CBIZ, Inc. 10-Q

Item 1. Financial Statements CBIZ, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) June 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 1,128 $ 8,090 Restricted cash 44,947 30,362 Accounts receivable, net 477,841 380,152 Other current assets 38,892 34,895 Current assets before funds held for clients 562,808 453,499 Funds held for clients 131,128 159,186 Total current assets 693,936 612,685 Non-current assets: Property and equipment, net 56,667 57,012 Goodwill and other intangible assets, net 1,035,148 1,008,604 Assets of deferred compensation plan 162,133 143,499 Right-of-use assets, net 203,972 211,024 Other non-current assets 8,949 10,768 Total non-current assets 1,466,869 1,430,907 Total assets $ 2,160,805 $ 2,043,592 LIABILITIES Current liabilities: Accounts payable $ 109,253 $ 82,831 Income taxes payable 7,374 2,097 Accrued personnel costs 95,267 133,593 Contingent purchase price liabilities 54,780 66,287 Operating lease liabilities 38,077 36,283 Other current liabilities 31,389 30,937 Current liabilities before client fund obligations 336,140 352,028 Client fund obligations 131,623 159,893 Total current liabilities 467,763 511,921 Non-current liabilities: Bank debt 381,000 312,400 Debt issuance costs ( 1,340 ) ( 1,574 ) Total long-term debt, net 379,660 310,826 Income taxes payable 2,149 1,984 Deferred income taxes, net 32,726 29,287 Deferred compensation plan obligations 162,133 143,499 Contingent purchase price liabilities 29,059 48,659 Lease liabilities 194,704 203,905 Other non-current liabilities 1,177 1,893 Total non-current liabilities 801,608 740,053 Total liabilities 1,269,371 1,251,974 STOCKHOLDERS' EQUITY Common stock 1,379 1,374 Additional paid in capital 845,962 832,475 Retained earnings 951,761 855,084 Treasury stock ( 910,322 ) ( 899,093 ) Accumulated other comprehensive income 2,654 1,778 Total stockholders’ equity 891,434 791,618 Total liabilities and stockholders’ equity $ 2,160,805 $ 2,043,592 See the accompanying notes to the unaudited condensed consolidated financial statements 3 CBIZ, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue $ 420,012 $ 398,502 $ 914,309 $ 853,108 Operating expenses 366,368 343,987 742,853 684,998 Gross margin 53,644 54,515 171,456 168,110 Corporate general and administrative expenses 22,050 15,793 40,761 31,391 Operating income 31,594 38,722 130,695 136,719 Other (expense) income: Interest expense ( 5,884 ) ( 5,534 ) ( 10,395 ) ( 9,175 ) Gain on sale of operations, net — — — 99 Other income, net 2,483 5,421 11,907 10,533 Total other (expense) income, net ( 3,401 ) ( 113 ) 1,512 1,457 Income before income tax expense 28,193 38,609 132,207 138,176 Income tax expense 8,400 11,746 35,530 38,153 Net Income 19,793 26,863 96,677 100,023 Earnings per share: Basic $ 0.39 $ 0.54 $ 1.93 $ 1.99 Diluted $ 0.39 $ 0.53 $ 1.92 $ 1.98 Basic weighted average shares outstanding 50,111 49,963 50,079 50,164 Diluted weighted average shares outstanding 50,276 50,385 50,248 50,639 Comprehensive income: Net income $ 19,793 $ 26,863 $ 96,677 $ 100,023 Other comprehensive (loss) income, net of tax ( 142 ) 1,537 876 324 Comprehensive income $ 19,651 $ 28,400 $ 97,553 $ 100,347 See the accompanying notes to the unaudited condensed consolidated financial statements 4 CBIZ, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) Issued Common Shares Treasury Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Totals March 31, 2024 137,855 87,743 $ 1,379 $ 841,268 $ 931,968 $ ( 910,322 ) $ 2,796 $ 867,089 Net income — — — — 19,793 — — 19,793 Other comprehensive loss — — — — — — ( 142 ) ( 142 ) Restricted stock units and awards 16 — — — — — — — Stock-based compensation — — — 2,378 — — — 2,378 Business acquisitions 34 — — 2,316 — — — 2,316 June 30, 2024 137,905 87,743 $ 1,379 $ 845,962 $ 951,761 $ ( 910,322 ) $ 2,654 $ 891,434 Issued Common Shares Treasury Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Totals March 31, 2023 137,024 86,712 $ 1,370 $ 814,686 $ 807,276 $ ( 853,793 ) $ 2,391 $ 771,930 Net income — — — — 26,863 — — 26,863 Other comprehensive income — — — — — — 1,537 1,537 Share repurchases — 547 — — — ( 27,737 ) — ( 27,737 ) Restricted stock units and awards 21 — — — — — — — Stock options exercised 32 — 1 622 — — — 623 Stock-based compensation — — — 2,788 — — — 2,788 Business acquisitions 4 — — 210 — — — 210 Excise tax on share repurchases — — $ — $ 387 $ — $ ( 558 ) $ — $ ( 171 ) June 30, 2023 137,081 87,259 $ 1,371 $ 818,693 $ 834,139 $ ( 882,088 ) $ 3,928 $ 776,043 See the accompanying notes to the unaudited condensed consolidated financial statement 5 CBIZ, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) Issued Common Shares Treasury Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Totals December 31, 2023 137,387 87,573 $ 1,374 $ 832,475 $ 855,084 $ ( 899,093 ) $ 1,778 $ 791,618 Net income — — — — 96,677 — — 96,677 Other comprehensive income — — — — — — 876 876 Indirect repurchase of shares for minimum tax withholding — 170 — — — ( 11,229 ) — ( 11,229 ) Restricted stock units and awards 118 — 1 ( 1 ) — — — — Performance share units 273 — 3 ( 3 ) — — — — Stock-based compensation — — — 5,016 — — — 5,016 Business acquisitions 127 — 1 8,475 — — — 8,476 June 30, 2024 137,905 87,743 $ 1,379 $ 845,962 $ 951,761 $ ( 910,322 ) $ 2,654 $ 891,434 Issued Common Shares Treasury Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Totals December 31, 2022 136,295 86,115 $ 1,363 $ 799,147 $ 734,116 $ ( 824,778 ) $ 3,604 $ 713,452 Net income — — — — 100,023 — — 100,023 Other comprehensive income — — — — — — 324 324 Share repurchases — 975 — — — ( 48,528 ) — ( 48,528 ) Indirect repurchase of shares for minimum tax withholding — 169 — — — ( 8,224 ) — ( 8,224 ) Restricted stock units and awards 144 — 1 ( 1 ) — — — — Performance share units 244 — 2 ( 2 ) — — — — Stock options exercised 221 — 3 4,249 — — — 4,252 Stock-based compensation — — — 6,619 — — — 6,619 Business acquisitions 177 — 2 8,294 — — — 8,296 Excise tax on share repurchases — — $ — $ 387 $ — $ ( 558 ) $ — $ ( 171 ) June 30, 2023 137,081 87,259 $ 1,371 $ 818,693 $ 834,139 $ ( 882,088 ) $ 3,928 $ 776,043 See the accompanying notes to the unaudited condensed consolidated financial statements 6 CBIZ, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income $ 96,677 $ 100,023 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 19,008 17,831 Gain on sale of operations, net — ( 99 ) Bad debt expense, net of recoveries 1,244 805 Adjustment to contingent earnout liability 638 1,445 Stock-based compensation expense 5,016 6,619 Deferred income taxes 3,128 4,571 Other, net 273 100 Changes in assets and liabilities, net of acquisitions and divestitures: Accounts receivable, net ( 95,997 ) ( 111,792 ) Other assets ( 1,663 ) ( 11,594 ) Accounts payable 25,058 45,350 Income taxes payable 5,443 11,913 Accrued personnel costs ( 38,502 ) ( 40,893 ) Other liabilities 4,116 5,450 Net cash provided by operating activities 24,439 29,729 Cash flows from investing activities: Business acquisitions and purchases of client lists, net of cash acquired ( 22,493 ) ( 48,630 ) Purchases of client fund investments ( 12,100 ) — Proceeds from the sales and maturities of client fund investments 12,421 3,190 Proceeds from sales of divested operations — 245 Change in funds held for clients ( 301 ) 305 Additions to property and equipment ( 6,973 ) ( 11,726 ) Other, net ( 3,801 ) ( 9,001 ) Net cash used in investing activities ( 33,247 ) ( 65,617 ) Cash flows from financing activities: Proceeds from bank debt 619,800 661,800 Payment of bank debt ( 551,200 ) ( 516,900 ) Payment for acquisition of treasury stock — ( 48,764 ) Indirect repurchase of shares for minimum tax withholding ( 11,229 ) ( 8,224 ) Changes in client funds obligations ( 28,270 ) ( 40,398 ) Proceeds from exercise of stock options — 4,252 Payment of contingent consideration for acquisitions and client lists ( 41,021 ) ( 29,973 ) Net cash (used in) provided by financing activities ( 11,920 ) 21,793 Net decrease in cash, cash equivalents and restricted cash ( 20,728 ) ( 14,095 ) Cash, cash equivalents and restricted cash at beginning of year 157,148 160,145 Cash, cash equivalents and restricted cash at end of period $ 136,420 $ 146,050 Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets: Cash and cash equivalents $ 1,128 $ 3,692 Restricted cash 44,947 52,314 Cash equivalents included in funds held for clients 90,345 90,044 Total cash, cash equivalents and restricted cash $ 136,420 $ 146,050 See the accompanying notes to the unaudited condensed consolidated financial statements 7 CBIZ, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Selected Terms Used in Notes to the Condensed Consolidated Financial Statements ASA – Administrative Service Agreement ASC – Accounting Standards Codification ASU – Accounting Standards Update CPA firm – Certified Public Accounting firm FASB – The Financial Accounting Standards Board GAAP – United States Generally Accepted Accounting Principles SOFR – Secured Overnight Financing Rate SEC – United States Securities and Exchange Commission Description of Business: CBIZ, Inc. is a diversified services company which, acting through its subsidiaries, has been providing professional business services since 1996, primarily 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. CBIZ, Inc. manages and reports its operations along three practice groups: Financial Services, Benefits and Insurance Services and National Practices. A further description of products and services offered by each of the practice groups is provided in Note 11, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements. During the six months ended June 30, 2024, we completed the acquisitions of Erickson, Brown & Kloster, LLC ("EBK") and CompuData, Inc. ("CompuData") in our Financial Services practice group and Educational & Institutional Insurance Administrator, Inc.'s EIIA Higher Education Benefit Trust ("EIIA") in our Benefits and Insurance practice group for a total aggregated purchase price of $ 40.1 million, including $ 15.2 million recorded as contingent consideration. For the six months ended June 30, 2024, we recorded $ 12.6 million in total revenue from those acquisitions. None of the acquisition are considered material, individually or in the aggregate. Basis of Consolidation: The accompanying unaudited condensed consolidated financial statements include the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries (“CBIZ”, the “Company”, “we”, “us”, or “our”), after elimination of all intercompany balances and transactions. These 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. Unaudited Interim Financial Statements: The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In the opinion of CBIZ management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2024. Use of Estimates: The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Changes in circumstances could cause actual results to differ materially from these estimates. 8 Changes in Accounting Policies: We have consistently applied the accounting policies for the periods presented as described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS The FASB ASC is the sole source of authoritative GAAP other than the SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an ASU to communicate changes to the FASB ASC. We assess and review the impact of all issued ASUs. During the six months ended June 30, 2024, we have implemented all new ASUs that are in effect and that may impact our consolidated financial statements. NOTE 3. ACCOUNTS RECEIVABLE, NET Accounts receivable, less allowance for doubtful accounts, reflects the net realizable value of receivables and approximates fair value. Unbilled revenue is recorded at estimated net realizable value. Assessing the collectability of the receivables (billed and unbilled) requires management judgment based on a combination of factors, including but not limited to, an evaluation of our historical incurred loss experience, credit-worthiness of our clients, age of the trade receivable balance, current economic conditions that may affect a client’s ability to pay, and reasonable and supportable forecasts. Receivables are charged-off against the allowance when the balance is deemed uncollectible. Accounts receivable, net, at June 30, 2024 and December 31, 2023 was as follows (in thousands): June 30, 2024 December 31, 2023 Trade accounts receivable $ 365,199 $ 309,640 Unbilled revenue, at net realizable value 147,040 96,110 Total accounts receivable 512,239 405,750 Allowance for doubtful accounts ( 34,398 ) ( 25,598 ) Accounts receivable, net $ 477,841 $ 380,152 Changes to the allowance for doubtful accounts for the six months ended June 30, 2024 and twelve months ended December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Balance at beginning of period $ ( 25,598 ) $ ( 20,801 ) Provision ( 11,119 ) ( 13,681 ) Charge-offs, net of recoveries 2,319 8,884 Allowance for doubtful accounts $ ( 34,398 ) $ ( 25,598 ) 9 NOTE 4. DEBT AND FINANCING ARRANGEMENTS 2022 Credit Facility - Our primary financing arrangement is the 2022 credit facility. The 2022 credit facility has a borrowing capacity of $ 600 million and provides us with the capital necessary to meet our working capital needs as well as the flexibility to continue with our strategic initiatives, including business acquisitions and share repurchases. The 2022 credit facility matures on May 4, 2027. The balance outstanding under the 2022 credit facility was $ 381.0 million and $ 312.4 million at June 30, 2024 and December 31, 2023, respectively. The effective interest rates under the 2022 credit facility, including the impact of interest rate swaps associated with the 2022 credit facility, for the six months ended June 30, 2024 and 2023 were as follows: Six Months Ended June 30, 2024 2023 Weighted average rates 5.41 % 4.94 % Range of effective rates 1.93 % - 6.83 % 1.93 % - 8.00 % We had approximately $ 209.8 million of available funds under the 2022 credit facility at June 30, 2024, net of outstanding letters of credit of $ 3.2 million. Available funds under the 2022 credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization as defined in the 2022 credit facility, and are reduced by letters of credit, other indebtedness and outstanding borrowings under the 2022 credit facility. Under the 2022 credit facility, loans are charged an interest rate consisting of a base rate or term SOFR rate plus an applicable margin, letters of credit are charged based on the same applicable margin, and a commitment fee is charged on the unused portion of the 2022 credit facility. The 2022 credit facility contains certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens or other encumbrances, making certain payments, investments, or to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. The 2022 credit facility also limits our ability to make dividend payments. Historically, we have not paid cash dividends on our common stock. Our Board of Directors has discretion over the payment and level of dividends on common stock, subject to the limitations of the 2022 credit facility and applicable law. The 2022 credit facility contains a provision that, in the event of a defined change in control, the 2022 credit facility may be terminated. In addition, the 2022 credit facility contains financial covenants that require us to meet certain requirements with respect to (i) a total leverage ratio and (ii) minimum interest coverage ratio which may limit our ability to borrow up to the total commitment amount. As of June 30, 2024, we are in compliance with all covenants. Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the 2022 credit facility. Other Line of Credit - We have an unsecured $ 20.0 million line of credit by and among CBIZ Benefits and Insurance, Inc. and Huntington National Bank. We utilize this line to support our short-term funding requirements of payroll client fund obligations due to the investment of client funds, rather than liquidating client funds that have already been invested in available-for-sale securities. The line of credit did no t have a balance outstanding at June 30, 2024. On August 1, 2024, we renewed the line of credit and it will terminate on July 31, 2025. Interest Expense - Interest expense, including amortization of deferred financing costs, commitment fees, line of credit fees, and other applicable bank charges, for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Credit facilities $ 5,881 $ 5,498 $ 10,392 $ 9,138 Other 3 36 3 37 Total $ 5,884 $ 5,534 $ 10,395 $ 9,175 10 NOTE 5. COMMITMENTS AND CONTINGENCIES Letters of Credit and Guarantees - We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $ 3.2 million and $ 3.5 million at June 30, 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 June 30, 2024 and December 31, 2023, respectively. Legal Proceedings - On December 19, 2016, CBIZ Operations, Inc. ("CBIZ Operations") was named as a defendant in a lawsuit filed by Zotec Partners, LLC (“Zotec”) in the Marion County Indiana Superior Court. After various amendments, the lawsuit asserted claims under Indiana law for securities, statutory and common law fraud or deception, unjust enrichment, breach of contract, and vicarious liability against CBIZ Operations and a former employee of CBIZ MMP in connection with the sale of the CBIZ MMP medical billing practice to Zotec. The plaintiff claimed that CBIZ Operations had a duty to disclose the fact, unknown to employees of CBIZ Operations at the time of the transaction, that the former employee had a financial arrangement with a Zotec vendor at the time CBIZ Operations sold CBIZ MMP to Zotec. The plaintiff sought damages of up to $ 177.0 million out of the $ 200.0 million transaction price. Trial was held in October 2021. The jury found in favor of CBIZ on all fraud, contract and other claims before it. On November 14, 2022, the trial court ruled in favor of CBIZ and against Zotec’s claim for statutory securities fraud. The court also ruled in favor of CBIZ on its counterclaim for indemnification under contract. The trial court conducted a hearing on December 12, 2023, to consider evidence regarding the amount of damages owed by Zotec to CBIZ on the counterclaim. On March 12, 2024, the court awarded CBIZ $ 3.1 million on its counterclaim. On April 10, 2024, Zotec filed a notice of appeal. On November 10, 2023, CBIZ was named as a defendant in a putative class action lawsuit in the United States District Court for the District of Massachusetts by an individual claiming to be an employee of a CBIZ client whose personally identifiable information (“PII”) was compromised and stolen during a cyberattack CBIZ experienced on or about May 31, 2023. As a result of this incident, hackers were able to access and download certain files from CBIZ’s MOVEit Transfer server. The lawsuit alleges that CBIZ and Progress Software Corporation, the owner of MOVEit Transfer, failed to adequately secure and safeguard the individual’s, and similarly situated employees of CBIZ’s clients, PII from unauthorized access. The lawsuit seeks various remedies, including actual, compensatory, and punitive damages, along with injunctive relief, costs, and attorneys’ fees. On December 8, 2023, CBIZ was named as a defendant in a second putative class action lawsuit in the United States District Court for the District of Massachusetts by an individual making similar claims and seeking similar remedies as in the first lawsuit regarding the cyberattack CBIZ experienced on or about May 31, 2023. Both cases were transferred into a multidistrict litigation, styled as In Re: MOVEit Customer Data Security Breach Litigation, pending in the United States District Court for the District of Massachusetts (the “MDL”). To date, the MDL has over 180 cases against over 100 different defendants, all with claims arising out of the cyberbreach by hackers of Progress Software Corporation’s MOVEit Transfer software. The cases in the MDL, including the cases against CBIZ, are in their earliest stages, with a stay in place until the MDL Court issues a scheduling order. Due to the early stage of litigation, the Company is not able to determine or predict the ultimate outcome of these lawsuits nor reasonably provide an estimate or range of the possible outcome or losses, if any. In addition to the items disclosed above, the Company is, from time to time, subject to claims and lawsuits arising in the ordinary course of business. We cannot predict the outcome of all such matters or estimate the possible loss, if any. Although the proceedings are subject to uncertainties in the litigation process and the ultimate disposition of these proceedings is not presently determinable, we intend to vigorously defend these matters. Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's commitments and contingencies. 11 NOTE 6. FINANCIAL INSTRUMENTS Available-For-Sale Debt Securities - In connection with certain services provided by our payroll operations, we collect funds from our clients’ accounts in advance of paying client obligations. These funds held for clients are segregated and invested in accordance with our investment policy, which requires all investments carry an investment grade rating at the time of initial investment. These investments, primarily consisting of corporate and municipal bonds, are classified as available-for-sale and are included in the “Funds held for clients” line item on the accompanying unaudited Condensed Consolidated Balance Sheets. The par value of these investments totaled $ 39.7 million and $ 40.0 million at June 30, 2024 and December 31, 2023, respectively, and these investments have maturity or callable dates ranging from July 2024 through January 2026. At June 30, 2024, unrealized losses on the securities were not material and have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value. The bond issuers continue to make timely principal and interest payments. The following table summarizes activities related to these investments for the six months ended June 30, 2024 and the twelve months ended December 31, 2023 (in thousands): Six Months Ended June 30, 2024 Twelve Months Ended December 31, 2023 Fair value at beginning of period $ 39,459 $ 43,485 Purchases 12,100 14,122 Redemptions ( 500 ) ( 3,310 ) Maturities ( 11,921 ) ( 15,155 ) Change in bond premium ( 238 ) ( 1,099 ) Fair market value adjustment 312 1,416 Fair value at end of period $ 39,212 $ 39,459 In addition to the available-for-sale debt securities discussed above, we also held other depository assets in the amount of $ 1.6 million and $ 1.0 million at June 30, 2024 and December 31, 2023, respectively. Those depository assets are classified as Level 1 in the fair value hierarchy. Interest Rate Swaps - We utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the 2022 credit facility, or the forecasted acquisition of such liability. We do not purchase or hold any derivative instruments for trading or speculative purposes. Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on our interest rate swaps. The following table summarizes our outstanding interest rate swaps and their classification in the accompanying unaudited Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023 (amounts in thousands): June 30, 2024 Notional Amount Fixed Rate Expiration Fair Value Balance Sheet Location Interest rate swap $ 50,000 0.834 % 4/14/2025 $ 1,654 Other current asset Interest rate swap $ 30,000 1.186 % 12/14/2026 $ 2,227 Other non-current asset Interest rate swap $ 20,000 2.450 % 8/14/2027 $ 1,039 Other non-current asset Interest rate swap $ 25,000 3.669 % 4/14/2028 $ 388 Other non-current asset Interest rate swap $ 25,000 4.488 % 10/14/2028 $ ( 418 ) Other non-current liability 12 December 31, 2023 Notional Amount Fixed Rate Expiration Fair Value Balance Sheet Location Interest rate swap $ 50,000 0.834 % 4/14/2025 $ 2,282 Other non-current asset Interest rate swap $ 30,000 1.186 % 12/14/2026 $ 2,125 Other non-current asset Interest rate swap $ 20,000 2.450 % 8/14/2027 $ 784 Other non-current asset Interest rate swap $ 25,000 3.669 % 4/14/2028 $ ( 129 ) Other non-current liability Interest rate swap $ 25,000 4.488 % 10/14/2028 $ ( 1,063 ) Other non-current liability Refer to Note 7, Fair Value Measurements, for additional disclosures regarding fair value measurements. The following table summarizes the effects of the interest rate swaps on the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023 (in thousands): Gain Recognized in AOCI, net of tax Gain Reclassified from AOCI into Expense Three Months Ended June 30, Three Months Ended June 30, 2024 2023 2024 2023 Interest rate swaps $ 587 $ 2,187 $ 1,174 $ 1,073 Gain Recognized in AOCI, net of tax Gain (Loss) Reclassified from AOCI into Expense Six Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest rate swaps $ 2,441 $ 1,472 $ 2,365 $ 1,970 NOTE 7. FAIR VALUE MEASUREMENTS The following table summarizes our assets and (liabilities) at June 30, 2024 and December 31, 2023, respectively, that are measured at fair value on a recurring basis subsequent to initial recognition and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (in thousands): Level June 30, 2024 December 31, 2023 Deferred compensation plan assets 1 $ 162,133 $ 143,499 Available-for-sale debt securities 1 39,212 39,459 Other depository assets 1 1,571 1,031 Deferred compensation plan liabilities 1 ( 162,133 ) ( 143,499 ) Interest rate swaps 2 4,890 3,999 Bank debt 2 ( 379,660 ) ( 310,826 ) Contingent purchase price liabilities 3 ( 83,839 ) ( 114,946 ) During the six months ended June 30, 2024 and 2023, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. 13 The following table summarizes the change in Level 3 fair values of our contingent purchase price liabilities for the six months ended June 30, 2024 and 2023 (pre-tax basis, in thousands): 2024 2023 Beginning balance – December 31 $ ( 114,946 ) $ ( 132,010 ) Additions from business acquisitions ( 15,184 ) ( 30,317 ) Settlement of contingent purchase price liabilities 46,929 33,307 Change in fair value of contingencies 423 ( 15 ) Change in net present value of contingencies ( 1,061 ) ( 1,430 ) Ending balance – June 30 $ ( 83,839 ) $ ( 130,465 ) The following table summarizes the changes in contingent purchase price consideration for previous acquisitions and contingent payments made for previous business acquisitions in the three and six months ended June 30, 2024 and 2023, respectively (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net expense $ 204 $ 815 $ 638 $ 1,445 Cash settlement paid $ 9,898 $ 1,373 $ 40,855 $ 29,808 Shares issued (number) 34 4 94 75 Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the fair value measurements and classification of our financial assets and liabilities. NOTE 8. OTHER COMPREHENSIVE INCOME The following table is a summary of other comprehensive income and discloses the tax impact of each component of other comprehensive (loss) income for the three and six months ended June 30, 2024 and 2023 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net unrealized gain on available-for-sale securities, net of taxes (1) $ 167 $ 159 $ 223 $ 338 Net unrealized (loss) gain on interest rate swaps, net of taxes (2) ( 292 ) 1,383 668 ( 5 ) Foreign currency translation ( 17 ) ( 5 ) ( 15 ) ( 9 ) Total other comprehensive (loss) income $ ( 142 ) $ 1,537 $ 876 $ 324 (1) Net of income tax expense of $ 68 and $ 64 for the three months ended June 30, 2024 and 2023, respectively. Net of income tax expense of $ 89 and $ 135 for the six months ended June 30, 2024 and 2023, respectively. (2) Net of income tax benefit of $ 99 and income tax expense of $ 449 for the three months ended June 30, 2024 and 2023, respectively. Net of income tax expense of $ 223 and income tax benefit of $ 14 for the six months ended June 30, 2024 and 2023, respectively. NOTE 9. EMPLOYEE STOCK PLANS On May 10, 2023, the shareholders of the Company approved an amendment to the 2019 Stock Omnibus Incentive Plan (the “2019 Plan”). The amendment added 1.5 million shares to the total number of shares that may be issued under the 2019 Plan. All other respects of the 2019 Plan remain unchanged. The 2019 Plan, which expires in 2029, permits the grant of various forms of stock-based awards. A maximum of 4.6 million stock options, restricted stock or other stock-based compensation awards may be granted. The terms and vesting schedules for the stock-based awards vary by type and date of grant. Shares subject to award under the 2019 Plan may be either authorized but unissued shares of our common stock or treasury shares. Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the 2019 Plan. 14 Compensation expense for stock-based awards recognized during the three and six months ended June 30, 2024 and 2023 was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Stock options $ — $ — $ — $ 768 Restricted stock units and awards 1,552 1,355 2,903 2,614 Performance share units 826 1,433 2,113 3,237 Total stock-based compensation expense $ 2,378 $ 2,788 $ 5,016 $ 6,619 Stock Options and Restricted Stock Units and Awards – The Company did not grant any stock options during the six months ended June 30, 2024. The following table presents our restricted stock units and awards activity during the six months ended June 30, 2024 (in thousands, except per share data): Restricted Stock Units and Awards Number of Shares Weighted Average Grant-Date Fair Value (1) Outstanding at beginning of year 223 $ 41.19 Granted 91 $ 67.49 Exercised or released ( 122 ) $ 37.93 Expired or canceled ( 3 ) $ 38.52 Outstanding at June 30, 2024 189 $ 56.04 Exercisable at June 30, 2024 189 $ 56.04 (1) Represents weighted average market value of the shares; awards are granted at no cost to the recipients. Performance Share Units (“PSUs”) – PSUs are earned based on our financial performance over a contractual term of three years and the associated expense is recognized over that period based on the fair value of the award. A three-year cliff vesting schedule of the PSUs is dependent upon the Company’s performance relative to pre-established goals based on an earnings per share target (weighted 70 %) and total growth in revenue (weighted 30 %). The fair value of PSUs is calculated using the market value of a share of our common stock on the date of grant. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 200 % of the number of PSUs initially granted. The following table presents our PSUs activity during the six months ended June 30, 2024 (in thousands, except per share data): Performance Share Units Weighted Average Grant-Date Fair Value Per Unit (1) Outstanding at beginning of year 464 $ 33.84 Granted 70 $ 66.07 Vested ( 273 ) $ 27.51 Canceled ( 7 ) $ 39.09 Outstanding at June 30, 2024 254 $ 49.42 (1) Represents weighted average market value of the PSUs; PSUs are granted at no cost to the recipients. 15 NOTE 10. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net Income $ 19,793 $ 26,863 $ 96,677 $ 100,023 Denominator: Basic Weighted average common shares outstanding 50,111 49,963 50,079 50,164 Diluted Stock options (1) 80 198 77 235 Restricted stock units and awards (1) 73 79 80 95 Performance share units — 106 — 106 Contingent shares (2) 12 39 12 39 Diluted weighted average common shares outstanding (3) 50,276 50,385 50,248 50,639 Basic earnings per share $ 0.39 $ 0.54 $ 1.93 $ 1.99 Diluted earnings per share $ 0.39 $ 0.53 $ 1.92 $ 1.98 (1) A total of 9 thousand and 96 thousand shares of stock-based awards were excluded from the calculation of diluted earnings per share for three and six months ended June 30, 2024, respectively, as their effect would be anti-dilutive. A total of 12 thousand and 53 thousand shares of stock-based awards were excluded from the calculation of diluted earnings per share for three and six months ended June 30, 2023 , respectively, as their effect would be anti-dilutive. (2) Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by us once future considerations have been met. (3) The denominator used in calculating diluted earnings per share did not include 254 thousand PSUs for both the three and six months ended June 30, 2024. T he denominator used in calculating diluted earnings per share did not include 220 thousand PSUs for both the three and six months ended June 30, 2023.The performance conditions associated with these PSUs were not met and consequently none of these PSUs were considered as issuable for the three and six months ended June 30, 2024 and 2023. 16 NOTE 11. SEGMENT DISCLOSURES Our business units have been aggregated into three practice groups: Financial Services, Benefits and Insurance Services and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment in which they operate; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines. A general description of services provided by each practice group is provided in the table below. Financial Services Benefits and Insurance Services National Practices Accounting and Tax Employee Benefits Consulting Information Technology Managed Networking and Hardware Services Financial Advisory Payroll / Human Capital Management Healthcare Consulting Valuation Property and Casualty Insurance Risk and Advisory Services Retirement and Investment Services Government Healthcare Consulting Corporate and Other - Included in Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses primarily consist of certain health care costs, gains or losses attributable to assets held in our non-qualified deferred compensation plan, stock-based compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses. Accounting policies of the practice groups are the same as those described in Note 1, Basis of Presentation and Significant Accounting Policies, to the Annual Report on Form 10-K for the year ended December 31, 2023. Upon consolidation, intercompany accounts and transactions are eliminated, thus inter-segment revenue is not included in the measure of profit or loss for the practice groups. Performance of the practice groups is evaluated on income (loss) before income tax expense (benefit) excluding those costs listed above, which are reported in the “Corporate and Other”. Segment information for the three and six months ended June 30, 2024 and 2023 is presented below. We do not manage our assets on a segment basis, therefore segment assets are not presented below. The following table disaggregates our revenue by source (in thousands): Three Months Ended June 30, 2024 Financial Services Benefits and Insurance Services National Practices Consolidated Accounting, tax, advisory and consulting $ 309,233 — — $ 309,233 Core benefits and insurance services — 93,533 — 93,533 Non-core benefits and insurance services — 3,886 — 3,886 Managed networking, hardware services — — 10,250 10,250 National practices consulting — — 3,110 3,110 Total revenue $ 309,233 $ 97,419 $ 13,360 $ 420,012 Three Months Ended June 30, 2023 Financial Services Benefits and Insurance Services National Practices Consolidated Accounting, tax, advisory and consulting $ 290,930 — — $ 290,930 Core benefits and insurance services — 91,031 — 91,031 Non-core benefits and insurance services — 4,807 — 4,807 Managed networking, hardware services — — 9,067 9,067 National practices consulting — — 2,667 2,667 Total revenue $ 290,930 $ 95,838 $ 11,734 $ 398,502 17 Six Months Ended June 30, 2024 Financial Services Benefits and Insurance Services National Practices Consolidated Accounting, tax, advisory and consulting $ 681,863 — — $ 681,863 Core benefits and insurance services — 198,738 — 198,738 Non-core benefits and insurance services — 7,089 — 7,089 Managed networking, hardware services — — 20,438 20,438 National practices consulting — — 6,181 6,181 Total revenue $ 681,863 $ 205,827 $ 26,619 $ 914,309 Six Months Ended June 30, 2023 Financial Services Benefits and Insurance Services National Practices Consolidated Accounting, tax, advisory and consulting $ 634,016 — — $ 634,016 Core benefits and insurance services — 187,648 — 187,648 Non-core benefits and insurance services — 8,244 — 8,244 Managed networking, hardware services — — 18,021 18,021 National practices consulting — — 5,179 5,179 Total revenue $ 634,016 $ 195,892 $ 23,200 $ 853,108 Segment information for the three months ended June 30, 2024 and 2023 was as follows (in thousands): Three Months Ended June 30, 2024 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 309,233 $ 97,419 $ 13,360 $ — $ 420,012 Operating expenses 262,809 83,243 12,028 8,288 366,368 Gross margin 46,424 14,176 1,332 ( 8,288 ) 53,644 Corporate general and administrative expenses — — — 22,050 22,050 Operating income (loss) 46,424 14,176 1,332 ( 30,338 ) 31,594 Other income (expense): Interest expense — — — ( 5,884 ) ( 5,884 ) Other income, net 128 43 ( 4 ) 2,316 2,483 Total other income (expense), net 128 43 ( 4 ) ( 3,568 ) ( 3,401 ) Income (loss) before income tax expense $ 46,552 $ 14,219 $ 1,328 $ ( 33,906 ) $ 28,193 18 Three Months Ended June 30, 2023 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 290,930 $ 95,838 $ 11,734 $ — $ 398,502 Operating expenses 243,445 78,374 10,545 11,623 343,987 Gross margin 47,485 17,464 1,189 ( 11,623 ) 54,515 Corporate general and administrative expenses — — — 15,793 15,793 Operating income (loss) 47,485 17,464 1,189 ( 27,416 ) 38,722 Other income (expense): Interest expense — — — ( 5,534 ) ( 5,534 ) Other income, net 235 153 1 5,032 5,421 Total other income (loss), net 235 153 1 ( 502 ) ( 113 ) Income (loss) before income tax expense $ 47,720 $ 17,617 $ 1,190 $ ( 27,918 ) $ 38,609 Segment information for the six months ended June 30, 2024 and 2023 was as follows (in thousands): Six Months Ended June 30, 2024 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 681,863 $ 205,827 $ 26,619 $ — $ 914,309 Operating expenses 528,370 166,880 23,961 23,642 742,853 Gross margin 153,493 38,947 2,658 ( 23,642 ) 171,456 Corporate general and administrative expenses — — — 40,761 40,761 Operating income (loss) 153,493 38,947 2,658 ( 64,403 ) 130,695 Other income (expense): Interest expense — — — ( 10,395 ) ( 10,395 ) Other income, net 214 87 ( 4 ) 11,610 11,907 Total other income (expense), net 214 87 ( 4 ) 1,215 1,512 Income (loss) before income tax expense $ 153,707 $ 39,034 $ 2,654 $ ( 63,188 ) $ 132,207 Six Months Ended June 30, 2023 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 634,016 $ 195,892 $ 23,200 $ — $ 853,108 Operating expenses (income) 487,888 155,297 21,128 20,685 684,998 Gross margin 146,128 40,595 2,072 ( 20,685 ) 168,110 Corporate general and administrative expenses — — — 31,391 31,391 Operating income (loss) 146,128 40,595 2,072 ( 52,076 ) 136,719 Other income (expense): Interest expense — ( 1 ) — ( 9,174 ) ( 9,175 ) Gain on sale of operations, net 99 — — — 99 Other income (expense), net 490 330 1 9,712 10,533 Total other income (expense), net 589 329 1 538 1,457 Income (loss) before income tax expense $ 146,717 $ 40,924 $ 2,073 $ ( 51,538 ) $ 138,176 19 NOTE 12. SUBSEQUENT EVENTS On July 30, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Marcum LLP, a New York registered limited liability partnership (“Marcum”), Marcum Advisory Group LLC, a Delaware limited liability company and wholly owned subsidiary of Marcum (“MAG”), PMMS LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Merger Sub”), and Marcum Partners SPV LLC, a Delaware limited liability company. Under the terms of the Merger Agreement, Merger Sub will merge with and into MAG, with MAG continuing as the surviving entity and as a wholly owned subsidiary of the Company (the “Merger”). Prior to the closing of the Merger, Marcum will contribute substantially all of its non-attest business assets to MAG and MAG will assume substantially all of Marcum’s liabilities, in each case subject to certain exclusions. In a separate transaction, Mayer Hoffman McCann P.C., a national independent Certified Public Accounting firm with which the Company has an existing Administrative Service Agreement, will purchase from Marcum substantially all of Marcum’s attest business assets (the “Attest Purchase”). The Merger and the transactions contemplated by the Merger Agreement are referred to herein as the “Transaction.” Subject to the satisfaction of the conditions described below and other customary closing conditions, the Transaction is expected to close in the fourth quarter of 2024. The aggregate consideration to be paid by the Company in connection with the Transaction is approximately $ 2.3 billion, on a cash-free and debt-free basis and subject to calculation and adjustments as provided in the Merger Agreement, of which approximately $ 1.1 billion is expected to be paid in cash and the remainder is expected to be paid in approximately 14.4 million shares of the Company's Common Stock, par value $ 0.01 per share (the "Common Stock") (based on $ 76.84 per share as specified in the Merger Agreement, which was the 30-day volume weighted average price of our Common Stock as of three business days prior to the date of the Merger Agreement. The consideration payable in shares of common stock (the “Shares”) will be delivered as follows: (i) approximately 5 % of the Shares will be subject to continued service requirements and, subject to satisfaction of those requirements, be delivered on the fourth anniversary of the closing (“performance shares”); (ii) excluding those performance shares, approximately 25 % of the Shares will be delivered on the later of three business days following closing and January 2, 2025; and (iii) the remaining approximately 75 % of the Shares, excluding performance shares, will be delivered in 36 monthly installments after the initial delivery. The Shares, once fully issued, will constitute approximately 22 % of the Company's outstanding shares, without giving effect to any subsequent issuances, repurchases or other changes in the number of shares outstanding. Each of the Company, Merger Sub, Marcum and MAG has provided customary representations, warranties and covenants in the Merger Agreement. The completion of the Merger is subject to various closing conditions, including, among others, (a) the expiration of all waiting periods and receipt of all approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (b) the Company obtaining stockholder approval of the issuance of the Shares in connection with the Transaction as required by the rules of the New York Stock Exchange; (c) Marcum obtaining the requisite approval of its partners as specified in the Merger Agreement; (d) the Company obtaining debt financing as contemplated by the commitment letter described below; and (e) the completion of the Attest Purchase. The Merger Agreement contains customary termination rights for both the Company and Marcum. Both the Company and Marcum have the right to terminate the Merger Agreement if the Transaction is not consummated on or prior to May 1, 2025, subject to certain exceptions. In the case of certain terminations under the circumstances described in the Merger Agreement, the Company may be required to pay a termination fee to Marcum of $ 48.0 million if debt financing is not obtained or $ 25.0 million if approval of the Company’s stockholders is not obtained or the Company’s board changes its recommendation with respect to the Transaction. Marcum may be required to pay a termination fee to the Company of $ 22.0 million if the requisite approval of Marcum partners is not obtained within the time period specified in the Merger Agreement. The Company has obtained committed financing to, among other things, fund the cash portion of the purchase price pursuant to a commitment letter (the “Commitment Letter”) entered into on July 30, 2024, with Bank of America, N.A. and BofA Securities, Inc., which provides commitments for senior secured credit facilities (the “Senior Credit Facilities”) in an aggregate principal amount of $ 2.0 billion, consisting of (x) a $ 600 million five year senior secured revolving credit facility and (y) a $ 1.4 billion five year senior secured term loan facility. The funding of the Senior Credit Facilities is contingent on the satisfaction of customary conditions, including (i) execution and delivery of definitive documentation with 20 respect to the Senior Credit Facilities in accordance with the terms set forth in the Commitment Letter and (ii) consummation of the acquisition of Marcum. 21