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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 144 added, 284 removed, 170 unchanged (72% 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 September 30, 2023 and December 31, 2022, results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 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.

The following discussion is intended to assist in the understanding of our financial position at March 31, 2024 and December 31, 2023, results of operations for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023, 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, 2023.

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

Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2023.

We provide professional business services, products and solutions that help our clients grow and succeed by better managing their finances and employees.

These services are provided to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and parts of Canada.

These services are primarily provided to small and medium-sized businesses, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and parts of Canada.

We deliver integrated services through three practice groups:

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EXECUTIVE SUMMARY

Revenue for the three months ended September 30, 2023 increased by $47.3 million, or 13.0%, to $410.5 million from $363.3 million for the same period in 2022.

Same-unit revenue increased by approximately $30.2 million, or 8.3%, as compared to the same period in 2022.

Revenue from newly acquired operations, net of divestitures, contributed $17.1 million, or 4.7%, of incremental revenue for the three months ended September 30, 2023 as compared to the same period in 2022.

Revenue for the nine months ended September 30, 2023 increased by $146.7 million, or 13.1%, to $1,263.6 million from $1,116.9 million for the same period in 2022.

Revenue for the three months ended March 31, 2024 increased by $39.7 million, or 8.7%, to $494.3 million from $454.6 million for the same period in 2023.

Same-unit revenue increased by approximately $26.9 million, or 5.9%, as compared to the same period in 2023.

Revenue from newly acquired operations, net of divestitures, contributed $62.6 million, or 5.6%, of incremental revenue for the nine months ended September 30, 2023 as compared to the same period in 2022.

Revenue from newly acquired operations, net of divestitures, contributed $12.8 million, or 2.8%, of incremental revenue for the three months ended March 31, 2024 as compared to the same period in 2023.

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

Net income was $33.7 million, or $0.67 per diluted share, in the third quarter of 2023, compared to $27.5 million, or $0.53 per diluted share, in the third quarter of 2022.

For the nine months ended September 30, 2023, net income was $133.7 million, or $2.64 per diluted share, compared to $116.9 million, or $2.22 per diluted share, for the same period in 2022.

Net income was $76.9 million, or $1.53 per diluted share, in the first quarter of 2024, compared to $73.2 million, or $1.44 per diluted share, in the first quarter of 2023.

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 nine months ended September 30, 2023, we completed five acquisitions for $53.0 million in cash.

We also repurchased 1.3 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $66.4 million in the nine months ended September 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.

During the three months ended March 31, 2024, we completed two acquisitions for $21.3 million in cash.

We also repurchased 0.2 million shares of our common stock for tax withholding purposes at a total cost of approximately $11.2 million in the three months ended March 31, 2024.

During the first quarter of 2024, 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 March 31, 2025.

The shares may be purchased in the open market, in privately negotiated transactions, and pursuant to Rule 10b5-1 trading plans.

Privately negotiated transactions 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 and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Total 2022 % of

(Amounts in thousands, except percentages)

Financial Services $ 298,372 72.7 % $ 259,998 71.6 % $ 38,374 14.8 %

Benefits and Insurance Services 100,287 24.4 % 92,067 25.3 % 8,220 8.9 %

National Practices 11,880 2.9 % 11,197 3.1 % 683 6.1 %

Total CBIZ $ 410,539 100.0 % $ 363,262 100.0 % $ 47,277 13.0 %

Nine Months Ended September 30,

The following tables summarize total revenue for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Total 2023 % of

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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 and nine months ended September 30, 2023 and 2022 are as follows:

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

2023 2022 2023 2022

Income and expenses related to the deferred compensation plan for the three months ended March 31, 2024 and 2023 are as follows:

Three Months Ended March 31,

(Amounts in thousands)

Operating (income) expenses $ (3,009) $ (3,995) $ 6,853 $ (23,000)

Corporate general and administrative (income) expenses (452) (697) 821 (3,319)

Other (expense) income, net (3,461) (4,692) 7,674 (26,319)

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

Three Months Ended September 30,

(Amounts in thousands, except percentages)

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

Gross margin $ 68,391 $ (3,009) $ 65,382 15.9 % $ 57,245 $ (3,995) $ 53,250 14.7 %

Operating income 55,255 (3,461) 51,794 12.6 % 41,352 (4,692) 36,660 10.1 %

Other (expense) income, net (2,288) 3,461 1,173 0.3 % (2,622) 4,692 2,070 0.6 %

Income before income tax expense 47,196 — 47,196 11.5 % 36,601 — 36,601 10.1 %

Nine Months Ended September 30,

Operating expenses $ 8,576 $ 4,760

Corporate general and administrative expenses 1,057 642

Other income, net 9,633 5,402

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, 2024 and 2023 are as follows:

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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Operating Expenses

Three Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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compensation % of revenue 74.4 % 74.0 %

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Operating expenses (income) by segment:

Financial Services $ 737,568 $ 639,780 $ 97,788 15.3 %

Benefits and Insurance Services 234,933 220,998 13,935 6.3 %

National Practices 31,795 29,218 2,577 8.8 %

Corporate and Other 22,850 (3,944) 26,794 N/M

Total Operating expenses $ 1,027,146 $ 886,052 $ 141,094 15.9 %

Operating expenses % of revenue 81.3 % 79.3 %

Operating expenses excluding deferred compensation $ 1,020,293 $ 909,052 $ 111,241 12.2 %

Operating expenses excluding deferred

compensation % of revenue 80.7 % 81.4 %

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

Total operating expenses for the three months ended September 30, 2023 increased by $36.1 million, or 11.8%, to $342.1 million as compared to $306.0 million in the same period of 2022.

The non-qualified deferred compensation plan decreased operating expenses by $3.0 million for the three months ended September 30, 2023, and by $4.0 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 $345.2 million and $310.0 million, or 84.1% and 85.3% of revenue, for the three months ended September 30, 2023 and 2022, respectively.

In addition, operating expenses for the three months ended September 30, 2023 included approximately $0.6 million non-recurring integration costs associated with the Somerset acquisition, and operating expenses for the three months ended September 30, 2022 included $1.3 million non-recurring integration and retention costs associated with the Marks Paneth acquisition.

Three months ended March 31, 2024 compared to March 31, 2023.

Total operating expenses for the three months ended March 31, 2024 increased by $35.5 million, or 10.4%, to $376.5 million as compared to $341.0 million in the same period of 2023.

The non-qualified deferred compensation plan increased operating expenses by $8.6 million for the three months ended March 31, 2024, and by $4.8 million during the same period in 2023.

Excluding the non-qualified deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $367.9 million and $336.3 million, or 74.4% and 74.0% of revenue, for the three months ended March 31, 2024 and 2023, respectively.

In addition, operating expenses for the three months ended March 31, 2024 included approximately $0.1 million non-recurring integration costs associated with the two acquisitions completed in 2024, and operating expenses for the three months ended March 31, 2023 included $0.4 million non-recurring integration costs associated with the Somerset CPAs and Advisors ("Somerset") 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 $35.1 million during the three months ended September 30, 2023 as compared to the same period in 2022, driven by $28.0 million higher personnel costs (of which $12.2 million was the result of acquisitions), $2.2 million higher travel and entertainment costs, $1.8 million higher technology related costs, $1.4 million higher facility costs, $0.9 million higher depreciation and amortization expense, and $0.7 million higher marketing expense, as well as $0.1 million higher discretionary spending to support business growth.

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

Nine months ended September 30, 2023 compared to September 30, 2022 .

Total operating expenses for the nine months ended September 30, 2023 increased by $141.1 million, or 15.9%, to $1,027.1 million as compared to $886.1 million in the same period of 2022.

The non-qualified deferred compensation plan increased operating expenses by $6.9 million for the nine months ended September 30, 2023, but decreased operating expenses by $23.0 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 $1,020.3 million and $909.1 million, or 80.7% and 81.4% of revenue, for the nine months ended September 30, 2023 and 2022, respectively, an increase of $111.2 million as compared to the same period in 2022.

In addition, operating expense for the nine months ended September 30, 2023 included approximately $1.5 million non-recurring integration costs related to the Somerset acquisition, and operating expenses for the nine months ended September 30, 2022 included $8.0 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 $92.8 million (of which $38.3 million was the result of acquisitions), $7.2 million higher travel and entertainment costs, $3.8 million higher technology related costs, $2.8 million higher facility costs, $2.4 million higher depreciation and amortization expense, and $1.8 million higher marketing costs, as well as $0.4 million increase in 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 $31.7 million during the three months ended March 31, 2024 as compared to the same period in 2023, driven by $23.0 million higher personnel costs (of which $7.5 million was the result of acquisitions), $2.0 million higher facility costs, $1.8 million higher professional services costs, $1.6 million higher technology related costs, $1.4 million higher direct costs, $1.3 million higher travel and entertainment costs, and $0.7 million higher depreciation and amortization expense, as well as $0.6 million higher 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 September 30,

(Amounts in thousands, except percentages)

G&A expenses $ 13,136 $ 15,893 $ (2,757) (17.3) %

G&A expenses % of revenue 3.2 % 4.4 %

G&A expenses excluding deferred compensation $ 13,588 $ 16,590 $ (3,002) (18.1) %

G&A expenses excluding deferred compensation % of revenue 3.3 % 4.6 %

Nine Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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G&A expenses excluding deferred compensation % of revenue 3.6 % 3.3 %

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

The deferred compensation plan decreased G&A expenses by $0.5 million for the three months ended September 30, 2023, and decreased G&A expenses by $0.7 million during the same period in 2022.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $13.6 million, or 3.3% of revenue, for the three months ended September 30, 2023, compared to $16.6 million, or 4.6% of revenue, for the same period in 2022, a decrease of approximately $3.0 million.

The decrease was primarily driven by $4.0 million lower personnel costs offset by $0.8 million higher legal and other professional related costs as well as $0.2 million other discretionary costs.

G&A expense for the three months ended September 30, 2022 included approximately $3.9 million cumulative adjustments to a certain performance-based compensation program, which did not recur in 2023.

Nine months ended September 30, 2023 compared to September 30, 2022.

The deferred compensation plan increased G&A expense by $0.8 million for the nine months ended September 30, 2023, but decreased G&A expenses by $3.3 million during the same period in 2022.

G&A expenses, excluding the impact of the deferred compensation plan, would have been $43.7 million, or 3.5% of revenue, for the nine months ended September 30, 2023, compared to $46.4 million, or 4.2% of revenue, for the same period in 2022, a decrease of approximately $2.7 million.

The decrease was primarily driven by $3.2 million lower personnel costs offset by $0.5 million higher legal and other professional related costs.

G&A expense for the nine months ended September 30, 2022 included approximately $3.9 million cumulative adjustments to a certain performance-based compensation program, which did not recur in 2023.

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

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

Three months ended March 31, 2024 compared to March 31, 2023.

The deferred compensation plan increased G&A expenses by $1.1 million for the three months ended March 31, 2024, and increased G&A expenses by $0.6 million during the same period in 2023.

G&A expenses, excluding the impact of the deferred compensation

plan, would have been $17.7 million, or 3.6% of revenue, for the three months ended March 31, 2024, compared to $15.0 million, or 3.3% of revenue, for the same period in 2023, an increase of approximately $2.7 million.

The increase was primarily driven by $2.2 million higher legal and other professional services costs, $0.2 million higher personnel costs, and $0.1 million higher depreciation costs, as well as $0.2 million higher other discretionary spending to support business growth.

G&A expense for the three months ended March 31, 2024 included approximately $0.5 million non-recurring transaction and integration costs associated with the two acquisitions completed in 2024, and 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.

Other Income (Expense), Net

Three Months Ended September 30,

(Amounts in thousands, except percentages)

Interest expense $ (5,848) $ (2,305) $ (3,543) 153.7 %

Gain on sale of operations, net 77 176 (99) (56.3) %

Other expense, net (1)

(2,288) (2,622) 334 (12.7) %

Total other expense, net $ (8,059) $ (4,751) $ (3,308) 69.6 %

Nine Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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Gain on sale of operations, net — 99 (99) (100.0) %

Other income (expense), net (2)

Other income, net (1)

9,424 5,112 4,312 84.4 %

Total other expense, net $ (6,602) $ (29,830) $ 23,228 (77.9) %

(1) Other expense, net includes a net loss of $3.5 million during the three months ended September 30, 2023, and a net loss of $4.7 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 expense, net for the three months ended September 30, 2023 and 2022, is expense of $0.6 million and $0.4 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 $7.7 million during the nine months ended September 30, 2023, compared to a net loss of $26.3 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.

Total other income, net $ 4,913 $ 1,570 $ 3,343 N/M

(1) Other income, net includes a net gain of $9.6 million during the three months ended March 31, 2024, and a net gain of $5.4 million for the same period in 2023, 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 nine months ended September 30, 2023 and 2022, is expense of $2.1 million and $1.9 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

In addition, included in Other income, net for the three months ended March 31, 2024 and 2023, is expense of $0.4 million and $0.6 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.

Interest Expense

Three and nine months ended September 30, 2023 compared with September 30, 2022.

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

During the three months ended September 30, 2023, our average debt balance and weighted average effective interest rate was $398.3 million and 5.53%, compared to $273.2 million and 2.97% for the same period of 2022.

The increase in interest expense for the three months ended September 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 nine months ended September 30, 2023, our average debt balance and interest rate was $368.2 million and 5.16% compared to $267.2 million and 2.29% for the same period of 2022.

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

Three months ended March 31, 2024 compared with March 31, 2023.

During the three months ended March 31, 2024, our average debt balance and weighted average effective interest rate was $325.6 million and 5.23%, compared to $302.2 million and 4.54% for the same period of 2023.

The increase in interest expense for the three months ended March 31, 2024 as compared to the same period in 2023 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

Three and nine months ended September 30, 2023 compared with September 30, 2022.

For the three months ended September 30, 2023, other expense, net includes a net loss of $3.5 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other expense, net includes a net loss of $4.7 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, the three months ended September 30, 2023 and 2022 would have resulted in a net income position of $1.2 million and $2.1 million, respectively, primarily due to gains of $1.4 million and $2.4 million related to the sale of certain assets during the three months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023, other income (expense), net includes a net gain of $7.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other (expense) income, net includes a net loss of $26.3 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, the nine months ended September 30, 2023 and 2022 would have resulted in a net income position of $0.6 million and $1.4 million, respectively, primarily due to gains of $1.5 million and $2.4 million related to the sale of certain assets during the nine months ended September 30, 2023 and 2022, respectively.

Our gain from sale of assets is further discussed in Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements.

Income Tax Expense

Three Months Ended September 30,

(Amounts in thousands, except percentages)

Other Income, Net

Three months ended March 31, 2024 compared with March 31, 2023.

For the three months ended March 31, 2024, other income, net includes a net gain of $9.6 million associated with the non-qualified deferred compensation plan.

For the same period in 2023, other income, net includes a net gain of $5.4 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the deferred compensation plan, the three months ended March 31, 2024 and 2023 would have resulted in a net expense of $0.2 million and $0.3 million, respectively, primarily due to lower expenses associated with the net change in the fair value of contingent consideration related to prior acquisitions.

Income Tax Expense

Effective tax rate 28.6 % 24.9 %

Nine Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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Effective tax rate 26.1 % 26.5 %

Three and nine months ended September 30, 2023 compared with September 30, 2022.

The effective tax rate for the three months ended September 30, 2023 was 28.6%, 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 September 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 third quarter of 2023 as compared to the same period in 2022.

The effective tax rate for the nine months ended September 30, 2023 was 27.9%, compared to an effective tax rate of 26.0% 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 nine months ended September 30, 2023 as compared to the same period in 2022 which also contributed to the increase in the effective tax rate.

Three months ended March 31, 2024 compared with March 31, 2023.

The effective tax rate for the three months ended March 31, 2024 was 26.1%, compared to an effective tax rate of 26.5% for the comparable period in 2023.

The decrease in the effective tax rate was primarily due to the tax effect of lower non-deductible expenses and lower state tax expenses relative to pre-tax income during the first quarter of 2024 as compared to the same period in 2023.

Operating Practice Groups

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Financial Services

Three Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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Gross margin percent 28.7 % 28.8 %

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Same-unit $ 870,442 $ 808,052 $ 62,390 7.7 %

Acquired businesses 61,946 — 61,946 N/M

Total revenue $ 932,388 $ 808,052 $ 124,336 15.4 %

Operating expenses 737,568 639,780 97,788 15.3 %

Gross margin / Operating income $ 194,820 $ 168,272 $ 26,548 15.8 %

Total other income, net 2,163 585 1,578 N/M

Income before income tax expenses 196,983 168,857 28,126 16.7 %

Gross margin percent 20.9 % 20.8 %

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

The Financial Services practice group revenue for the three months ended September 30, 2023 grew by 14.8% to $298.4 million from $260.0 million during the same period in 2022.

Same-unit revenue grew by $21.9 million, or 8.4%, across all product lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $12.0 million, an increase of approximately $6.3 million in those units that provide project-oriented advisory services, and an increase of approximately $3.6 million in government healthcare compliance business.

The impact of acquired businesses contributed $16.4 million, or 5.5% of 2023 revenue, of which Somerset contributed $14.2 million, or 4.8% of the Financial Services practice group's revenue for the three months ended September 30, 2023.

Three months ended March 31, 2024 compared to March 31, 2023

The Financial Services practice group revenue for the three months ended March 31, 2024 grew by 8.6% to $372.6 million from $343.1 million during the same period in 2023.

Same-unit revenue grew by $17.5 million, or 5.1%, across all product lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $10.1 million, an increase of approximately $4.7 million in government healthcare compliance business, and an increase of approximately $2.7 million in those units that provide project-oriented advisory services.

The impact of acquired businesses contributed $12.1 million, or 3.2% of 2024 revenue.

We provide a range of services to affiliated CPA firms under joint referral and administrative service agreements (“ASAs”).

Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $60.5 million and $54.1 million for the three months ended September 30, 2023 and 2022, respectively.

Operating Expenses

Operating expenses increased by $29.3 million, or 13.3%, as compared to the same period last year.

Personnel costs increased by $22.4 million, of which acquisitions contributed approximately $11.8 million to the increase.

Compared to the same period in 2022, travel and entertainment costs, technology costs, corporate allocated costs, depreciation and amortization costs, facility costs, marketing costs, and direct costs increased by approximately $1.6 million, $1.6 million, $1.5 million, $1.0 million, $0.9 million, $0.5 million, and $0.3 million respectively.

Other discretionary costs, net decreased by approximately $0.5 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 September 30, 2023 from 84.7% of revenue for the prior year quarter.

Nine months ended September 30, 2023 compared to September 30, 2022

Revenue for the nine months ended September 30, 2023 grew by 15.4% to $932.4 million from $808.1 million during the same period in 2022.

Same-unit revenue grew by $62.4 million, or 7.7%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased $45.3 million, an increase of approximately $14.0 million in those units that provide project-oriented advisory services, and an increase of approximately $3.1 million in government healthcare compliance business.

The impact of acquired businesses contributed $61.9 million, or 6.6% of 2023 revenue, of which Somerset and Stinnett contributed a total of $58.5 million, or 6.3% of Financial Services practice group's revenue for the nine months ended September 30, 2023.

Fees earned under the ASAs, as described above, were approximately $211.2 million and $191.1 million for the nine months ended September 30, 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 $87.8 million and $84.8 million for the three months ended March 31, 2024 and 2023, respectively.

Operating Expenses

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Personnel costs increased by $13.8 million, of which acquisitions contributed approximately $7.0 million to the increase.

Compared to the same period in 2022, corporate allocated costs, travel and entertainment costs, technology costs, depreciation and amortization costs, facility costs, direct costs, and marketing costs increased by approximately $4.8 million, $4.8 million, $3.1 million, $2.5 million, $1.7 million, $1.2 million, and $1.0 million, respectively.

Other discretionary costs, net, decreased by approximately $0.3 million primarily due to lower recruiting and other professional services costs.

Operating expense as a percentage of revenue increased to 79.1% during the nine months ended September 30, 2023 from 79.2% of revenue during the same period in 2022.

Compared to the same period in 2023, facility costs, direct costs, professional services costs, technology costs, depreciation and amortization costs, corporate allocated costs, travel and entertainment costs, bad debt costs, and marketing costs increased by approximately $1.7 million, $1.6 million, $1.1 million, $0.8 million, $0.6 million, $0.6 million, $0.5 million, $0.2 million, and $0.2 million, respectively.

Operating expenses as a percentage of revenue increased slightly to 71.3% for the three months ended March 31, 2024 from 71.2% of revenue for the prior year quarter.

Benefits and Insurance Services

Three Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

Same-unit $ 107,646 $ 100,054 $ 7,592 7.6 %

Acquired businesses 674 — 674

Acquired businesses 762 — 762 N/M

Total revenue $ 108,408 $ 100,054 $ 8,354 8.3 %

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Gross margin / Operating income $ 24,771 $ 23,131 $ 1,640 7.1 %

Total other income (expense), net 267 2,398 (2,131) (88.9) %

Total other income, net 44 176 (132) (75.0) %

Income before income tax expense 24,815 23,307 1,508 6.5 %

Gross margin percent 22.8 % 23.1 %

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Same-unit $ 295,505 $ 276,261 $ 19,244 7.0 %

Acquired businesses 674 — 674

Total revenue $ 296,179 $ 276,261 $ 19,918 7.2 %

Operating expenses 234,933 220,998 13,935 6.3 %

Gross margin/ Operating income $ 61,246 $ 55,263 $ 5,983 10.8 %

Total other income (expense), net 596 2,361 (1,765) (74.8) %

Income before income tax expenses 61,842 57,624 4,218 7.3 %

Gross margin percent 20.7 % 20.0 %

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

The Benefits and Insurance Services practice group revenue increased by $8.2 million, or 8.9%, to $100.3 million during the three months ended September 30, 2023 compared to $92.1 million for the same period in 2022.

Same-unit revenue grew by $7.5 million, or 8.2%, across almost all of the major service lines, primarily driven by $3.4 million increase in employee benefit and retirement benefit services lines, $2.3 million in property and casualty services, and $1.0 million from other project-based services.

In addition, revenue from payroll-related services increased by approximately $0.9 million.

Three months ended March 31, 2024 compared to March 31, 2023

The Benefits and Insurance Services practice group revenue increased by $8.4 million, or 8.3%, to $108.4 million during the three months ended March 31, 2024 compared to $100.1 million for the same period in 2023.

Same-unit revenue grew by $7.6 million, or 7.6%, across almost all of the major service lines, primarily driven by a $4.5 million increase in the employee benefit and retirement benefit services lines, a $2.6 million increase in the property and casualty services, and a $0.7 million increase in the payroll-related services, partially offset by an approximately $0.2 million decrease from other project-based services.

Operating Expenses

Operating expenses increased by $6.7 million, or 8.7%, when compared to the same period last year.

Personnel costs increased by $5.6 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, technology costs, as well as marketing costs increased by approximately $0.6 million, $0.3 million, $0.2 million, and $0.1 million, respectively.

The increase in operating expenses was offset by $0.3 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.

In addition, other miscellaneous discretionary costs increased by approximately $0.2 million to support business growth.

Operating expenses as a percentage of revenue slightly decreased to 79.4% for the quarter ended September 30, 2023 from 79.6% of revenue for the same period in 2022.

Nine months ended September 30, 2023 compared to September 30, 2022

The Benefits and Insurance Services practice group revenue increased by $19.9 million, or 7.2%, to $296.2 million during the nine months ended September 30, 2023 compared to $276.3 million for the same period in 2022.

Same-unit revenue grew by $19.2 million, or 7.0%, across almost all of the major service lines, primarily driven by $9.5 million increase in employee benefit and retirement benefit services lines, $5.1 million increase in the property and casualty services, and $3.7 million increase in payroll-related services.

In addition, revenue from other project-based services increased by approximately $0.9 million.

Operating Expenses

Operating expenses increased by $13.9 million, or 6.3%, when compared to the same period last year, primarily driven by approximately a $12.2 million increase in personnel costs 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, marketing costs, as well as direct costs increased by approximately $1.7 million, $1.3 million, $0.4 million, $0.3 million, and $0.2 million, respectively.

The increase in operating expenses was offset by $0.9 million lower depreciation and amortization costs, $0.9 million lower bad debt expense as well as $0.6 million lower facility costs, as compared to the same period in 2022.

In addition, other miscellaneous discretionary costs increased by approximately $0.2 million to support business growth.

Operating expense as a

percentage of revenue slightly improved to 79.3% during the nine months ended September 30, 2023 from 80.0% of revenue for the same period in 2022.

Personnel costs increased by $6.0 million, of which acquisitions contributed approximately $0.4 million, primarily due to the impact of annual merit increases as well as investment in producers.

Compared to the same period in 2023, professional services costs, corporate allocated costs, technology costs, direct costs, travel and entertainment cost, and facility costs increased by approximately $0.3 million, $0.2 million, $0.2 million, $0.1 million, $0.1 million, and $0.1 million, respectively, and was partially offset by $0.2 million lower bad debt expense as compared to the same period in 2023.

In addition, other miscellaneous discretionary costs, net decreased by $0.1 million.

Operating expenses as a percentage of revenue increased slightly to 77.2% for the quarter ended March 31, 2024 from 76.9% of revenue for the same period in 2023.

National Practices

Three Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

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Gross margin / Operating income $ 1,326 $ 883 $ 443 50.2 %

Total other income, net — 8 (8) N/M

Income before income tax expense 1,326 883 443 50.2 %

Gross margin percent 10.0 % 7.7 %

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Same-unit revenue $ 35,080 $ 32,623 $ 2,457 7.5 %

Operating expenses 31,795 29,218 2,577 8.8 %

Gross margin / Operating income $ 3,285 $ 3,405 $ (120) (3.5) %

Total other income, net 1 9 (8) N/M

Income before income tax expenses 3,286 3,414 (128) (3.7) %

Gross margin percent 9.4 % 10.4 %

Three and nine months ended September 30, 2023 compared with September 30, 2022

Three months ended March 31, 2024 compared with March 31, 2023

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, 2028.

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 and nine months ended September 30, 2023, revenue increased by $0.7 million, or 6.1%, and $2.5 million, or 7.5%, respectively, while operating expenses increased by $0.9 million, or 9.5%, and $2.6 million, or 8.8%, respectively.

the three months ended March 31, 2024, revenue increased by $1.8 million, or 15.6%, while operating expenses increased by $1.4 million, or 12.8%.

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 September 30,

Three Months Ended March 31,

(Amounts in thousands, except percentages)

Operating expenses (income) $ 2,165 $ 2,616 (451) (17.2) %

Operating expenses $ 15,354 $ 9,062 6,292 69.4 %

Corporate general and administrative expenses 18,711 15,598 3,113 20.0 %

Operating loss (34,065) (24,660) (9,405) 38.1 %

Total other expense, net (9,900) (7,436) (2,464) 33.1 %

Total other income, net 4,783 1,040 3,743 359.9 %

Loss before income tax expense (29,282) (23,620) (5,662) 24.0 %

Nine Months Ended September 30,

(Amounts in thousands, except percentages)

Operating expenses (income) $ 22,850 $ (3,944) 26,794 N/M

Corporate general and administrative expenses 44,527 43,128 1,399 3.2 %

Operating loss (67,377) (39,184) (28,193) 72.0 %

Total other expense, net (9,362) (32,785) 23,423 (71.4) %

Loss before income tax expenses (76,739) (71,969) (4,770) 6.6 %

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

Total operating expenses decreased by $0.5 million during the three months ended September 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan decreased operating expenses by $3.0 million for the three months ended September 30, 2023 and by $4.0 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, operating expenses decreased by $1.4 million during the three months ended September 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 $2.8 million, or 17.3%, during the three months ended September 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan decreased corporate general and administrative expenses by $0.5 million for the three months ended September 30, 2023 and by $0.7 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense decreased by approximately $3.0 million.

The decrease was primarily driven by $4.0 million lower personnel costs offset by $0.8 million higher legal and other professional related costs as well as $0.2 million other discretionary costs.

G&A expense for the three months ended September 30, 2022 included approximately $3.9 million cumulative adjustments to certain performance-based compensation program, which did not recur in 2023.

Total other expense, net increased by $2.5 million during the three months ended September 30, 2023, as compared to the same period in 2022.

For the three months ended September 30, 2023, total other expense, net includes a net loss of $3.5 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, other expense, net includes a net loss of $4.7 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 $6.4 million in 2023 and $2.7 million in 2022, a change of $3.7 million primarily attributed to $3.5 million higher interest expense in 2023 as compared to 2022 as well as $0.2 million higher net changes in the fair value of contingent consideration related to prior acquisitions.

Nine months ended September 30, 2023 compared to September 30, 2022

Total operating expenses increased by $26.8 million during the nine months ended September 30, 2023, as compared to the same period in 2022.

Excluding the non-qualified deferred compensation expenses, operating expenses decreased by approximately $3.1 million, primarily driven by lower personnel costs.

Total G&A expenses increased by $1.4 million, or 3.2%, during the nine months ended September 30, 2023, as compared to the same period in 2022.

The non-qualified deferred compensation plan increased G&A expenses by $0.8 million for the nine months ended September 30, 2023, but decreased G&A expense by $3.3 million during the same period in 2022.

Excluding the non-qualified deferred compensation expenses, G&A expense decreased by $2.7 million.

The decrease was primarily driven by $3.2 million lower personnel costs offset by $0.5 million higher legal and other professional related costs.

G&A expense for the nine months ended September 30, 2022 included approximately $3.9 million cumulative adjustments to certain performance-based compensation program, which did not recur in 2023.

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

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

Total other expense, net decreased by $23.4 million during the nine months ended September 30, 2023, as compared to the same period in 2022.

Total other expense, net for the nine months ended September 30, 2023 includes a net gain of $7.7 million associated with the non-qualified deferred compensation plan.

For the same period in 2022, total other expense, net includes a net loss of $26.3 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been $17.0 million in 2023 and $6.5 million in 2022, an increase of $10.5 million, primarily due to $9.8 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.

Three months ended March 31, 2024 compared to March 31, 2023

Total operating expenses increased by $6.3 million during the three months ended March 31, 2024, as compared to the same period in 2023.

The non-qualified deferred compensation plan increased operating expenses by $8.6 million for the three months ended March 31, 2024 and by $4.8 million during the same period in 2023.

Excluding the non-qualified deferred compensation expenses, operating expenses increased by $2.5 million during the three months ended March 31, 2024, as compared to the same period in 2023.

The increase was primarily driven by higher personnel costs.

Total corporate general and administrative expenses increased by $3.1 million, or 20.0%, during the three months ended March 31, 2024, as compared to the same period in 2023.

The non-qualified deferred compensation plan increased corporate general and administrative expenses by $1.1 million for the three months ended March 31, 2024 and by $0.6 million during the same period in 2023.

Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense increased by approximately $2.7 million.

Total other income, net increased by $3.7 million during the three months ended March 31, 2024, as compared to the same period in 2023.

For the three months ended March 31, 2024, total other income, net includes a net gain of $9.6 million associated with the non-qualified deferred compensation plan.

For the same period in 2023, total other income, net includes a net gain of $5.4 million associated with the non-qualified deferred compensation plan.

Excluding the impact of the non-qualified deferred compensation plan, total other income, net would have been $4.9 million of expense in 2024 and $4.4 million of expense in 2023, a net change of $0.5 million primarily attributed to $0.9 million higher interest expense in 2024 as compared to 2023, offset by $0.4 million decrease in expenses driven by $0.2 million lower net changes in the fair value of contingent consideration related to prior acquisitions.

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 nine months' revenue generated by the Financial Services practice group.

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

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

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

DSO was 96 days and 93 days at September 30, 2023 and 2022.

DSO was 101 days and 94 days at March 31, 2024 and 2023.

DSO at December 31, 2023 was 78 days.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(Amounts in thousands)

Net cash provided by operating activities $ 57,254 $ 60,059

Net cash used in operating activities $ (63,720) $ (44,511)

Net cash used in investing activities (28,702) (45,896)

Net cash (used in) provided by financing activities (18,442) 6,025

Net cash provided by financing activities 71,188 61,778

Net decrease in cash, cash equivalents and restricted cash $ (21,234) $ (28,629)

Operating Activities - Cash provided by operating activities was $57.3 million during the nine months ended September 30, 2023, primarily consisted of net income of $133.7 million and certain non-cash items, such as depreciation and amortization expense of $27.0 million, deferred income tax of $6.7 million, and stock-based compensation expense of $9.7 million.

The cash inflow was offset by working capital use of $121.6 million.

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

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

Investing Activities - Cash used in investing activities during the nine months ended September 30, 2023 was $76.6 million and consisted primarily of $53.1 million used for business acquisitions, $19.0 million in capital expenditures, and $11.4 million in other investing activities primarily related to working capital payments and notes receivable.

The use of cash was offset by $5.2 million net cash inflow related to funds held for clients, $1.5 million related to the sale of one technology asset and $0.2 million in other cash payments related to certain prior divestitures.

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

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

Operating Activities - Cash used in operating activities was $63.7 million during the three months ended March 31, 2024, primarily consisted of working capital use of $155.9 million, which was offset by net income of $76.9 million and certain non-cash items, such as depreciation and amortization expense of $9.5 million, deferred income tax of $2.1 million, and stock-based compensation expense of $2.6 million.

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.

Investing Activities - Cash used in investing activities during the three months ended March 31, 2024 was $28.7 million and consisted primarily of $21.3 million used for business acquisitions, $5.1 million in capital expenditures, and $2.2 million in other investing activities primarily related to acquistion related working capital adjustment payments and notes receivable.

The net cash flow related to funds held for clients and other activities were immaterial.

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.

The use of cash was offset by $0.6 million net cash inflow related to funds held for clients and other activities.

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, 2023.

Financing Activities - Cash used in financing activities during the nine months ended September 30, 2023 was $18.4 million and primarily consisted of $66.2 million in share repurchases, a $49.6 million net decrease in client fund obligations and $40.1 million in contingent consideration payments related to prior acquisitions.

The use of cash was partially offset by $129.0 million in net proceeds from the credit facility and $8.4 million proceeds from exercise of stock options.

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

Financing Activities - Cash provided by financing activities during the three months ended March 31, 2024 was $71.2 million and primarily consisted of $125.4 million in net proceeds from the credit facility, partially offset by $11.2 million cash used in share repurchases for tax withholding purposes, a $11.9 million net decrease in client fund obligations and $31.1 million in contingent consideration payments related to prior acquisitions.

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, a $23.3 million net decrease in client fund obligations and $28.6 million in contingent consideration payments related to prior acquisitions.

CAPITAL RESOURCES

Credit Facility - At September 30, 2023, we had $394.7 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 $195.0 million at September 30, 2023.

The weighted average interest rate under the credit facility was 5.16% during the nine months ended September 30, 2023, compared to 2.29% for the same period in 2022.

Credit Facility - At March 31, 2024, we had $437.8 million outstanding under the 2022 credit facility as well as $3.2 million outstanding letters of credit.

Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $147.9 million at March 31, 2024.

The weighted average interest rate under the 2022 credit facility was 5.23% during the three months ended March 31, 2024, compared to 4.54% for the same period in 2023.

The 2022 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 September 30, 2023.

We are in compliance with our financial covenants as of March 31, 2024.

Our ability to service our debt and to fund future strategic initiatives will depend upon our ability to generate cash in the future.

For further discussion regarding our 2022 credit facility

and debt, refer to Note 4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements.

For further discussion regarding our 2022 credit facility and debt, refer to Note 4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements.

Use of Capital - Our first priority for use of capital is to make strategic acquisitions.

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During the nine months ended September 30, 2023, we completed five acquisitions for $53.0 million in cash.

We also repurchased 1.3 million shares of our common stock at a total cost of approximately $66.4 million during the nine months ended September 30, 2023.

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

Cash Requirements for 2023 - Cash requirements for the remainder of 2023 will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent purchase price payments for previous acquisitions, share repurchases and capital expenditures.

We believe that cash provided by operations, as well as available funds under our credit facility will be sufficient to meet cash requirements.

During the three months ended March 31, 2024, we completed two acquisitions for $21.3 million in cash.

We also repurchased 0.2 million shares of our common stock at a total cost of approximately $11.2 million during the three months ended March 31, 2024.

Cash Requirements - Cash requirements for the remainder of 2024 and beyond will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent purchase price payments for previous acquisitions, share repurchases, income tax payments, and capital expenditures.

We believe that cash provided by operations, as well as available funds under our 2022 credit facility will be sufficient to meet cash requirements for the remainder of 2024 and beyond.

OFF-BALANCE SHEET ARRANGEMENTS

We maintain administrative service agreements with independent CPA firms (as described more fully under “Business – Financial Services” and in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022), which qualify as variable interest entities.

We maintain administrative service agreements with independent CPA firms (as described more fully under Item 1.

“Business – Financial Services” and in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023), which qualify as variable interest entities.

The accompanying unaudited condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations, or cash flows of CBIZ.

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

We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $3.2 million and $3.5 million at March 31, 2024 and December 31, 2023, respectively.

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

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

The amount of license bonds outstanding was $2.3 million and $2.3 million at March 31, 2024 and December 31, 2023, 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 September 30, 2023, we are not aware of any material obligations arising under indemnification agreements that would require payment.

As of March 31, 2024, 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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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.

not made any changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

We have not made any changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

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This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical fact included in this Quarterly Report, including without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives for future performance are forward-looking statements.

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives for future performance are forward-looking statements.

You can identify these statements by the fact that they do not relate strictly to historical or current facts.

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Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements that we make, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.

Such risks and uncertainties include, but are not limited to, the impact of COVID-19 on the Company’s business and operations and those of our clients;

the Company’s ability to adequately manage and sustain its growth;

the Company’s dependence on the current trend of outsourcing business services;

the Company’s dependence on the services of its CEO and other key employees;

competitive pricing pressures;

general business and economic conditions;

and changes in governmental regulation and tax laws affecting the Company’s insurance business or its business service operations.

Such risks and uncertainties include, but are not limited to:

we may be more sensitive to revenue fluctuations than other companies, which could result in fluctuations in the market price of our common stock;

payments on accounts receivable may be slower than expected, or amounts due on receivables or notes may not be fully collectible;

we are dependent on the services of our executive officers, other key employees, producers and service personnel, the loss of whom may have a material adverse effect on our business, financial condition and results of operations;

restrictions imposed by independence requirements and conflict of interest rules may limit our ability to provide services to clients of the attest firms with which we have contractual relationships and the ability of such attest firms to provide attestation services to our clients;

our goodwill and intangible assets could become impaired, which could lead to material non-cash charges against earnings;

certain liabilities resulting from acquisitions are estimated and could lead to a material non-cash impact on earnings;

governmental regulations and interpretations are subject to changes, which could have a material adverse effect on our clients, our business, our business services operations, our business models, or our revenue;

changes in the United States healthcare or public health environment, including new healthcare legislation or regulations, may adversely affect the revenue and margins in our or our clients’ businesses;

we are subject to risks relating to processing customer transactions for our payroll and other transaction processing businesses;

cyber-attacks or other security breaches involving our computer systems or the systems of one or more of our vendors or clients could materially and adversely affect our business;

we are subject to risk as it relates to software that we license from third parties;

we could be held liable for errors and omissions, contract claims, or other litigation judgments or expenses;

the future issuance of additional shares could adversely affect the price of our common stock;

our principal stockholders may have substantial control over our operations;

we require a significant amount of cash for interest payments on our debt and to expand our business as planned;

terms of our credit facility may adversely affect our ability to run our business and/or reduce stockholder returns;

our failure to satisfy covenants in our debt instruments could cause a default under

those instruments;

we are reliant on information processing systems and any failure of these systems could have a material adverse effect on our business, financial condition and results of operations;

we may not be able to acquire and finance additional businesses which may limit our ability to pursue our business strategy;

the business services industry is competitive and fragmented;

if we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted;

there is volatility in our stock price.

Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.

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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 this Quarterly Report and 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 on Form 10-Q and in “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

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