CBIZ, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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., and its operating subsidiaries. The following discussion is intended to assist in the understanding of our financial position at September 30, 2024 and December 31, 2023, results of operations for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 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 this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2023. 22 OVERVIEW 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 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: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 11, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements for a general description of services provided by each practice group. Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations. EXECUTIVE SUMMARY Revenue for the three months ended September 30, 2024 increased by $28.3 million, or 6.9%, to $438.9 million from $410.5 million for the same period in 2023. Same-unit revenue increased by approximately $20.8 million, or 5.1%, as compared to the same period in 2023. Revenue from newly acquired operations contributed $8.4 million, or 1.9%, of incremental revenue for the three months ended September 30, 2024, as compared to the same period in 2023. Revenue for the nine months ended September 30, 2024 increased by $89.5 million, or 7.1%, to $1,353.2 million from $1,263.6 million for the same period in 2023. Same-unit revenue increased by approximately $58.7 million, or 4.6%, as compared to the same period in 2023. Revenue from newly acquired operations contributed $31.7 million, or 2.3%, of incremental revenue for the nine months ended September 30, 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 $35.1 million, or $0.70 per diluted share, in the third quarter of 2024, compared to $33.7 million, or $0.67 per diluted share, in the third quarter of 2023. For the nine months ended September 30, 2024, net income was $131.8 million, or $2.62 per diluted share, compared to $133.7 million, or $2.64 per diluted share, for the same period in 2023. Refer to “Results of Operations" for a detailed discussion of the components of net income. On November 1, 2024, we completed the previously announced Transaction. In connection with the closing of the Transaction, we entered into the 2024 Credit Facilities. Refer to Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements for further discussion regarding the Transaction and related 2024 Credit Facilities. Strategic Use of Capital Our overall business objective continues to focus on making strategic acquisitions that allow us to strengthen our presence in existing markets, expand into high growth industries, and broaden our services to our existing offerings. As a result of the Transaction and related 2024 Credit Facilities as described in Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements, we have $1,465.5 million outstanding debt under the 2024 Credit Facilities as of November 1, 2024. To achieve our business objective of making strategic acquisitions, our current priority for use of capital is to maximize cash flow to pay down debt, which will allow us more liquidity to make strategic acquisitions in the future. In addition, 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, 2024, we completed three acquisitions for $22.5 million in cash. We also repurchased 0.2 million shares of our common stock for tax withholding purposes at a total cost of approximately $11.4 million in the nine months ended September 30, 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 purchases based on its evaluation of market conditions and other factors. 23 RESULTS OF OPERATIONS Revenue The following tables summarize total revenue for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 % of Total 2023 % of Total $ Change % Change (Amounts in thousands, except percentages) Financial Services $ 322,295 73.4 % $ 298,372 72.7 % $ 23,923 8.0 % Benefits and Insurance Services 104,040 23.7 % 100,287 24.4 % 3,753 3.7 % National Practices 12,549 2.9 % 11,880 2.9 % 669 5.6 % Total CBIZ $ 438,884 100.0 % $ 410,539 100.0 % $ 28,345 6.9 % Nine Months Ended September 30, 2024 % of Total 2023 % of Total $ Change % Change (Amounts in thousands, except percentages) Financial Services $ 1,004,158 74.2 % $ 932,388 73.8 % $ 71,770 7.7 % Benefits and Insurance Services 309,867 22.9 % 296,179 23.4 % 13,688 4.6 % National Practices 39,168 2.9 % 35,080 2.8 % 4,088 11.7 % Total CBIZ $ 1,353,193 100.0 % $ 1,263,647 100.0 % $ 89,546 7.1 % A detailed discussion of same-unit revenue by practice group is included under “Operating Practice Groups.” Non-qualified Deferred Compensation Plan We sponsor a Non-qualified Deferred Compensation Plan (the "deferred compensation plan"), under which a CBIZ employee’s compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee. Income and expenses related to the deferred compensation plan, which are recorded in "Corporate and Other" for segment reporting purposes, are included in “Operating expenses”, “Gross margin” and “Corporate general and administrative expenses” and are directly offset by deferred compensation gains or losses in “Other (expense) income, net” in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income. The 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, 2024 and 2023 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (Amounts in thousands) Operating expense (income) $ 7,305 $ (3,009) $ 18,164 $ 6,853 Corporate general & administrative expense (income) 1,064 (452) 2,444 821 Other income (expenses), net 8,369 (3,461) 20,608 7,674 24 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, 2024 and 2023 are as follows: Three Months Ended September 30, 2024 2023 (Amounts in thousands, except percentages) As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue Gross margin $ 72,913 $ 7,305 $ 80,218 18.3 % $ 68,391 $ (3,009) $ 65,382 15.9 % Operating income 49,686 8,369 58,055 13.2 % 55,255 (3,461) 51,794 12.6 % Other income (expense), net 1,300 (8,369) (7,069) (1.6) % (2,288) 3,461 1,173 0.3 % Income before income tax expense 50,971 — 50,971 11.6 % 47,196 — 47,196 11.5 % Nine Months Ended September 30, 2024 2023 (Amounts in thousands, except percentages) As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue Gross margin $ 244,369 $ 18,164 $ 262,533 19.4 % $ 236,501 $ 6,853 $ 243,354 19.3 % Operating income 180,381 20,608 200,989 14.9 % 191,974 7,674 199,648 15.8 % Other income (expense), net 13,207 (20,608) (7,401) (0.5) % 8,245 (7,674) 571 — % Income before income tax expense 183,178 — 183,178 13.5 % 185,372 — 185,372 14.7 % 25 Operating Expenses The following tables summarize total operating expenses for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Operating expenses by segment: Financial Services $ 260,639 $ 249,680 $ 10,959 4.4 % Benefits and Insurance Services 82,965 79,636 3,329 4.2 % National Practices 11,101 10,667 434 4.1 % Corporate and Other 11,266 2,165 9,101 N/M Total Operating expenses $ 365,971 $ 342,148 $ 23,823 7.0 % Operating expenses % of revenue 83.4 % 83.3 % Operating expenses excluding deferred compensation $ 358,666 $ 345,157 $ 13,509 3.9 % Operating expenses excluding deferred compensation % of revenue 81.7 % 84.1 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Operating expenses by segment: Financial Services $ 789,009 $ 737,568 $ 51,441 7.0 % Benefits and Insurance Services 249,845 234,933 $ 14,912 6.3 % National Practices 35,062 31,795 $ 3,267 10.3 % Corporate and Other 34,908 22,850 $ 12,058 52.8 % Total Operating expenses $ 1,108,824 $ 1,027,146 $ 81,678 8.0 % Operating expenses % of revenue 81.9 % 81.3 % Operating expenses excluding deferred compensation $ 1,090,660 $ 1,020,293 $ 70,367 6.9 % Operating expenses excluding deferred compensation % of revenue 80.6 % 80.7 % Three months ended September 30, 2024 compared to September 30, 2023. Total operating expenses for the three months ended September 30, 2024 increased by $23.8 million, or 7.0%, to $366.0 million as compared to $342.1 million in the same period of 2023. The deferred compensation plan increased operating expenses by $7.3 million for the three months ended September 30, 2024, and decreased by $3.0 million during the same period in 2023. Excluding the deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $358.7 million and $345.2 million, or 81.7% and 84.1% of revenue, for the three months ended September 30, 2024 and 2023, respectively. In addition, operating expenses for the three months ended September 30, 2024 included approximately $0.6 million of non-recurring integration costs associated with the Transaction and other acquisitions completed in 2024, and the operating expenses for the three months ended September 30, 2023 included $0.6 million of 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 $13.5 million during the three months ended September 30, 2024 as compared to the same period in 2023, driven by $7.8 million higher personnel costs (of which $4.7 million was the result of acquisitions), $3.2 million higher direct costs, $1.2 million higher travel and entertainment costs, $0.8 26 milli on higher professional service costs, a nd $0.4 million higher other discretionary spending to support business growth . Personnel costs are discussed in further detail under “Operating Practice Groups” below. Nine months ended September 30, 2024 compared to September 30, 2023 . Total operating expenses for the nine months ended September 30, 2024 increased by $81.7 million, or 8.0%, to $1,108.8 million as compared to $1,027.1 million in the same period of 2023. The deferred compensation plan increased operating expenses by $18.2 million for the nine months ended September 30, 2024, and by $6.9 million during the same period in 2023. Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $1,090.7 million and $1,020.3 million, or 80.6% and 80.7% of revenue, for the nine months ended September 30, 2024 and 2023, respectively, an increase of $70.4 million as compared to the same period in 2023. In addition, operating expense for the nine months ended September 30, 2024 included approximately $0.9 million of non-recurring integration costs related to the Transaction and other acquisitions completed in 2024, and operating expenses for the nine months ended September 30, 2023 included $1.5 million of non-recurring integration and retention costs associated with the Somerset acquisition. The increase in operating expense was driven by higher personnel costs of $49.0 million (of which $17.2 million was the result of acquisitions), $7.3 higher direct cost, $4.2 million higher technology costs, $3.4 million higher professional service costs, $3.2 million higher travel and entertainment costs, $1.2 higher depreciation and amortization expense, $1.1 million higher bad debt expense, and $0.9 million higher other discretionary spending to support business growth. Personnel costs are discussed in further detail under “Operating Practice Groups” below. Corporate General & Administrative (“G&A”) Expenses Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) G&A expenses $ 23,227 $ 13,136 $ 10,091 76.8 % G&A expenses % of revenue 5.3 % 3.2 % G&A expenses excluding deferred compensation $ 22,163 $ 13,588 $ 8,575 63.1 % G&A expenses excluding deferred compensation % of revenue 5.0 % 3.3 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) G&A expenses $ 63,988 $ 44,527 $ 19,461 43.7 % G&A expenses % of revenue 4.7 % 3.5 % G&A expenses excluding deferred compensation $ 61,544 $ 43,706 $ 17,838 40.8 % G&A expenses excluding deferred compensation % of revenue 4.5 % 3.5 % Three months ended September 30, 2024 compared to September 30, 2023. The deferred compensation plan increased G&A expenses by $1.1 million for the three months ended September 30, 2024, and decreased G&A expenses by $0.5 million during the same period in 2023. The G&A expenses, excluding the impact of the deferred compensation plan, would have been $22.2 million, or 5.0% of revenue, for the three months ended September 30, 2024, compared to $13.6 million, or 3.3% of revenue, for the same period in 2023, an increase of approximately $8.6 million. The increase was primarily driven by $6.9 million higher legal and other professional services costs largely associated with the Transaction, $1.3 million higher other discretionary spending to support business growth, and $0.4 million higher personnel costs. The G&A expenses for the three months ended September 30, 2024 included approximately $7.7 million of non-recurring transaction and integration costs primarily associated with the Transaction. For the three months ended September 30, 2023 there were no non-recurring transaction and integration costs associated with acquisitions. Nine months ended September 30, 2024 compared to September 30, 2023. The deferred compensation plan increased G&A expenses by $2.4 million for the nine months ended September 30, 2024, and increased G&A expenses by $0.8 million during the same period in 2023. The G&A expenses, excluding the impact of the deferred 27 compensation plan, would have been $61.5 million, or 4.5% of revenue, for the nine months ended September 30, 2024, compared to $43.7 million, or 3.5% of revenue, for the same period in 2023, an increase of approximately $17.8 million. The increase in G&A expenses was primarily driven by $14.8 million higher legal and other professional services costs largely associated with the Transaction, $2.3 millon higher other discretionary spending to support business growth, $0.4 million higher depreciation costs, and $0.3 million higher travel and entertainment costs. In addition, G&A expenses for the nine months ended September 30, 2024 included $15.0 million of non-recurring transaction and integration costs primarily related to the Transaction. The G&A expenses for the nine months ended September 30, 2023 included $1.5 million of non-recurring transaction and integration costs related to the Somerset acquisition. Other Income (Expense), Net Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Interest expense $ (4,968) $ (5,848) $ 880 (15.0) % Gain on sale of operations, net 4,953 77 4,876 N/M Other income (expense), net (1) 1,300 (2,288) 3,588 (156.8) % Total other income (expense), net $ 1,285 $ (8,059) $ 9,344 (115.9) % (1) Other income (expense), net includes a net gain of $8.4 million during the three months ended September 30, 2024, and a net loss of $3.5 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. The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as “Operating expenses” and “G&A expenses.” The deferred compensation plan has no impact on “Income before income tax expense” or diluted earnings per share. In addition, included in Other income, net for the three months ended September 30, 2024 and 2023, is expense of $5.7 million and $0.6 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions. Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Interest expense $ (15,363) $ (15,023) $ (340) 2.3 % Gain on sale of operations, net 4,953 176 4,777 N/M Other income, net (2) 13,207 8,245 4,962 60.2 % Total other income, net $ 2,797 $ (6,602) $ 9,399 (142.4) % (2) Other income, net includes a net gain of $20.6 million during the nine months ended September 30, 2024, and a net gain of $7.7 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. The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as “Operating expenses” and “G&A expenses.” The deferred compensation plan has no impact on “Income before income tax expense” or diluted earnings per share. In addition, included in Other income, net for the nine months ended September 30, 2024 and 2023, is expense of $6.3 million and $2.1 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, 2024 compared with September 30, 2023. During the three months ended September 30, 2024, our average debt balance and weighted average effective interest rate were $350.7 million and 5.37%, respectively, compared to $398.3 million and 5.53% for the same period of 2023. The decrease in interest expense for the three months ended September 30, 2024 as compared to the same period in 2023 was primarily driven by a lower interest rates and lower average debt balance. During the nine months ended September 30, 2024, our average debt balance and interest rate were $362.1 million and 5.40%, respectively, compared to $368.2 million and 5.16% for the same period of 2023. The increase in interest expense for the nine months ended September 30, 2024 as compared to the same period in 2023 was primarily driven by a higher weighted average effective interest rate. 28 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, 2024 compared with September 30, 2023. For the three months ended September 30, 2024, other income (expense), net includes a net gain of $8.4 million associated with the deferred compensation plan. For the same period in 2023, other income (expense), net includes a net loss of $3.5 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan from other income (expense), net would result in a decrease of $8.2 million for the three months ended September 30, 2024 compared to the same period in 2023. The decrease is primarily due to higher expense related to contingent consideration fair value adjustments of $5.1 million, as a result of assuming $5.3 million contingent purchase price liabilities from CBIZ CPAs P.C., and higher other expenses of $1.7 million. In addition, we recorded $1.4 million of gains from the sale of certain assets in 2023 which did not recur in 2024. For the nine months ended September 30, 2024, other income (expense), net includes a net gain of $20.6 million associated with the deferred compensation plan. For the same period in 2023, other income (expense), net includes a net gain of $7.7 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan from the other income (expense), net would result in a decrease of $8.0 million for the nine months ended September 30, 2024 compared to the same period in 2023. The decrease is primarily due to higher expense related to contingent consideration fair value adjustments of $4.3 million, as a result of assuming $5.3 million contingent purchase price liabilities from CBIZ CPAs P.C, and higher other expenses of $2.1 million. In addition, we recorded $1.6 million of gains from the sale of certain assets in 2023 which did not recur in 2024. Further discussion related to the fair value contingent consideration adjustment is included in Note 5, Fair Value Measurements, to the accompanying unaudited condensed financial statements. Income Tax Expense Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Income tax expense $ 15,887 $ 13,514 $ 2,373 17.6 % Effective tax rate 31.2 % 28.6 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Income tax expense $ 51,417 $ 51,667 $ (250) (0.5) % Effective tax rate 28.1 % 27.9 % 29 Three and nine months ended September 30, 2024 compared with September 30, 2023. The effective tax rate for the three months ended September 30, 2024 was 31.2%, compared to an effective tax rate of 28.6% for the comparable period in 2023. The increase in the effective tax rate for the three month period ended September 30, 2024 was primarily due to a lower tax benefit recognized related to stock-based compensation expense during the third quarter of 2024 compared to the same period in 2023, which adversely affected the effective tax rate as related to pre-tax income. The effective tax rate for the nine months ended September 30, 2024 was 28.1%, compared to an effective tax rate of 27.9% for the same period in 2023. The slight increase in the effective tax rate for the nine month period ended September 30, 2024 was primarily due to a lower tax benefit recognized related to stock-based compensation expense during the third quarter of 2024 compared to the same period in 2023, which adversely affected the effective tax rate as related to pre-tax income. This increase in the effective tax rate was partially offset by the tax effect of lower non-deductible expenses and lower state expenses during the nine months ended September 30, 2024 as compared to the same period in 2023. Operating Practice Groups We deliver our integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. A description of these groups' operating results and factors affecting their businesses is provided below. Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. Divested operations represent operations that did not meet the criteria for treatment as discontinued operations. 30 Financial Services Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 313,861 $ 298,372 $ 15,489 5.2 % Acquired businesses 8,434 — 8,434 N/M Total revenue $ 322,295 $ 298,372 $ 23,923 8.0 % Operating expenses 260,639 249,680 10,959 4.4 % Gross margin / Operating income $ 61,656 $ 48,692 $ 12,964 26.6 % Total other income, net 15 1,574 (1,559) (99.0) % Income before income tax expense 61,671 50,266 11,405 22.7 % Gross margin percent 19.1 % 16.3 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 974,118 $ 932,388 $ 41,730 4.5 % Acquired businesses 30,040 — 30,040 N/M Total revenue $ 1,004,158 $ 932,388 $ 71,770 7.7 % Operating expenses 789,009 737,568 51,441 7.0 % Gross margin / Operating income $ 215,149 $ 194,820 $ 20,329 10.4 % Total other income, net 229 2,163 (1,934) (89.4) % Income before income tax expenses 215,378 196,983 18,395 9.3 % Gross margin percent 21.4 % 20.9 % Three months ended September 30, 2024 compared to September 30, 2023 Revenue The Financial Services practice group revenue for the three months ended September 30, 2024 grew by 8.0% to $322.3 million from $298.4 million during the same period in 2023. Same-unit revenue grew by $15.5 million, or 5.2%, primarily driven by those units that provide traditional accounting and tax-related services, which increased by $8.5 million, the units that provide advisory services, which increased by approximately $4.3 million, and the units that provide government healthcare compliance business consulting, which increased by approximately $2.7 million. The impact of acquired businesses contributed $8.4 million, or 2.6%, 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 $60.9 million and $60.5 million for the three months ended September 30, 2024 and 2023, respectively. Operating Expenses Operating expenses increased by $11.0 million, or 4.4%, as compared to the same period last year. Personnel costs increased by $5.6 million, of which acquisitions contributed approximately $4.7 million to the increase. Compared to the same period in 2023, direct costs, professional services costs, and facility costs increased by approximately $4.2 million, $0.8 million, and $0.4 million, respectively. Operating expenses as a percentage of revenue decreased slightly to 80.9% for the three months ended September 30, 2024 from 83.7% of revenue for the prior year quarter. 31 Nine months ended September 30, 2024 compared to September 30, 2023 Revenue Revenue for the nine months ended September 30, 2024 grew by 7.7% to $1,004.2 million from $932.4 million during the same period in 2023. Same-unit revenue grew by $41.7 million, or 4.5%, across almost all service lines, primarily driven by the units that provide traditional accounting and tax-related services, which increased $17.5 million, the units that provide government healthcare compliance business consulting, which increased by $15.6 million, and the units that provide advisory services, which increased by approximately $8.6 million . The impact of acquired businesses contributed a total of $30.0 million, or 3.0%, of Financial Services practice group's revenue for the nine months ended September 30, 2024. Fees earned under the ASAs, as described above, were approximatel y $217.7 million and $211.2 million f or the nine months ended September 30, 2024 and 2023, respectively. Operating Expenses Operating expenses increased by $51.4 million, or 7.0%, as compared to the same period last year. Personnel costs increased by $32.1 million, of which acquisitions contributed approximately $10.9 million to the increase. Compared to the same period in 2023, direct costs, professional services costs, facility costs, technology costs, corporate allocated costs, depreciation and amortization costs, and bad debt increased by approximately $8.3 million, $2.7 million, $2.5 million, $2.3 million, $1.4 million, $1.2 million, and $0.7 million, respectively. Other discretionary cost s, net, increased by approximately $0.2 million. Operating expense as a percentage of revenue decreased to 78.6% during the nine months ended September 30, 2024 from 79.1% of revenue during the same period in 2023. 32 Benefits and Insurance Services Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 104,040 $ 100,287 $ 3,753 3.7 % Acquired businesses — — N/M Total revenue $ 104,040 $ 100,287 $ 3,753 3.7 % Operating expenses 82,965 79,636 3,329 4.2 % Gross margin / Operating income $ 21,075 $ 20,651 $ 424 2.1 % Total other income, net 2 267 (265) (99.3) % Income before income tax expense 21,077 20,918 159 0.8 % Gross margin percent 20.3 % 20.6 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit $ 308,161 $ 296,179 $ 11,982 4.0 % Acquired businesses 1,706 — 1,706 N/M Total revenue $ 309,867 $ 296,179 $ 13,688 4.6 % Operating expenses 249,845 234,933 14,912 6.3 % Gross margin/ Operating income $ 60,022 $ 61,246 $ (1,224) (2.0) % Total other income, net 89 596 (507) (85.1) % Income before income tax expenses 60,111 61,842 (1,731) (2.8) % Gross margin percent 19.4 % 20.7 % Three months ended September 30, 2024 compared to September 30, 2023 Revenue The Benefits and Insurance Services practice group revenue increased by $3.8 million, or 3.7%, to $104.0 million during the three months ended September 30, 2024 compared to $100.3 million for the same period in 2023. Same-unit revenue grew by $3.8 million, or 3.7%, across almost all of the major service lines, primarily driven by a $2.9 million increase in the employee benefit and retirement benefit services lines, a $0.6 million i ncrease in the property and casualty services, and a $0.7 million increase in payroll-related services. The increase was offset by a $0.4 million decrease in project based services revenue. Operating Expenses Operating expenses increased by $3.3 million, or 4.2%, when compared to the same period last year. Personnel costs increased by $2.1 million, primarily due to the impact of annual merit increases as well as investment in client service personnel. Compared to the same period in 2023, travel and entertainment costs, direct costs, technology costs, and bad debt increased by approximate ly $0.6 million, $0.3 million, $0.2 million, and $0.1 million, respectively. Operating expenses as a percentage of revenue increased to 79.7% for the quarter ended September 30, 2024 from 79.4% of revenue for the same period in 2023, primarily due to decrease in revenue generated from the property and casualty services. Nine months ended September 30, 2024 compared to September 30, 2023 Revenue The Benefits and Insurance Services practice group revenue increased by $13.7 million, or 4.6%, to $309.9 million, during the nine months ended September 30, 2024 compared to $296.2 million for the same period in 2023. Same-unit revenue grew by $12.0 million, or 4.0%, across almost all of the major service lines, primarily driven b y a $10.6 million inc rease in employee benefit and retirement benefit services lines, a $2.0 million i ncrease in payroll related 33 services, and a $1.0 million increase in the property and casualty services, partially offset by an approximately $1.2 million decrease in other project based services. Operating Expenses Operating expenses increased by $14.9 million, or 6.3%, when compared to the same period last year. Personnel cost increased by $12.0 million primarily due to timing of annual merit increases, bonus accrual, as well as investment in client service personnel. Compared to the same period in 2023, technology costs, direct costs, travel and entertainment costs, facility costs, as well as professional service costs increased by approximately $0.8 million, $0.6 million, $0.5 million, $0.4 million, and $0.4 million, respectively. Other discretionary costs, net increased by approximately $0.2 million. Operating expense as a percentage of revenue slightly increased to 80.6% during the nine months ended September 30, 2024 from 79.3% of revenue for the same period in 2023. 34 National Practices Three Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit revenue $ 12,549 $ 11,008 $ 1,541 14.0 % Divested operations $ — 872 $ (872) (100.0) % Total Revenue $ 12,549 $ 11,880 $ 669 5.6 % Operating expenses 11,101 10,667 434 4.1 % Gross margin / Operating income $ 1,448 $ 1,213 $ 235 19.4 % Total other (expense) income, net 4,953 — 4,953 N/M Income before income tax expenses 6,401 1,213 5,188 427.7 % Gross margin percent 11.5 % 10.2 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Revenue Same-unit revenue $ 39,168 $ 34,208 $ 4,960 14.5 % Divested operations — 872 (872) (100.0) % Total Revenue $ 39,168 $ 35,080 $ 4,088 11.7 % Operating expenses 35,062 31,795 3,267 10.3 % Gross margin / Operating income $ 4,106 $ 3,285 $ 821 25.0 % Total other (expense) income, net 4,949 1 4,948 N/M Income before income tax expenses 9,055 3,286 5,769 175.6 % Gross margin percent 10.5 % 9.4 % Three and nine months ended September 30, 2024 compared with September 30, 2023 Revenue and Operating Expenses The National Practices group is primarily driven by a cost-plus contract with a single client, which has existed since 1999. The cost-plus contract is a five-year contract with the most recent renewal through December 31, 2028. 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, 2024, revenue increased by $1.5 million, or 14.0%, and $5.0 million, or 14.5%, respectively, while operating expenses increased by $0.4 million, or 4.1%, and $3.3 million, or 10.3%, respectively. 35 Corporate and Other 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 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, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Operating expenses $ 11,266 $ 2,165 9,101 420.4 % Corporate general and administrative expenses 23,227 13,136 10,091 76.8 % Operating loss (34,493) (15,301) (19,192) 125.4 % Total other expense, net (3,685) (9,900) 6,215 (62.8) % Loss before income tax expense (38,178) (25,201) (12,977) 51.5 % Nine Months Ended September 30, 2024 2023 $ Change % Change (Amounts in thousands, except percentages) Operating expenses $ 34,908 $ 22,850 12,058 52.8 % Corporate general and administrative expenses 63,988 44,527 19,461 43.7 % Operating loss (98,896) (67,377) (31,519) 46.8 % Total other expense, net (2,470) (9,362) 6,892 (73.6) % Loss before income tax expenses (101,366) (76,739) (24,627) 32.1 % Three months ended September 30, 2024 compared to September 30, 2023 Total operating expenses increased by $9.1 million during the three months ended September 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased operating expenses by $7.3 million for the three months ended September 30, 2024 and decreased operating expenses by $3.0 million during the same period in 2023. Excluding the deferred compensation expenses, operating expenses decreased by $1.1 million during the three months ended September 30, 2024, as compared to the same period in 2023. The decrease was primarily driven by lower marketing as well as facility related costs. Total corporate general and administrative expenses increased by $10.1 million, or 76.8%, during the three months ended September 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased corporate general and administrative expenses by $1.1 million for the three months ended September 30, 2024 and decreased corporate general and administrative expenses by $0.5 million during the same period in 2023. Excluding the deferred compensation expenses, corporate general and administrative expense increased by approximately $8.6 million during the three months ended September 30, 2024, as compared to the same period in 2023. The increase was primarily driven by $6.9 million higher legal and other professional services costs largely associated with the Transaction, $1.3 million higher other discretionary spending to support business growth, and $0.4 million higher personnel costs. G&A expenses for the three months ended September 30, 2024 included approximately $7.7 million of non-recurring transaction and integration costs primarily associated with the Transaction. For the three months ended September 30, 2023, there were no non-recurring transaction and integration costs associated with acquisitions. Total other income (expense), net increased by $6.2 million during the three months ended September 30, 2024, as compared to the same period in 2023. For the three months ended September 30, 2024, total other expense, net includes a net gain of $8.4 million associated with the deferred compensation plan. For the same period in 2023, total other expense, net includes a net loss of $3.5 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, total other income (expense), net decreased by $5.6 million, primarily due to higher expense related to contingent consideration fair value adjustments of $5.1 million, as a result of assuming $5.3 million contingent purchase price liabilities from CBIZ CPAs P.C., and $1.3 million higher other expenses, and partially offset by a decrease of $0.8 million in interest expense. 36 Nine months ended September 30, 2024 compared to September 30, 2023 Total operating expenses increased by $12.1 million, or 52.8%, during the nine months ended September 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased operating expenses by $18.2 million for the nine months ended September 30, 2024, and by $6.9 million during the same period in 2023. Excluding the deferred compensation expenses, operating expense increased by approximately $0.8 million during the nine months ended September 30, 2024 , primarily driven by higher personnel related costs, as compared to the same period in 2023. Total G&A expenses increased by $19.5 million, or 43.7%, during the nine months ended September 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased G&A expenses by $2.4 million for the nine months ended September 30, 2024, and by $0.8 million during the same period in 2023. Excluding the deferred compensation expenses, G&A expenses increased by approximately $17.8 million during the nine months ended September 30, 2024, compared to the same period in 2023. The increase in G&A expenses was primarily driven by $14.8 million higher legal and other professional services costs largely associated with the Transaction, $2.3 millon higher other discretionary spending to support business growth, $0.4 million higher depreciation costs, and $0.3 million higher travel and entertainment costs. In addition, G&A expenses for the nine months ended September 30, 2024 included $15.0 million of non-recurring transaction and integration costs primarily related to the Transaction. G&A expenses for the nine months ended September 30, 2023 included $1.5 million of non-recurring transaction and integration costs related to the Somerset acquisition. Total other income (expense), net increased by $6.9 million during the nine months ended September 30, 2024, as compared to the same period in 2023. Total other income (expense), net for the nine months ended September 30, 2024 includes a net gain of $20.6 million associated with the deferred compensation plan. For the same period in 2023, total other income, net includes a net gain of $7.7 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, total other income (expense), net decreased by $6.0 million, primarily due to higher expense related to contingent consideration fair value adjustments of $4.3 million, as a result of assuming $5.3 million contingent purchase price liabilities from CBIZ CPAs P.C., $1.4 million higher other expenses, and $0.3 million higher interest expense. 37 LIQUIDITY Our principal sources of liquidity are cash generated from operating activities and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements while our cash flows from financing activities are dependent upon our ability to access credit or other capital. We historically maintain low cash levels and apply any available cash to pay down the outstanding debt balance. We historically experience a use of cash to fund working capital requirements during the first quarter of each fiscal year. This is primarily due to the seasonal accounting and tax services period under the Financial Services practice group, as well as payment of accrued employees' incentives programs. 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. A significant amount of this revenue is billed and collected in subsequent quarters. Days sales outstanding (“DSO”) represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve months' daily revenue. We provide DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of our ability to collect on receivables in a timely manner. Trailing-twelve-month DSO, including the impact of acquisitions, was 97 days and 96 days at September 30, 2024 and 2023, respectively. DSO at December 31, 2023 was 78 days. The following table presents selected cash flow information. For additional details, refer to the accompanying Condensed Consolidated Statements of Cash Flows. Nine Months Ended September 30, 2024 2023 (Amounts in thousands) Net cash provided by operating activities $ 68,168 $ 57,254 Net cash used in investing activities (24,911) (76,630) Net cash used in financing activities (85,222) (18,442) Net decrease in cash, cash equivalents and restricted cash $ (41,965) $ (37,818) Operating Activities - Cash provided by operating activities was $68.2 million during the nine months ended September 30, 2024, primarily consisted of working capital use of $108.4 million, which was offset by net income of $131.8 million and certain non-cash items, such as depreciation and amortization expense of $28.6 million, deferred income tax of $4.8 million, stock-based compensation expense of $7.4 million, and an adjustment to contingent earnout liability of $6.3 million. Cash provided by operating activities was $57.3 million during the nine months ended September 30, 2023 and 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 during the nine months ended September 30, 2023. Investing Activities - Cash used in investing activities during the nine months ended September 30, 2024 was $24.9 million and consisted primarily of $22.9 million used for business acquisitions, $9.7 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 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. During the nine months ended September 30, 2023, the use of cash was offset by $5.2 million net cash inflow related to funds held for clients and other activities, $1.5 million related to the sale of one technology asset and $0.2 million in other cash payments related to certain prior divestitures. 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. 38 Financing Activities - Cash used in financing activities during the nine months ended September 30, 2024 was $85.2 million and primarily consisted of $24.9 million in net proceeds from the credit facility, partially offset by $11.4 million cash used in share repurchases for tax withholding purposes, a $47.6 million net decrease in client fund obligations and $50.9 million in contingent consideration payments related to prior acquisitions. 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 in proceeds from the exercise of stock options. CAPITAL RESOURCES Credit Facility - At September 30, 2024, we had $337.3 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 $252.0 million at September 30, 2024. The weighted average interest rate under the 2022 credit facility was 5.40% during the nine months ended September 30, 2024, compared to 5.16% 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. As a result of the Transaction and related 2024 Credit Facilities as described in Note 12. Subsequent Events, to the accompanying unaudited condensed consolidated financial statements, we have $1,465.5 million of outstanding debt under the 2024 Credit Facilities as of November 1, 2024. 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, 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 as well as our 2024 Credit Facilities, refer to Note 4, Debt and Financing Arrangements and Note 12, Subsequent Events, respectively, to the accompanying unaudited condensed consolidated financial statements. Use of Capital - Our overall business objective continues to focus on making strategic acquisitions that allow us to strengthen our presence in existing markets, expand into high growth industries, and broaden our services to our existing offerings. As a result of the Transaction and related 2024 Credit Facilities as described in Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements, we have $1,465.5 million of outstanding debt under the 2024 Credit Facilities as of November 1, 2024. To achieve our business objective of making strategic acquisitions, our current priority for use of capital is to maximize cash flow to pay down debt, which will allow us more liquidity to make strategic acquisitions in the future. In addition, we also have the financing flexibility and the capacity to actively repurchase shares of our common stock. 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, 2024, we completed three acquisitions for $22.5 million in cash. During the nine months ended September 30, 2024, we also repurchased 0.2 million shares of our common stock for tax withholding purposes at a total cost of approximately $11.4 million. Cash Requirements - Cash requirements for the remainder of 2024 and beyond will include the repayment of outstanding debt and related interest, making strategic acquisitions, funding seasonal working capital requirements, making 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 2024 Credit Facilities will be sufficient to meet cash requirements for the remainder of 2024 and beyond. Refer to Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements for further discussion of the 2024 Credit Facilities. OFF-BALANCE SHEET ARRANGEMENTS 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 39 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 $3.2 million and $3.5 million at September 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 $2.2 million and $2.3 million at September 30, 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. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by us under such indemnification clauses is generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of September 30, 2024, we are not aware of any material obligations arising under indemnification agreements that would require payment. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The SEC defines critical accounting policies as those that are most important to the portrayal of a company’s financial condition and results and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our discussion and analysis of our results of operations, financial condition and liquidity is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements. 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. 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 Refer to Note 2, New Accounting Pronouncements, to the accompanying unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements. FORWARD-LOOKING STATEMENTS 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 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. Forward-looking statements are commonly identified by the use of such terms and phrases as "intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. 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 40 differ materially from those projected. 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; and there is volatility in our stock price. With respect to the recently completed Transaction as described in Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements, such risks and uncertainties include, but are not limited to: the possibility that anticipated benefits and/or synergies of the Transaction will not be achieved in a timely manner or at all; the possibility that the costs of the Transaction and/or liabilities assumed will be more significant than anticipated; the possibility that integration will prove more costly and/or time consuming than anticipated; the possibility that the Transaction could disrupt ongoing plans and operations of the parties or their respective relationships with clients, other business partners and employees; the effects of the increased leverage of the Company following the Transaction; and the other risks described in Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Should one or more of these risks materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Consequently, no forward-looking statement can be guaranteed. A more detailed description of risk factors may be found in our periodic filings with the SEC, including 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, except as required by law. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the SEC, such as quarterly, periodic and annual reports. 41