covenants as of June 30, 2023.

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 three months ended March 31, 2023, we completed two acquisitions for $39.0 million in cash.

We also repurchased 0.6 million shares of our common stock at a total cost of approximately $29.0 million during the three months ended March 31, 2023.

During the six months ended June 30, 2023, we completed four acquisitions for $48.5 million in cash.

We also repurchased 1.1 million shares of our common stock at a total cost of approximately $56.8 million during the six months ended June 30, 2023.

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 $5.0 million at each of March 31, 2023 and December 31, 2022.

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.

We have various agreements under which we may be obligated to indemnify the other party with respect to certain matters.

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

As of March 31, 2023, we are not aware of any material obligations arising under indemnification agreements that would require payment.

As of June 30, 2023, 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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generally accepted accounting principles.

The preparation of these financial statements requires us to make

estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements.

The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements.

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

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Forward-looking statements are commonly identified by the use of such terms and phrases as "intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance.

In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results.

particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results.

From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public.

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Consequently, no forward-looking statement can be guaranteed.

A more detailed description of risk factors may be found in “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

A more detailed description of risk factors may be found in “Item 1A, Risk Factors” of this Quarterly Report and in “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Except as required by the federal securities laws, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

1 unchanged sentence

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