FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2023
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Inc.
Delaware |
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 Par Value | CBZ | New York Stock Exchange | ||||||
| Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ | ||||||||||
Emerging growth company | ☐ | |||||||||||||
| Class of Common Stock | Outstanding at | ||||
Common Stock, par value $0.01 per share |
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September 30, December 31, 2017 2016 ASSETS Current assets: Cash and cash equivalents $ 1,278 $ 3,494 Restricted cash 32,104 27,880 Accounts receivable, net 213,418 175,354 Other current assets 23,004 21,407 Current assets before funds held for clients 269,804 228,135 Funds held for clients 134,051 213,457 Total current assets 403,855 441,592 Non-current assets: Property and equipment, net 24,446 19,450 Goodwill and other intangible assets, net 615,316 584,401 Assets of deferred compensation plan 81,720 69,912 Notes receivable 1,185 1,227 Other non-current assets 2,166 2,006 Total non-current assets 724,833 676,996 Total assets $ 1,128,688 $ 1,118,588 LIABILITIES Current liabilities: Accounts payable $ 47,576 $ 45,772 Income taxes payable 10,470 1,048 Accrued personnel costs 38,495 45,221 Notes payable 1,628 1,060 Contingent purchase price liability 15,237 16,322 Other current liabilities 14,937 16,169 Current liabilities before client fund obligations 128,343 125,592 Client fund obligations 134,119 213,855 Total current liabilities 262,462 339,447 Non-current liabilities: Bank debt 206,000 191,400 Debt issuance costs (959 ) (1,351 ) Total long-term debt 205,041 190,049 Notes payable 1,797 1,721 Income taxes payable 4,628 4,426 Deferred income taxes, net 2,189 3,545 Deferred compensation plan obligations 81,720 69,912 Contingent purchase price liability 24,133 �� 17,387 Other non-current liabilities 16,232 12,080 Total non-current liabilities 335,740 299,120 Total liabilities 598,202 638,567 STOCKHOLDERS' EQUITY Common stock 1,297 1,282 Additional paid in capital 670,577 655,629 Retained earnings 340,455 294,925 Treasury stock (481,572 ) (471,311 ) Accumulated other comprehensive loss (271 ) (504 ) Total stockholders’ equity 530,486 480,021 Total liabilities and stockholders’ equity $ 1,128,688 $ 1,118,588 Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Revenue $ 207,723 $ 199,794 $ 660,198 $ 621,047 Operating expenses 184,723 174,069 565,609 526,182 Gross margin 23,000 25,725 94,589 94,865 Corporate general and administrative expenses 7,979 8,679 25,979 27,270 Operating income 15,021 17,046 68,610 67,595 Other (expense) income: Interest expense (1,777 ) (1,760 ) (4,986 ) (5,019 ) Gain on sale of operations, net — 329 45 480 Other income, net 2,792 2,632 9,293 5,482 Total other income, net 1,015 1,201 4,352 943 Income from continuing operations before income tax expense 16,036 18,247 72,962 68,538 Income tax expense 6,172 7,260 26,656 27,366 Income from continuing operations 9,864 10,987 46,306 41,172 Loss from discontinued operations, net of tax (206 ) (133 ) (776 ) (421 ) Net income $ 9,658 $ 10,854 $ 45,530 $ 40,751 Earnings (loss) per share: Basic: Continuing operations $ 0.18 $ 0.21 $ 0.86 $ 0.79 Discontinued operations — — (0.01 ) (0.01 ) Net income $ 0.18 $ 0.21 $ 0.85 $ 0.78 Diluted: Continuing operations $ 0.18 $ 0.20 $ 0.83 $ 0.77 Discontinued operations — — (0.01 ) (0.01 ) Net income $ 0.18 $ 0.20 $ 0.82 $ 0.76 Basic weighted average shares outstanding 54,142 52,648 53,804 52,086 Diluted weighted average shares outstanding 55,827 53,846 55,641 53,320 Comprehensive Income: Net income $ 9,658 $ 10,854 $ 45,530 $ 40,751 Other comprehensive income (loss), net of tax 16 150 233 (291 ) Comprehensive income $ 9,674 $ 11,004 $ 45,763 $ 40,460 Accumulated Issued Additional Other Common Treasury Common Paid-In Retained Treasury Comprehensive Shares Shares Stock Capital Earnings Stock Loss Totals December 31, 2016 128,191 74,147 $ 1,282 $ 655,629 $ 294,925 $ (471,311 ) $ (504 ) $ 480,021 Net income — — — — 45,530 — — 45,530 Other comprehensive income — — — — — — 233 233 Share repurchases — 708 — — — — — — Restricted stock 292 — 3 (3 ) — (10,261 ) — (10,261 ) Stock options exercised 889 — 9 6,218 — — — 6,227 Share-based compensation — — — 4,247 — — — 4,247 Business acquisitions 312 — 3 4,486 — — — 4,489 September 30, 2017 129,684 74,855 $ 1,297 $ 670,577 $ 340,455 $ (481,572 ) $ (271 ) $ 530,486 statement Nine Months Ended September 30, 2017 2016 Cash flows from operating activities: Net income $ 45,530 $ 40,751 Adjustments to reconcile net income to net cash provided by operating activities: Loss from discontinued operations, net of tax 776 421 Gain on sale of operations, net (45 ) (480 ) Depreciation and amortization expense 17,167 16,359 Amortization of discount on notes and deferred financing costs 392 393 Amortization of discount on contingent earnout liability 430 223 Bad debt expense, net of recoveries 4,265 3,291 Adjustment to contingent earnout liability (651 ) (936 ) Deferred income taxes (1,512 ) 1,830 Employee stock awards 4,247 4,332 Excess tax benefits from share based payment arrangements (2,884 ) (859 ) Changes in assets and liabilities, net of acquisitions and divestitures: Restricted cash (4,224 ) (8,154 ) Accounts receivable, net (38,095 ) (38,666 ) Other assets 2,293 (6,339 ) Accounts payable (61 ) 6,971 Income taxes payable 12,509 10,250 Accrued personnel costs (7,368 ) (175 ) Other liabilities 1,606 5,178 Operating cash flows provided by continuing operations 34,375 34,390 Operating cash flows (used in) provided by discontinued operations (748 ) 507 Net cash provided by operating activities 33,627 34,897 Cash flows from investing activities: Business acquisitions and purchases of client lists, net of cash acquired (27,406 ) (38,238 ) Purchases of client fund investments (14,046 ) (7,300 ) Proceeds from the sales and maturities of client fund investments 6,495 7,132 Proceeds from sales of divested operations 45 425 Increase in funds held for clients 87,224 75,632 Additions to property and equipment (8,870 ) (2,843 ) Collection of notes receivable 21 356 Net cash provided by investing activities 43,463 35,164 Cash flows from financing activities: Proceeds from bank debt 425,400 355,200 Payment of bank debt (410,800 ) (341,400 ) Payment on early extinguishment of convertible debt — (760 ) Payment for acquisition of treasury stock (10,261 ) (7,957 ) Decrease in client funds obligations (79,736 ) (75,540 ) Proceeds from exercise of stock options 6,227 5,258 Payment of contingent consideration for acquisitions and client list purchases (9,827 ) (5,807 ) Excess tax benefit from exercise of stock awards — 859 Payment of notes payable (309 ) (244 ) Deferred financing costs — (6 ) Net cash used in financing activities (79,306 ) (70,397 ) Net decrease in cash and cash equivalents (2,216 ) (336 ) Cash and cash equivalents at beginning of year 3,494 850 Cash and cash equivalents at end of period $ 1,278 $ 514 Consolidation: 2023. September 30, December 31, 2017 2016 Trade accounts receivable $ 139,447 $ 132,880 Unbilled revenue, at net realizable value 87,606 55,982 Total accounts receivable 227,053 188,862 Allowance for doubtful accounts (13,635 ) (13,508 ) Accounts receivable, net $ 213,418 $ 175,354 September 30, December 31, 2017 2016 Goodwill $ 527,171 $ 487,484 Intangible assets: Client lists 176,161 172,343 Other intangible assets 8,708 7,994 Total intangible assets 184,869 180,337 Total goodwill and intangibles assets 712,040 667,821 Accumulated amortization: Client lists (92,900 ) (80,560 ) Other intangible assets (3,824 ) (2,860 ) Total accumulated amortization (96,724 ) (83,420 ) Goodwill and other intangible assets, net $ 615,316 $ 584,401 Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Operating expenses $ 5,796 $ 5,569 $ 16,885 $ 16,021 Corporate general and administrative expenses 92 108 282 338 Total depreciation and amortization expense $ 5,888 $ 5,677 $ 17,167 $ 16,359 Nine Months Ended September 30, 2017 2016 Weighted average rates 2.67% 2.43% Range of effective rates 2.19% - 4.75% 1.82% - 3.50% Available funds under the credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization as defined in the credit facility, and are reduced by letters of credit, Under the 2022 credit facility, loans are charged an interest rate consisting of a base rate or Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Credit facility (1) $ 1,777 $ 1,760 $ 4,986 $ 5,011 2006 Notes (2) — — — 8 Total interest expense $ 1,777 $ 1,760 $ 4,986 $ 5,019 Nine Months Ended Twelve Months Ended September 30, 2017 December 31, 2016 Fair value at beginning of period $ 44,573 $ 43,142 Purchases 14,046 11,355 Redemptions (940 ) (2,900 ) Maturities (5,555 ) (6,878 ) Increase (decrease) in bond premium 67 (106 ) Fair market value adjustment 267 (40 ) Fair value at end of period $ 52,458 $ 44,573 September 30, 2017 Notional Fair Amount Value (1) Balance Sheet Location Interest rate swaps (2) $ 70,000 $ 655 Other non-current assets Interest rate swaps (2) $ 10,000 $ 4 Other current assets December 31, 2016 Notional Fair Amount Value (1) Balance Sheet Location Interest rate swaps (2) $ 50,000 $ 525 Other non-current assets Interest rate swaps (2) $ 10,000 $ 4 Other current assets Gain (Loss) Recognized in AOCL, net of tax Gain Reclassified from AOCL into Expense Three Months Ended Three Months Ended September 30, September 30, 2017 2016 2017 2016 Interest rate swap $ 11 $ 247 $ 20 $ 103 Nine Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Interest rate swap $ 82 $ (516 ) $ 120 $ 318 Level September 30, 2017 December 31, 2016 Deferred compensation plan assets 1 $ 81,720 $ 69,912 Corporate and municipal bonds 1 $ 52,458 $ 44,573 Deferred compensation plan liabilities 2 $ 81,720 $ 69,912 Interest rate swaps 2 $ 659 $ 529 Contingent purchase price liabilities 3 $ (39,370 ) $ (33,709 ) 2017 2016 Beginning balance – January 1 $ (33,709 ) $ (24,817 ) Additions from business acquisitions (17,526 ) (17,755 ) Settlement of contingent purchase price liabilities 11,644 7,945 Change in fair value of contingencies 651 936 Amortization of discount on contingent earnout liability (430 ) (223 ) Ending balance – September 30 $ (39,370 ) $ (33,914 ) Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Net unrealized gain on available-for-sale securities, net of income taxes (1) $ 11 $ (94 ) $ 162 $ 249 Net unrealized (loss) gain on interest rate swaps, net of income taxes (2) 11 247 82 (516 ) Foreign currency translation (6 ) (3 ) (11 ) (24 ) Total other comprehensive income (loss) $ 16 $ 150 $ 233 $ (291 ) Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Stock options $ 527 $ 574 $ 1,578 $ 1,717 Restricted stock awards 930 916 2,669 2,615 Total stock-based compensation expense $ 1,457 $ 1,490 $ 4,247 $ 4,332 Stock Options Restricted Stock Awards Number of Options Weighted Average Exercise Price Per Share Number of Shares Weighted Average Grant-Date Fair Value (1) Outstanding at beginning of year 4,376 $ 8.02 827 $ 9.14 Granted 654 $ 15.54 295 $ 14.90 Exercised or released (889 ) $ 7.01 (395 ) $ 8.61 Expired or canceled (8 ) $ 7.71 (3 ) $ 8.36 Outstanding at September 30, 2017 4,133 $ 9.43 724 $ 11.78 Exercisable at September 30, 2017 2,292 $ 7.64 Units (“PSUs”) – Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Numerator: Income from continuing operations $ 9,864 $ 10,987 $ 46,306 $ 41,172 Denominator: Basic Weighted average common shares outstanding 54,142 52,648 53,804 52,086 Diluted Stock options (1) 1,433 868 1,499 842 Restricted stock awards (1) 244 189 330 251 Contingent shares (2) 8 141 8 141 Diluted weighted average common shares outstanding 55,827 53,846 55,641 53,320 Basic earnings per share from continuing operations $ 0.18 $ 0.21 $ 0.86 $ 0.79 Diluted earnings per share from continuing operations $ 0.18 $ 0.20 $ 0.83 $ 0.77 Note 11, Business Combinations, for further details. Nine Months Ended September 30, 2017 Cash $ 843 Accounts receivable, net 4,338 Property and equipment, net 24 Other assets 151 Identifiable intangible assets 3,115 Current liabilities (4,716 ) Total identifiable net assets $ 3,755 Goodwill 39,460 Aggregate purchase price $ 43,215 Nine Months Ended September 30, 2016 Cash $ 6 Accounts receivable, net 5,436 Funds held for clients 37,230 Property and equipment, net 379 Other assets 172 Identifiable intangible assets 19,557 Current liabilities (415 ) Client fund obligations (37,230 ) Total identifiable net assets $ 25,135 Goodwill 30,927 Aggregate purchase price $ 56,062 Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Revenue $ — $ — $ — $ — Loss from discontinued operations before income tax $ (330 ) $ (219 ) $ (1,289 ) $ (707 ) Income tax benefit (124 ) (86 ) (513 ) (286 ) Loss from discontinued operations, net of tax $ (206 ) $ (133 ) $ (776 ) $ (421 ) Three Months Ended September 30, 2017 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 130,305 $ 69,663 $ 7,755 $ — $ 207,723 Operating expenses 112,996 59,155 7,109 5,463 184,723 Gross margin 17,309 10,508 646 (5,463 ) 23,000 Corporate general & admin — — — 7,979 7,979 Operating income (loss) 17,309 10,508 646 (13,442 ) 15,021 Other income (expense): Interest expense — (10 ) — (1,767 ) (1,777 ) Other income, net 79 82 — 2,631 2,792 Total other income 79 72 — 864 1,015 Income (loss) from continuing operations before income tax expense $ 17,388 $ 10,580 $ 646 $ (12,578 ) $ 16,036 Three Months Ended September 30, 2016 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 123,049 $ 68,979 $ 7,766 $ — $ 199,794 Operating expenses 105,615 57,627 6,895 3,932 174,069 Gross margin 17,434 11,352 871 (3,932 ) 25,725 Corporate general & admin — — — 8,679 8,679 Operating income (loss) 17,434 11,352 871 (12,611 ) 17,046 Other income (expense): Interest expense — (12 ) — (1,748 ) (1,760 ) Gain on sale of operations, net — — — 329 329 Other income, net 10 62 1 2,559 2,632 Total other income 10 50 1 1,140 1,201 Income (loss) from continuing operations before income tax expense $ 17,444 $ 11,402 $ 872 $ (11,471 ) $ 18,247 Nine Months Ended September 30, 2017 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 421,529 $ 215,386 $ 23,283 $ — $ 660,198 Operating expenses 348,236 179,174 21,351 16,848 565,609 Gross margin 73,293 36,212 1,932 (16,848 ) 94,589 Corporate general & admin — — — 25,979 25,979 Operating income (loss) 73,293 36,212 1,932 (42,827 ) 68,610 Other income (expense): Interest expense — (30 ) — (4,956 ) (4,986 ) Gain on sale of operations, net — — — 45 45 Other income (expense), net 122 298 (9 ) 8,882 9,293 Total other income (expense) 122 268 (9 ) 3,971 4,352 Income (loss) from continuing operations before income tax expense $ 73,415 $ 36,480 $ 1,923 $ (38,856 ) $ 72,962 Nine Months Ended September 30, 2016 Financial Services Benefits and Insurance Services National Practices Corporate and Other Total Revenue $ 398,112 $ 199,790 $ 23,145 $ — $ 621,047 Operating expenses 326,099 167,651 20,777 11,655 526,182 Gross margin 72,013 32,139 2,368 (11,655 ) 94,865 Corporate general & admin — — — 27,270 27,270 Operating income (loss) 72,013 32,139 2,368 (38,925 ) 67,595 Other income (expense): Interest expense — (32 ) — (4,987 ) (5,019 ) Gain on sale of operations, net — — — 480 480 Other income, net 237 220 2 5,023 5,482 Total other income 237 188 2 516 943 Income (loss) from continuing operations before income tax expense $ 72,250 $ 32,327 $ 2,370 $ (38,409 ) $ 68,538 other various expenses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2022. 2022. 2022. Refer to “Results of Three Months Ended September 30, 2017 % of Total 2016 % of Total $ Change % Change Financial Services $ 130,305 62.7 % $ 123,049 61.6 % $ 7,256 5.9 % Benefits and Insurance Services 69,663 33.6 % 68,979 34.5 % 684 1.0 % National Practices 7,755 3.7 % 7,766 3.9 % (11 ) (0.1 )% Total CBIZ $ 207,723 100.0 % $ 199,794 100.0 % $ 7,929 4.0 % Nine Months Ended September 30, 2017 % of Total 2016 % of Total $ Change % Change Financial Services $ 421,529 63.9 % $ 398,112 64.1 % $ 23,417 5.9 % Benefits and Insurance Services 215,386 32.6 % 199,790 32.2 % 15,596 7.8 % National Practices 23,283 3.5 % 23,145 3.7 % 138 0.6 % Total CBIZ $ 660,198 100.0 % $ 621,047 100.0 % $ 39,151 6.3 % Groups.” Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Operating expenses $ 184,723 $ 174,069 $ 10,654 6.1 % Operating expenses % of revenue 88.9 % 87.1 % 80 bps Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Operating expenses $ 565,609 $ 526,182 $ 39,427 7.5 % Operating expenses % of revenue 85.7 % 84.7 % 50 bps Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) G&A expenses $ 7,979 $ 8,679 $ (700 ) (8.1 )% G&A expenses % of revenue 3.8 % 4.4 % 20 bps Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) G&A expenses $ 25,979 $ 27,270 $ (1,291 ) (4.7 )% G&A expenses % of revenue 3.9 % 4.4 % (40 bps) Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Interest expense $ (1,777 ) $ (1,760 ) $ (17 ) 1.0 % Gain on sale of operations, net — 329 (329 ) NM Other income, net 2,792 2,632 160 6.1 % Total other income (expense), net $ 1,015 $ 1,201 $ (186 ) (15.5 )% Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Interest expense $ (4,986 ) $ (5,019 ) $ 33 (0.7 )% Gain on sale of operations, net 45 480 (435 ) NM Other income, net 9,293 5,482 3,811 NM Total other income (expense), net $ 4,352 $ 943 $ 3,409 NM Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Income tax expense $ 6,172 $ 7,260 $ (1,088 ) (15.0 )% Effective tax rate 38.5 % 39.8 % Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Income tax expense $ 26,656 $ 27,366 $ (710 ) (2.6 )% Effective tax rate 36.5 % 39.9 % effective tax rate. Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Revenue Same-unit $ 122,325 $ 123,049 $ (724 ) (0.6 )% Acquired businesses 7,980 — 7,980 Total revenue $ 130,305 $ 123,049 $ 7,256 5.9 % Operating expenses 112,996 105,615 7,381 7.0 % Gross margin $ 17,309 $ 17,434 $ (125 ) (0.7 )% Gross margin percent 13.3 % 14.2 % Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Revenue Same-unit $ 409,145 $ 398,112 $ 11,033 2.8 % Acquired businesses 12,384 — 12,384 Total revenue $ 421,529 $ 398,112 $ 23,417 5.9 % Operating expenses 348,236 326,099 22,137 6.8 % Gross margin $ 73,293 $ 72,013 $ 1,280 1.8 % Gross margin percent 17.4 % 18.1 % 2022 Somerset and Stinnett & Associates, LLC ("Stinnett"), which was acquired on July 1, 2022, contributed a total of $20.7 million, or 7.2% of the Financial Services practice group's revenue for the three months ended June 30, 2023. revenue for the prior 2022 or 7.0% of Financial Services practice group's revenue for the six months ended June 30, 2023. Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Revenue Same-unit $ 68,044 $ 68,979 $ (935 ) (1.4 )% Acquired businesses 1,619 — 1,619 Total revenue $ 69,663 $ 68,979 $ 684 1.0 % Operating expenses 59,155 57,627 1,528 2.7 % Gross margin $ 10,508 $ 11,352 $ (844 ) (7.4 )% Gross margin percent 15.1 % 16.5 % Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Revenue Same-unit $ 199,178 $ 199,790 $ (612 ) (0.3 )% Acquired businesses 16,208 — 16,208 Total revenue $ 215,386 $ 199,790 $ 15,596 7.8 % Operating expenses 179,174 167,651 11,523 6.9 % Gross margin $ 36,212 $ 32,139 $ 4,073 12.7 % Gross margin percent 16.8 % 16.1 % 2022 other project based services increased by approximately $0.4 million. 2022 other project based services increased by approximately $0.3 million. Three Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Same-unit revenue $ 7,755 $ 7,766 $ (11 ) (0.1 )% Operating expenses 7,109 6,895 214 3.1 % Gross margin $ 646 $ 871 $ (225 ) (25.8 )% Gross margin percent 8.3 % 11.2 % Nine Months Ended September 30, 2017 2016 $ Change % Change (In thousands, except percentages) Same-unit revenue $ 23,283 $ 23,145 $ 138 0.6 % Operating expenses 21,351 20,777 574 2.8 % Gross margin $ 1,932 $ 2,368 $ (436 ) (18.4 )% Gross margin percent 8.3 % 10.2 % 2022 miscellaneous expenses. The following table presents selected cash flow Nine Months Ended September 30, 2017 2016 Net cash provided by operating activities $ 33,627 $ 34,897 Net cash provided by investing activities 43,463 35,164 Net cash used in financing activities (79,306 ) (70,397 ) Net decrease in cash and cash equivalents $ (2,216 ) $ (336 ) notes receivable. 2022. - prior acquisitions. Cash provided by financing activities - - Under the 2022 credit facility, we are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions. 2022. Consequently, no forward-looking statement can be guaranteed. A more detailed description of risk factors may be found in “Item 1A, Risk Factors” of this Quarterly Report and in “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At CONTROLS AND PROCEDURES LEGAL PROCEEDINGS RISK FACTORS UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Issuer Purchases of Equity Securities Third Quarter Purchases (1) Total Number of Shares Purchased (2) Average Price Paid Per Share (3) Total Number of Shares Purchased as Part of Publicly Announced Plan (2) Maximum Number of Shares That May Yet Be Purchased Under the Plan (4) July 1 – July 31, 2017 263 $ 14.96 263 4,512 August 1 – August 31, 2017 45 $ 14.44 45 4,467 September 1 – September 30, 2017 — $ — — 4,467 Third quarter purchases 308 $ 14.89 308 According to the terms of our 2022 credit facility, DEFAULTS UPON SENIOR SECURITIES MINE SAFETY DISCLOSURES 31.2 * 32.1 ** 32.2 ** 101.INS By: Ware H. Grove Chief Financial Officer Duly Authorized Officer and Principal Financial OfficerPART I.FINANCIAL INFORMATION:PagePage 672232333434343535353637FINANCIALFINANCIAL INFORMATIONItem 1.June 30,
2023December 31,
2022ASSETS Current assets: Cash and cash equivalents $ 3,692 $ 4,697 Restricted cash 52,314 28,487 Accounts receivable, net 456,397 334,498 Other current assets 42,411 29,431 Current assets before funds held for clients 554,814 397,113 Funds held for clients 131,374 171,313 Total current assets 686,188 568,426 Non-current assets: Property and equipment, net 50,899 45,184 Goodwill and other intangible assets, net 1,014,673 951,702 Assets of deferred compensation plan 136,463 118,862 Right-of-use assets, net Right-of-use assets, net 186,213 184,043 Other non-current assets 14,319 10,907 Total non-current assets 1,402,567 1,310,698 Total assets $ 2,088,755 $ 1,879,124 LIABILITIES Current liabilities: Accounts payable $ 126,372 $ 80,725 Income taxes payable 13,350 1,607 Accrued personnel costs 89,989 130,456 Contingent purchase price liabilities Contingent purchase price liabilities 70,950 63,262 Operating lease liabilities Operating lease liabilities 36,256 36,358 Other current liabilities 30,991 26,532 Current liabilities before client fund obligations 367,908 338,940 Client fund obligations 133,069 173,467 Total current liabilities 500,977 512,407 Non-current liabilities: Bank debt 410,600 265,700 Debt issuance costs (1,810) (2,046) Total long-term debt, net Total long-term debt, net 408,790 263,654 Income taxes payable 2,381 2,211 Deferred income taxes, net 29,455 24,763 Deferred compensation plan obligations 136,463 118,862 Contingent purchase price liabilities Contingent purchase price liabilities 59,515 68,748 Lease liabilities Lease liabilities 174,608 174,454 Other non-current liabilities 523 573 Total non-current liabilities 811,735 653,265 Total liabilities 1,312,712 1,165,672 STOCKHOLDERS' EQUITY Common stock 1,371 1,363 Additional paid in capital 818,693 799,147 Retained earnings 834,139 734,116 Treasury stock (882,088) (824,778) Accumulated other comprehensive income Accumulated other comprehensive income 3,928 3,604 Total stockholders’ equity 776,043 713,452 Total liabilities and stockholders’ equity $ 2,088,755 $ 1,879,124 Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Revenue $ 398,502 $ 361,952 $ 853,108 $ 753,674 Operating expenses 343,987 289,736 684,998 580,035 Gross margin 54,515 72,216 168,110 173,639 Corporate general and administrative expenses 15,793 10,926 31,391 27,235 Operating income 38,722 61,290 136,719 146,404 Other (expense) income: Interest expense (5,534) (1,645) (9,175) (2,904) Gain on sale of operations, net — 135 99 135 Other income (expense), net 5,421 (15,903) 10,533 (22,310) Total other (expense) income, net (113) (17,413) 1,457 (25,079) Income before income tax expense 38,609 43,877 138,176 121,325 Income tax expense 11,746 12,622 38,153 31,943 Net Income 26,863 31,255 100,023 89,382 Earnings per share: Basic $ 0.54 $ 0.60 $ 1.99 $ 1.72 Diluted $ 0.53 $ 0.60 $ 1.98 $ 1.70 Basic weighted average shares outstanding 49,963 51,911 50,164 52,015 Diluted weighted average shares outstanding 50,385 52,531 50,639 52,736 Comprehensive income: Net income $ 26,863 $ 31,255 $ 100,023 $ 89,382 Other comprehensive income, net of tax 1,537 480 324 2,405 Comprehensive income $ 28,400 $ 31,735 $ 100,347 $ 91,787 Issued
Common
SharesTreasury
SharesCommon
StockAdditional
Paid-In
CapitalRetained
EarningsTreasury
StockAccumulated
Other
Comprehensive
IncomeTotals 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 Issued
Common
SharesTreasury
SharesCommon
StockAdditional
Paid-In
CapitalRetained
EarningsTreasury
StockAccumulated
Other
Comprehensive
IncomeTotals March 31, 2022 135,756 83,462 $ 1,358 $ 777,731 $ 686,889 $ (707,088) $ 958 $ 759,848 Net income — — — — 31,255 — — 31,255 Other comprehensive income — — — — — — 480 480 Share repurchases — 736 — — — (29,555) — (29,555) Indirect repurchase of shares for minimum tax withholding — 23 — — — (916) — (916) Restricted stock units and awards 27 — — — — — — — Stock options exercised 40 — — 672 — — — 672 Stock-based compensation — — — 2,739 — — — 2,739 June 30, 2022 135,823 84,221 $ 1,358 $ 781,142 $ 718,144 $ (737,559) $ 1,438 $ 764,523 statementsCASH FLOWSSTOCKHOLDERS’ EQUITY (Unaudited)Issued
Common
SharesTreasury
SharesCommon
StockAdditional
Paid-In
CapitalRetained
EarningsTreasury
StockAccumulated
Other
Comprehensive
IncomeTotals 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 Issued
Common
SharesTreasury
SharesCommon
StockAdditional
Paid-In
CapitalRetained
EarningsTreasury
StockAccumulated
Other
Comprehensive
(Loss) IncomeTotals December 31, 2021 135,187 83,149 $ 1,352 $ 770,117 $ 628,762 $ (694,716) $ (967) $ 704,548 Net income — — — — 89,382 — — 89,382 Other comprehensive income — — — — — — 2,405 2,405 Share repurchases — 884 — — — (35,554) — (35,554) Indirect repurchase of shares for minimum tax withholding — 188 — — — (7,289) — (7,289) Restricted stock units and awards 119 — 1 (1) — — — — Performance share units 211 — 2 (2) — — — — Stock options exercised 287 — 3 3,893 — — — 3,896 Stock-based compensation — — — 6,428 — — — 6,428 Business acquisitions 19 — — 707 — — — 707 June 30, 2022 135,823 84,221 $ 1,358 $ 781,142 $ 718,144 $ (737,559) $ 1,438 $ 764,523 Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income $ 100,023 $ 89,382 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 17,831 16,465 Gain on sale of operations, net (99) (135) Bad debt expense, net of recoveries 805 1,263 Adjustment to contingent earnout liability 1,445 1,478 Stock-based compensation expense 6,619 6,428 Deferred income taxes 4,571 4,688 Other, net 100 202 Changes in assets and liabilities, net of acquisitions and divestitures: Accounts receivable, net (111,792) (138,658) Other assets (11,594) (1,696) Accounts payable 45,350 57,837 Income taxes payable 11,913 11,252 Accrued personnel costs (40,893) (11,176) Other liabilities 5,450 (8,822) Net cash provided by operating activities 29,729 28,508 Cash flows from investing activities: Business acquisitions and purchases of client lists, net of cash acquired (48,630) (72,469) Purchases of client fund investments — (18,271) Proceeds from the sales and maturities of client fund investments 3,190 8,505 Proceeds from sales of divested operations 245 190 Change in funds held for clients 305 (2,468) Additions to property and equipment (11,726) (3,640) Other, net (9,001) (1,603) Net cash used in investing activities (65,617) (89,756) Cash flows from financing activities: Proceeds from bank debt 661,800 447,300 Payment of bank debt (516,900) (336,600) Payment for acquisition of treasury stock (48,764) (34,354) Indirect repurchase of shares for minimum tax withholding (8,224) (7,289) Changes in client funds obligations (40,398) 29,014 Proceeds from exercise of stock options 4,252 3,896 Payment of contingent consideration for acquisitions and client lists (29,973) (8,240) Other, net — (2,072) Net cash provided by financing activities 21,793 91,655 Net (decrease) increase in cash, cash equivalents and restricted cash (14,095) 30,407 Cash, cash equivalents and restricted cash at beginning of year 160,145 150,474 Cash, cash equivalents and restricted cash at end of period $ 146,050 $ 180,881 Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance Sheets: Cash and cash equivalents $ 3,692 $ 3,881 Restricted cash 52,314 42,188 Cash equivalents included in funds held for clients 90,044 134,812 Total cash, cash equivalents and restricted cash $ 146,050 $ 180,881 1. 12, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements.PresentationCBIZ,”CBIZ”, the “Company,” “we,” “us,”“Company”, “we”, “us”, or “our”) have been prepared in accordance with the instructions to Form 10-Q, after elimination of all intercompany balances and do not include all of the information and notes required by the accounting principles generally accepted in the United States (“GAAP”) for complete financial statements.All intercompany accounts and transactions have been eliminated in consolidation. The accompanyingtransactions. 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.These interim thereto included in the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016. 2022. adjustments of a normal recurring nature consideredadjustments necessary for a fair presentation have been included. Operatingto present fairly the financial condition, results of operations, and cash flows for the three and nine months ended September 30, 2017interim periods presented, but are not necessarily indicative of the results that mayof operations to be expectedanticipated for the full year ending December 31, 2017.theunaudited condensed consolidated financial statements in conformity with GAAP requires managementus to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Management’s estimates and assumptions include, but are not limited to, estimates of collectability of accounts receivable and unbilled revenue, the realizability of goodwill and other intangible assets, the fair value of certain assets, the valuation of stock options in determining compensation expense, estimates of accrued liabilities (such as incentive compensation, self-funded health insurance accruals, legal reserves, income tax uncertainties and contingent purchase price obligations), the provision for income taxes and the realizability of deferred tax assets. Management’s estimates and assumptions are derived from and are continually evaluated based upon available information, judgment and experience. Changes in circumstances could cause actual results to differ materially from thosethese estimates.Refer toOrganizationBasis of Presentation and Summary of Significant Accounting Policies,, to the2016 for a description2022.revenue recognition policies.Note 2. Accounts Receivable, NetAccounts receivable, net, at September 30, 2017authoritative GAAP other than the SEC issued rules and December 31, 2016 were as follows (in thousands):7CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Note 3. Goodwillregulations that apply only to SEC registrants. The FASB issues an ASU to communicate changes to the FASB ASC. We assess and Other Intangible Assets, NetThe componentsreview the impact of goodwill and other intangible assets, net, at September 30, 2017 and December 31, 2016 were as follows (in thousands):Note 4. Depreciation and AmortizationDepreciation and amortization expense for property and equipment and intangible assets forall issued ASUs. During the three and ninesix months ended SeptemberJune 30, 20172023, we have implemented all new ASUs that are in effect and 2016 was as follows (in thousands):Note 5. DebtFinancing ArrangementsAt Septemberapproximates 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.2017, our primary financing arrangement2023 and December 31, 2022 was as follows (in thousands):June 30,
2023December 31,
2022Trade accounts receivable $ 336,566 $ 267,409 Unbilled revenue, at net realizable value 143,234 87,890 Total accounts receivable 479,800 355,299 Allowance for doubtful accounts (23,403) (20,801) Accounts receivable, net $ 456,397 $ 334,498 $400.0 million unsecuredallowance for doubtful accounts for the six months ended June 30, 2023 and twelve months ended December 31, 2022 were as follows (in thousands):June 30,
2023December 31,
2022Balance at beginning of period $ (20,801) $ (16,158) Provision (5,507) (13,545) Charge-offs, net of recoveries 2,905 8,902 Allowance for doubtful accounts $ (23,403) $ (20,801) discussed below,(the "2022 credit facility" or the "credit facility"), which providesamended and restated the 2018 credit facility. The 2022 credit facility increased our borrowing capacity from $400 million to $600 million, providing 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. In addition toOther important key terms of the discussion below, refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for additional details of our debt and financing arrangements.Bank DebtWe have a $400.0 million unsecured2022 credit facility with Bankincluded: (i) an accordion feature that permits lenders to extend an additional $200 million at later date; (ii) no change in pricing from the 2018 credit facility; (iii) upsizing of America as agentbaskets and various sublimits to reflect the increased size of the Company's business; (iv) a swing line facility increase from $25 million to $50 million, providing for a group of eight participating banks thatsame-day funds to cover daily liquidity needs; and (v) base interest rate amended from LIBOR to Term SOFR.in July 2019.on May 4, 2027. The balance outstanding under the 2022 credit facility was $206.0$410.6 million and $191.4$265.7 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.Interestninesix months ended SeptemberJune 30, 20172023 and 20162022 were as follows:Six Months Ended
June 30,2023 2022 Weighted average rates 4.94% 1.93% Range of effective rates 1.93% - 8.00% 1.08% - 3.67% 8CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)havehad approximately $142.5$177.5 million of available funds under the 2022 credit facility at SeptemberJune 30, 2017,2023, net of outstanding letters of credit of $2.3$4.4 million. The credit facility provides us with operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases. As of September 30, 2017, we were in compliance with our debt covenants.license bonds, other indebtedness and outstanding borrowings under the credit facility.EurodollarTerm 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 credit facility.Duringninesix months ended SeptemberJune 30, 20172023 and 2016, we recognized interest expense2022 was as follows (in thousands):(1)Components of interest expense related to the credit facility include amortization of deferred financing costs, commitment fees and line of credit fees.Three Months Ended June 30, 2023 2022 Credit facilities $ 5,498 $ 1,644 Other line of credit — 1 Other 36 — Total $ 5,534 $ 1,645 (2)During the second quarter of 2016, we redeemed the remaining 3.125% Convertible Senior Subordinated Notes (the “2006 Notes”) then remaining outstanding for $750 thousand in cash plus accrued interest under an optional early redemption provision.Six Months Ended June 30, 2023 2022 Credit facilities $ 9,138 $ 2,903 Other line of credit — 1 Other 37 — Total $ 9,175 $ 2,904 Note 6. Commitments and ContingenciesLetters of Credit and GuaranteesWe provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $2.3 million at both September 30, 2017 and December 31, 2016. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding was $2.5 million and $2.3 million at September 30, 2017 and December 31, 2016, respectively.Legal ProceedingsIn 2010, CBIZ, Inc. and its subsidiary, CBIZ MHM, LLC (fka CBIZ Accounting, Tax & Advisory Services, LLC) (the “CBIZ Parties”), were named as defendants in lawsuits filed in the U.S. District Court for the District of Arizona and the Superior Court for Maricopa County, Arizona. The federal court case is captioned Robert Facciola, et al v. Greenberg Traurig LLP, et al, and the state court cases are captioned Victims Recovery, LLC v. Greenberg Traurig LLP, et al, Roger Ashkenazi, et al v. Greenberg Traurig LLP, et al, Mary Marsh, et al v. Greenberg Traurig LLP, et al; and ML Liquidating Trust v. Mayer Hoffman McCann PC, et al. Prior to these suits CBIZ MHM, LLC was named as a defendant in Jeffrey C. Stone v. Greenberg Traurig LLP, et al.These lawsuits arose out of the bankruptcy of Mortgages Ltd., a mortgage lender to developers in the Phoenix, Arizona area. Various other professional firms and individuals not related to the Company were also named defendants in these lawsuits. The lawsuits asserted claims for, among others things, violations of the Arizona Securities Act, common law fraud, and negligent misrepresentation, and sought to hold the CBIZ Parties vicariously liable for Mayer Hoffman’s conduct as Mortgage Ltd.’s auditor, as either a statutory control person under the Arizona Securities Act or a joint venturer under Arizona common law.9CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)With the exception of claims being pursued by two plaintiffs from the Ashkenazi lawsuit (“Baldino Group”), all other related matters have been dismissed or settled without payment by the CBIZ Parties. The Baldino Group’s claims, which allege damages of approximately $16.0 million, are currently stayed as to the CBIZ Parties and Mayer Hoffman, and no trial date has been set.On September 16, 2016, CBIZ, Inc. and its subsidiary CBIZ Benefits & Insurance Services, Inc. (“CBIZ Benefits”) were named as defendants in a lawsuit filed in the U.S. District Court for the Western District of Pennsylvania. The federal court case is brought by UPMC, d/b/a University of Pittsburgh Medical Center, and a health system it acquired, UPMC Altoona (formerly, Altoona Regional Health System). The lawsuit asserts professional negligence, breach of contract, and negligent misrepresentation claims against CBIZ, CBIZ Benefits and a former employee of CBIZ Benefits in connection with actuarial services provided by CBIZ Benefits to Altoona Regional Health System. The complaint seeks damages in an amount of no less than $142.0 million. We cannot predict the outcome of the above matters or estimate the possible loss or range of possible loss, if any. Although the proceedings are subject to uncertainties inherent in the litigation process and the ultimate disposition of these proceedings is not presently determinable, we intend to vigorously defend these cases.In addition to those items disclosed above, we are, from time to time, subject to claims and suits arising in the ordinary course of business.Note 7. Financial InstrumentsBondswithare 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 values totaling $50.2value of these investments totaled $41.2 million and $42.4$44.4 million at SeptemberJune 30, 20172023 and December 31, 2016, respectively. All bonds are investment grade2022, respectively, and are classified as available-for-sale. These bonds havehad maturity or callable dates ranging from July 2023 through November 2017 through December 2022,2025.included in “Funds held for clients – current” in the accompanying Consolidated Balance Sheets based on our intentinvestment grade quality and abilitymanagement is not required or does not intend to sell these investments at any time under favorable conditions. prior to an expected recovery in value. The bond issuers continue to make timely principal and interest payments.our bond activityactivities related to these investments for the ninesix months ended SeptemberJune 30, 20172023 and the twelve months ended December 31, 20162022 (in thousands):Six Months Ended June 30, 2023 Twelve Months Ended December 31, 2022 Fair value at beginning of period $ 43,485 $ 38,670 Purchases — 19,771 Redemptions (2,310) (5,630) Maturities (880) (6,770) Change in bond premium Change in bond premium (385) (645) Fair market value adjustment 473 (1,911) Fair value at end of period $ 40,383 $ 43,485 We do not purchase or hold any derivative instruments for trading or speculative purposes.facility. Under these interest rate swap contracts, we receive cash flows from counterparties at variable rates based onfacility, or the London Interbank Offered Rate (“LIBOR”) and payforecasted acquisition of such liability. We do not purchase or hold any derivative instruments for trading or speculative purposes. Refer to the counterparties a fixed rate. See our Annual Report on Form 10-K for the year ended December 31, 20162022 for further discussion on our interest rate swaps.10CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)SeptemberJune 30, 20172023 and December 31, 2016 (in2022 (amounts in thousands):(1)Refer to Note 8, Fair Value Measurements, for additional disclosures regarding fair value measurements.(2)Under the terms of the interest rate swaps, we pay interest at a fixed rate of interest plus applicable margin as stated in the agreement, and receive interest that varies with the one-month LIBOR. The notional value, fixed rate of interest and maturity date of each interest rate swap is (i) $10.0 million – 0.885% - November 2017, (ii) $15.0 million – 1.155% - November 2018, (iii) $25.0 million – 1.300% - October 2020, (iv) $10.0 million – 1.120% - February 2021 and (v) $20.0 million – 1.770% - May 2022.June 30, 2023 Notional
AmountFixed Rate Expiration Fair
ValueBalance Sheet Location Interest rate swap $ 50,000 0.834 % 4/14/2025 $ 3,427 Other non-current asset Interest rate swap $ 30,000 1.186 % 12/14/2026 $ 2,875 Other non-current asset Interest rate swap $ 20,000 2.450 % 8/14/2027 $ 1,193 Other non-current asset Interest rate swap $ 25,000 3.669 % 4/14/2028 $ 259 Other non-current asset December 31, 2022 Notional
AmountFixed Rate Expiration Fair
ValueBalance Sheet Location Interest rate swap $ 15,000 2.571 % 6/1/2023 $ 133 Other current asset Interest rate swap $ 50,000 0.834 % 4/14/2025 $ 3,726 Other non-current asset Interest rate swap $ 30,000 1.186 % 12/14/2026 $ 2,871 Other non-current asset Interest rate swap $ 20,000 2.450 % 8/14/2027 $ 1,079 Other non-current asset ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands):Note 8. Fair Value MeasurementsThe following table summarizes our assets and liabilities at September 30, 2017 and December 31, 2016 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):The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The carrying value of bank debt approximates fair value as11CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of our bank debt is considered to be Level 2.During the nine months ended September 30, 2017 and 2016, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in Level 3 fair values of our contingent purchase price liabilities for the nine months ended September 30, 2017 and 2016 (pre-tax basis) (in thousands):Contingent Purchase Price LiabilitiesContingent purchase price liabilities arise from business acquisitions and are classified as Level 3 due to the utilization of a probability weighted discounted cash flow approach to determine the fair value of the contingency.A contingent liability is established (“Additions from business acquisitions” in the table above) for each acquisition that has a contingent purchase price component extending over a term of two to six years. These liabilities are reviewed quarterly and adjusted if necessary. Refer to Note 12, Acquisitions, for further discussion of contingent purchase price liabilities.The significant unobservable input used in the fair value measurement of the contingent purchase price liabilities is the future performance of the acquired business.Gain Recognized
in AOCI, net of taxGain (Loss) Reclassified
from AOCI into ExpenseThree Months Ended
June 30,Three Months Ended
June 30,2023 2022 2023 2022 Interest rate swaps $ 2,187 $ 587 $ 1,073 $ (155) oThe future performance of the acquired business directly impacts the contingent purchase price that is paid to the seller; thus, performance that exceeds estimates may result in a higher payout, and a performance below estimates may result in a lower payout (“Settlement of contingent purchase price liabilities” in the table above).Six Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Interest rate swaps $ 1,472 $ 3,194 $ 1,970 $ (498) oChanges in the expected amount of potential payouts are recorded as adjustments to the initial contingent purchase price liability, with the same amount being recorded in the accompanying Consolidated Statements of Comprehensive Income (“Change in fair value of contingencies” and “Amortization of discount on contingent earnout liability” in the table above). The change in fair value of contingencies also includes an adjustment for the change in share price of CBIZ common stock for the portion of future contingent consideration to be settled in stock.Note 9. Other Comprehensive Income (Loss)The following table is a summary of other comprehensive income (loss) and discloses the tax impact of each component of other comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016 (in thousands):(1)Net of income tax expense (benefit) of $7 and ($63) for the three months ended September 30, 2017 and 2016, respectively, and net of income tax expense of $108 and $167 for the nine months ended September 30, 2017 and 2016, respectively.12CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Accumulated other comprehensive loss, net of tax, was approximately $0.3 million and $0.5 million at September 30, 2017 and December 31, 2016, respectively. Accumulated other comprehensive loss consisted of adjustments, net of tax, for unrealized gains and losses on available-for-sale securities and interest rate swaps, and foreign currency translation.Note 10. Employee Share PlansUnder our stock incentive plan, which expires in 2024, a maximum of 9.6 million stock options, shares of restricted stock or other stock-based compensation awards may be granted. Shares subject to award under this plan may be either authorized but unissued shares of CBIZ common stock or treasury shares. Compensation expense for stock-based awards recognized during the three and nine months ended September 30, 2017 and 2016 was as follows (in thousands):Stock award activity during the nine months ended September 30, 2017 was as follows (in thousands, except per share data):(1)Represents weighted average market value of the shares; awards are granted at no cost to the recipients.We utilized the Black-Scholes-Merton options-pricing model to determine the fair value of stock options on the date of grant. The fair value of stock options granted during 2017 was $3.49. The following weighted average assumptions were utilized:Nine Months EndedSeptember 30, 2017Expected volatility (1)22.22%Expected option life (years) (2)4.61Risk-free interest rate (3)1.85%Expected dividend yield (4)0.00%(1)The expected volatility assumption was determined based upon the historical volatility of our stock price, using daily price intervals.(2)The expected option life was determined based upon our historical data using a midpoint scenario, which assumes all options are exercised halfway between the expiration date and the weighted average time for the option to vest.13CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)(3)The risk-free interest rate assumption was based upon zero-coupon U.S. Treasury bonds with a term approximating the expected life of the respective options.(4)The expected dividend yield assumption was determined in view of our historical and estimated dividend payouts. We do not expect to change our dividend payout policy in the foreseeable future.Level June 30, 2023 December 31, 2022 Deferred compensation plan assets 1 $ 136,463 $ 118,862 Available-for-sale debt securities 1 40,383 43,485 Other depository assets 1 947 868 Deferred compensation plan liabilities 1 (136,463) (118,862) Interest rate swaps 2 7,754 7,809 Contingent purchase price liabilities 3 (130,465) (132,010) 2023 2022 Beginning balance – December 31 $ (132,010) $ (79,139) Additions from business acquisitions (30,317) (64,648) Settlement of contingent purchase price liabilities 33,307 8,830 Change in fair value of contingencies (15) 117 Change in net present value of contingencies (1,430) (1,595) Ending balance – June 30 $ (130,465) $ (136,435) 11. Earnings Per11, Business Combinations, for further discussion of our acquisitions and contingent purchase price liabilities.Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 $ 159 $ (218) $ 338 $ (1,157) 1,383 705 (5) 3,571 Foreign currency translation (5) (7) (9) (9) Total other comprehensive income $ 1,537 $ 480 $ 324 $ 2,405 Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Stock options $ — $ 75 $ 768 $ 248 Restricted stock units and awards 1,355 1,334 2,614 2,827 Performance share units 1,433 1,330 3,237 3,353 Total stock-based compensation expense $ 2,788 $ 2,739 $ 6,619 $ 6,428 Stock Options Restricted Stock Units and Awards Number of
OptionsNumber of
SharesOutstanding at beginning of year 553 $ 21.03 277 $ 32.62 Granted 50 $ 48.40 109 $ 48.64 Exercised or released (221) $ 19.24 (154) $ 31.25 Outstanding at June 30, 2023 382 $ 25.64 232 $ 41.09 Exercisable at June 30, 2023 382 $ 25.64 Six Months Ended June 30, 2023 Expected volatility (1) 28.57% Expected option life (years) (2) 4.74 Risk-free interest rate (3) 3.89% Expected dividend yield (4) —% Performance
Share UnitsOutstanding at beginning of year 482 $ 28.84 Granted 88 $ 48.40 Vested (244) $ 25.75 Outstanding at June 30, 2023 326 $ 36.46 from continuing operations for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands, except per share data).
:(1)A total of 0.8 million and 0.4 million share based awards were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2017, respectively, and a total of 1.1 million and 1.3 million share based awards were excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2016, respectively, as their effect would be anti-dilutive.(2)Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Numerator: Net Income $ 26,863 $ 31,255 $ 100,023 $ 89,382 Denominator: Basic Weighted average common shares outstanding 49,963 51,911 50,164 52,015 Diluted 198 508 235 564 79 112 95 157 Performance share units 106 — 106 — 39 — 39 — 50,385 52,531 50,639 52,736 Basic earnings per share $ 0.54 $ 0.60 $ 1.99 $ 1.72 Diluted earnings per share $ 0.53 $ 0.60 $ 1.98 $ 1.70 Note 12, Acquisitions, for further details.12. Acquisitions2017ninesix months ended SeptemberJune 30, 2017,2023, we completed the following acquisitions: substantially all of the assets of three businesses; CMF Associates, LLC (“CMF”), Slaton Insurance (“Slaton”)Danenhauer and Pacific Coastal PensionDanenhauer, Inc ("Danenhauer and Insurance Services, Inc. (“Pacific Coastal”Danenhauer"). Aggregate considerationDanenhauer and Danenhauer, based in California, is a provider of forensic accounting, business valuation, expert witness testimony, and other services for thesebusinesses and individuals. Operating results for Danenhauer and Danenhauer are reported in the Financial Services practice group.consisted of Danenhauer and Danenhauer, Somerset, PPS and Ickovic and Co. (together, the “2023 Acquisitions”)are expected to add approximately $23.7$64.4 million annualized revenue in 2023. For the six months ended June 30, 2023, we recorded approximately $2.5 million in cash consideration, $2.0 million in CBIZ common stocknon-recurring transaction, retention and $17.5 million in contingent consideration.Underintegration related costs associated with the terms of these acquisition agreements, a portion of the purchase price is contingent on future performance of each of the businesses acquired. We have preliminarily determined that the fair value of the contingent consideration arrangements for these acquisitions was $17.5 million, of which $5.9 million was recorded in “Contingent purchase price liability – current” and $11.6 million was recorded in “Contingent purchase price liability – non-current” in the accompanying Consolidated Balance Sheets at September 30, 2017.Annualized revenue attributable to CMF, Slaton and Pacific Coastal is estimated to be approximately $19.2 million, $2.6 million, and $1.4 million, respectively.Somerset acquisition. Pro forma results of operations for these acquisitions have not been presented because the effects of thethese acquisitions were not significantmaterial, either individually or in aggregate, to our results.14CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)2023 2022 Common stock issued (number) 102 — Common stock value $ 4,796 $ — Cash paid 48,547 72,469 Recorded contingent consideration 30,317 64,648 Total recorded purchase price $ 83,660 $ 137,117 Accounts receivable acquired 8,304 18,230 Fixed assets acquired 1,108 1,793 Identifiable intangible assets acquired 33,505 49,000 Operating lease right-of-use asset acquired 14,598 49,291 Other assets acquired 1,157 1,497 Operating lease liability acquired - current (1,012) (5,860) Other current liabilities acquired (1,445) (909) Operating lease liability acquired - non-current (13,586) (43,431) Goodwill 41,031 67,506 Total net assets acquired $ 83,660 $ 137,117 Maximum potential contingent consideration $ 31,925 $ 67,115 CMF, located in Philadelphia, Pennsylvania, was effective June 1, 2017. CMF provides various financial consulting, executive search and deal origination services. Operating results of CMF are reported inoperations subsequent to the Financial Services practice group. The acquisition of Slaton, located in West Palm Beach, Florida, was effective June 1, 2017. Slaton is a full service insurance brokerage firm offering clients a complete line of services including commercial lines, risk management and employee benefits. The acquisition of Pacific Coastal, located in Morgan Hill, California, was effective February 1, 2017. Pacific Coastal provides defined contribution third party administrative and consulting services. Operating resultsdate to determine the necessity for both Slaton and Pacific Coastal are reported in the Benefits and Insurance practice group.The preliminary estimated fair valuesadjustments. Fair value estimates of the 2023 Acquisitions were provisional as of June 30, 2023, primarily related to the value established for certain identifiable intangible assets acquiredand contingent purchase price consideration.Six Months Ended June 30, 2023 2022 Financial Services Benefits and Insurance Services Financial Services Benefits and Insurance Services Goodwill $ 41,031 $ — $ 67,506 $ — Client list 33,487 — 49,000 — Other intangibles 18 — — — Total $ 74,536 $ — $ 116,506 $ — liabilities assumed duringfair value of the nine months ended September 30, 2017 are as follows (in thousands):The goodwillnet assets acquired. Goodwill represents the value of $39.5 million arising from the acquisitions in the first nine months of 2017 primarily results from expected future earnings and cash flows, from the existing management team, as well as the synergies created by the integration of the new businessbusinesses within the CBIZour organization, including cross-selling opportunities expected with our Financial Services practice group and the Benefits and Insurance Services practice groups,group, to help strengthen our existing service offerings and expand our market position.2016During Goodwill related to these acquisitions is deductible for tax purposes. Client lists from the nine months ended September 30, 2016, we acquired substantially allaforementioned acquisitions have an expected life up to 10 years, and other intangibles, primarily non-compete agreements, have an expected life of 3 years. Client lists and non-compete agreements are valued using a discounted cash flow model based on management estimates of future cash flows from such assets.non-attest assets of four businesses; Flex-Pay Business Services, Inc., (“Flex-Pay”), The Savitz Organization (“Savitz”), Millimaki Eggert, L.L.P., (“Millimaki”) and Ed Jacobs & Associates, Inc. (“EJ&A”). Aggregatechanges in contingent purchase price consideration for theseprevious acquisitions consisted of approximately $36.7 million in cash consideration, $1.6 million in CBIZ common stock and $17.8 million in contingent consideration.Under the terms of these acquisition agreements, a portion of the purchase price is contingent on future performance of each of the businesses acquired. Utilizing a probability weighted income approach, we determined that the fair value of the contingent consideration arrangementpayments made for these acquisitions was $17.8 million, of which $5.3 million was recorded in “Contingent purchase price liability – current” and $12.5 million was recorded in “Contingent purchase price liability – non-current” in the Consolidated Balance Sheets at September 30, 2016.Annualized revenue attributable to Flex-Pay, Savitz, Millimaki and EJ&A is estimated to be approximately $10.0 million, $20.0 million, $2.4 million and $2.1 million, respectively. Pro forma results of operations for these acquisitions have not been presented because the effects of the acquisitions were not significant to our results.The acquisition of Flex-Pay, located in Winston-Salem, North Carolina, was effective June 1, 2016. Flex-Pay provides payroll processing, Affordable Care Act fulfillment and human resource solutions to more than 3,600 clients primarily in the Southeast. The acquisition of Savitz, headquartered in Philadelphia, Pennsylvania, with offices in Atlanta, Georgia, and Newton, Massachusetts, was effective April 1, 2016. Savitz is an employee retirement and health and welfare benefits firm that provides actuarial, consulting and administration outsourcing services. The acquisition of Millimaki, located in San Diego, California, was effective January 1, 2016. Millimaki provides professional tax, accounting, and financial services, with a specialty niche practice in the real estate sector, to closely held businesses, their owners, and mid-to-high net worth individuals. The acquisition of EJ&A was effective July 1, 2016. EJ&A is an employee benefits consultingprevious business located in Cleveland, Tennessee. Operating results15CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)of Millimaki are reported in the Financial Services practice group and operating results for Flex-Pay, Savitz and EJ&A are all reported in the Benefits and Insurance practice group.The estimated fair values of the assets acquired and the liabilities assumed during the nine months ended September 30, 2016 are as follows (in thousands):The goodwill of $30.9 million arising from the acquisitions in the first nine months of 2016 primarily results from the same reasons as discussed above in the 2017 section.Client ListsDuring the ninethree and six months ended SeptemberJune 30, 2017, we purchased two client lists, one of which is reported in the Benefits2023 and Insurance practice group for $0.7 million of contingent consideration and one of which is reported in the Financial Services practice group for $0.7 million of contingent considerations. During the same period in 2016, we purchased six clients lists, five of which are reported in the Benefits and Insurance practice group, and one in the Financial Services practice group. Total consideration for these client lists was $0.8 million in cash consideration, $1.2 million of guaranteed future consideration and $0.7 million of contingent consideration.Change in Contingent Purchase Price Liability for Previous AcquisitionsDuring the first nine months of 2017 and 2016, we decreased the fair value of the contingent purchase price liability related to prior acquisitions by $0.2 million and $0.9 million, respectively. These changes in fair value are attributable to subsequent measurement adjustments based on projected future results of the acquired businesses, net present value adjustments and changes in the CBIZ common stock price. These adjustments are included in “Other income, net” in the accompanying Consolidated Statements of Comprehensive Income.Contingent Payments for Previous Acquisitions and Client ListsWe paid $9.2 million in cash and issued approximately 177,000 shares of CBIZ common stock during the nine months ended September 30, 2017 for previous acquisitions. For the first nine months of 2017, we also paid approximately $1.0 million in cash for previous client list purchases. For the same period in 2016, we paid $5.7 million in cash and issued approximately 220,000 shares of CBIZ common for previous acquisitions.Note 13. Discontinued Operations and DivestituresWe will divest (through sale or closure) business operations that do not contribute to our long-term objectives for growth, or that are not complementary to our target service offerings and markets. Divestitures are classified as discontinued operations provided they meet the criteria as provided in FASB ASC Topic 205 “Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters”.16CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Revenue and results from operations of discontinued operations are separately reported as “Loss from discontinued operations, net of tax” in the accompanying Consolidated Statements of Comprehensive Income. During the first nine months of both 2017 and 2016, we did not discontinue the operations of any of our businesses.Revenue and results from operations of discontinued operations for the three and nine months ended September 30, 2017 and 2016 were as follows2022, respectively (in thousands):DivestituresGains or losses from divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “Gain on sale of operations, net” in the accompanying Consolidated Statements of Comprehensive Income. During the first nine months of 2017 and 2016, we did not sell any operations. Gains recorded during the three and nine months ended September 30, 2017 and 2016, respectively, relate to contingent consideration earned on sales made in previous periods.Note 14. Segment DisclosuresOur 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 ServicesBenefits and Insurance ServicesNational Practices•Accounting and Tax•Government Healthcare Consulting•Financial Advisory•Valuation•Risk & Advisory Services•Group Health Benefits Consulting•Payroll•Property & Casualty•Retirement Plan Services•Managed Networking and Hardware Services•Healthcare ConsultingCorporate and Other. Included in “Corporate and Other” are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of certain health care costs, gains or losses attributable to assets held in the Company’s non-qualified deferred compensation plan, share-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, Organization and Summary of Significant Accounting Policies, to the Annual Report on Form 10-K for the year ended December 31, 2016. 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 operating income excluding those costs listed above, which are reported in the “Corporate and Other” segment.17CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Segment information for the three months ended September 30, 2017 and 2016 was as follows (in thousands):Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net expense $ 815 $ 836 $ 1,445 $ 1,478 Cash settlement paid $ 1,373 $ 1,045 $ 29,808 $ 8,122 Shares issued (number) 4 — 75 19 Segment information for the nine months ended September 30, 2017 and 2016 was as follows (in thousands):18CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Note 15. New Accounting PronouncementsFinancial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”)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 sole source of authoritative GAAP other than the Securitiestable 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 Exchange Commission (“SEC”) issued rulesOther - Included in Corporate and regulationsOther are operating expenses that apply only to SEC registrants. The FASB issues an Accounting Standards Update (“ASU”) to communicate changesare not directly allocated to the FASB codification. We assess and review the impactindividual business units. These expenses primarily consist of all changescertain health care costs, gains or losses attributable to the FASB codification. ASU's not listed below were reviewed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.Accounting Standards Adopted in 2017Share-Based Compensation: In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which requires the tax effects related to share-based payments to be recorded through the income statement and simplifies the accounting requirements for forfeitures and employers' tax withholding requirements. We elected prospective treatment in regards to ASU 2016-09 beginning January 1, 2017. For the third quarter of 2017, the adoption of ASU 2016-09 resulted in an increase of approximately 0.5 million diluted shares and a realized tax benefit of approximately $0.1 million. For the first nine months of 2017, the adoption of this ASU resulted in an increase of approximately 0.5 million diluted shares and a realized tax benefit of approximately $2.9 million. This tax benefit, which would have previously been recorded in additional paid-in capitalassets held in our Consolidated Balance Sheets, is now recorded directly to income tax expense in our Consolidated Statements of Comprehensive Income. We elected to classify excess tax benefits as an operating activity in the Consolidated Statements of Cash Flows instead of as a financing activity on a prospective basisnon-qualified deferred compensation plan, stock-based compensation, consolidation and did not retrospectively adjust prior periods, as permitted. We also elected to continue our current policy of estimating forfeitures of share-based compensation awards at the time of grantintegration charges, certain professional fees, certain advertising costs and revising in subsequent periods to reflect actual forfeitures. Going forward, we anticipate moderate volatility in our effective tax rate adjustments related to our share-based compensation incentives which will be recorded directly into our results of operations.Standards Not Yet AdoptedDerivatives and Hedging: In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). The new standard simplifies hedge accounting through changes to both designation and measurement requirements. For hedges that qualify as highly effective, the new standard eliminates the requirement to separately measure and record hedge ineffectiveness resulting in better alignment between the presentationpolicies of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. We apply hedge accounting for cash flow hedging purposes and do not expect this new guidance to have a material impact on our consolidated financial statements.19CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)Modification Accounting for Share-Based Payment Awards: In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting” (“ASU 2017-09”), clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. This new accounting standard requires modification accounting if the fair value, vesting condition or the classification of the award is notpractice groups are the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for us on a prospective basis beginning on January 1, 2018, with early adoption permitted. We typically do not change either the terms or conditions of share-based payment awards once they are granted, therefore; this new guidance is not expected to have a material impact on our consolidated financial statements.Subsequent Measurement of Goodwill: In January 2017, the FASB issued ASU No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which eliminates the requirement to calculate the implied fair value of goodwill (step two) to measure a goodwill impairment charge. Instead, goodwill impairment will be based upon the results of step one of the impairment test, which is defined as the excess of the carrying amount of a reporting unit over its fair value, not to exceed the carrying amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for us on a prospective basis beginning on January 1, 2020, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to early adopt this ASU in the fourth quarter of 2017 in conjunction with our annual impairment test. We still have the option to conduct a qualitative assessment or a quantitative assessment. The impact of this new guidance will depend upon the performance of our reporting units and the market conditions impacting the fair value of each reporting unit.Restricted Cash - Statement of Cash Flows: In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230)” (“ASU 2016-18”), which applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. This new accounting standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and the amounts generallythose described as restricted cash or restricted cash equivalents when reconciling beginning-of-period and end-of-period total amounts show on the statement of cash flows. ASU 2016-18 also requires the disclosure of information about the nature of the restriction. ASU 2016-18 is effective retrospectively for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. We disclose annually in Note 1, Basis of Presentation and Significant Accounting Policies, to ourthe Annual Report on Form 10-K Organizationfor the year ended December 31, 2022. Upon consolidation, intercompany accounts and Summary of Significant Accounting Policies, what our restricted cash consists of, therefore we only expect this new guidance to have a presentation impact on our consolidated financial statements.Statement of Cash Flows: In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which clarifies how certain cash receipts and paymentstransactions are to be presentedeliminated, thus inter-segment revenue is not included in the statementmeasure of cash flows. This new guidance will be effective for us beginning on January 1, 2018, with early adoption permitted, and is not expected to have a material impact on our consolidated financial statements.Leases: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes Topic 840, “Leases.” This new accounting standard is intended to increase transparency and comparability among organizations relating to leases and will require enhanced disclosures about our leasing arrangements. Under the new guidance, lessees will be required to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying assetprofit or loss for the lease term. The FASB retained a dual model for lease classification, requiring leases to be classified as either operating or finance leases to determine recognitionpractice 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 income statement“Corporate and statements of cash flows; however, substantially all leases will be required to be recognized onOther”.balance sheet. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern.ASU 2016-02three and six months ended June 30, 2023 and 2022 is effective for us beginning on January 1, 2019, with early adoption permitted. The new standard requires a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.below. We do not believe this new guidance will have a significant impact onmanage our liquidity or our debt covenant compliance under our current credit agreements. We are currently assessing the impact of this new guidance on our consolidated financial statements.Revenue from Contracts with Customers: In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date” (“ASU 2015-14”). ASU 2015-14 defers the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which was issued in May 2014, by one year for all entities. This new accounting standard provides a comprehensive revenue recognition model for all contracts with customers and supersedes current revenue recognition guidance.20CBIZ, INC. AND SUBSIDIARIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)The underlying principle is that an entity will recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new standard also includes enhanced disclosures. In March, April and May 2016, the FASB issued additional ASUs clarifying certain aspects of ASU 2014-09. The core principle of ASU 2014-09 was not changed by the additional guidance.We have organized a team and have developed a project plan to guide the implementation. The project plan includes working sessions to review, evaluate and document the arrangements with customers under our various reporting units to identify potential differences that would result from applying the requirements of the new standard. We are currently in the process of developing an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. We expect the guidance in certain areas, particularly in our Benefits and Insurance Services practice group, to have an impact our current revenue recognition policies, but not a significant impact on our consolidated financial statements.In our property and casualty business unit, the current accounting policy under agency billing arrangements is to recognize commission revenue as of the later of the effective date of the insurance policy or the date billed to the customer. Following adoption, we will recognize commission revenue on the effective date of the insurance policy. Also in our property and casualty business unit, the current accounting policy under direct billing arrangements is to recognize commission revenue when the data necessary from the carriers is available. Following adoption, we will recognize commission revenue on the effective date of the insurance policy. Since the majority of our property and casualty arrangements involve contracts that are annual in term,assets on a year over yearsegment basis, we dotherefore segment assets are not believe there will be a significant change topresented below.Three Months Ended June 30, 2023 Financial
ServicesBenefits and
Insurance ServicesNational
PracticesConsolidated 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 Three Months Ended June 30, 2022 Financial
ServicesBenefits and
Insurance ServicesNational
PracticesConsolidated Accounting, tax, advisory and consulting $ 259,308 — — $ 259,308 Core benefits and insurance services — 87,366 — 87,366 Non-core benefits and insurance services — 4,342 — 4,342 Managed networking, hardware services — — 8,333 8,333 National practices consulting — — 2,603 2,603 Total revenue $ 259,308 $ 91,708 $ 10,936 $ 361,952 Six Months Ended June 30, 2023 Financial
ServicesBenefits and
Insurance ServicesNational
PracticesConsolidated Accounting, tax, advisory and consulting $ 634,016 — — $ 634,016 Core benefits and insurance services — 187,648 — 187,648 Non-core benefits and insurance services — 8,244 — 8,244 Managed networking, hardware services — — 18,021 18,021 National practices consulting — — 5,179 5,179 Total revenue $ 634,016 $ 195,892 $ 23,200 $ 853,108 Six Months Ended June 30, 2022 Financial
ServicesBenefits and
Insurance ServicesNational
PracticesConsolidated Accounting, tax, advisory and consulting $ 548,054 — — $ 548,054 Core benefits and insurance services — 176,302 — 176,302 Non-core benefits and insurance services — 7,892 — 7,892 Managed networking, hardware services — — 16,254 16,254 National practices consulting — — 5,172 5,172 Total revenue $ 548,054 $ 184,194 $ 21,426 $ 753,674 amount of revenue recognized in an annual period.In our retirement plan services business unit,three months ended June 30, 2023 and 2022 was as follows (in thousands):Three Months Ended June 30, 2023 Financial
ServicesBenefits
and
Insurance
ServicesNational
PracticesCorporate
and
OtherTotal 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 (expense), net 235 153 1 (502) (113) Income (loss) before income tax expense $ 47,720 $ 17,617 $ 1,190 $ (27,918) $ 38,609 Three Months Ended June 30, 2022 Financial
ServicesBenefits
and
Insurance
ServicesNational
PracticesCorporate
and
OtherTotal Revenue $ 259,308 $ 91,708 $ 10,936 $ — $ 361,952 Operating expenses 209,643 75,020 9,899 (4,826) 289,736 Gross margin 49,665 16,688 1,037 4,826 72,216 Corporate general and administrative expenses — — — 10,926 10,926 Operating income (loss) 49,665 16,688 1,037 (6,100) 61,290 Other income (expense): Interest expense — (1) — (1,644) (1,645) Gain on sale of operations, net 135 — — — 135 Other income (expense), net 85 (12) 1 (15,977) (15,903) Total other income (expense), net 220 (13) 1 (17,621) (17,413) Income (loss) before income tax expense $ 49,885 $ 16,675 $ 1,038 $ (23,721) $ 43,877 current accounting policy under defined benefit administration arrangements is to recognize non-refundable, initial set up fees over a go-live, set up period. Following adoption, we will defer these set up feessix months ended June 30, 2023 and recognize them over the life of the contract or the expected customer relationship, whichever is longer. The deferral of these set up fees is not expected to have a significant change to the amount of revenue recognized in an annual period. The effective date of this new accounting pronouncement is for interim and annual periods beginning on or after December 15, 2017. The guidance permits the use of either a full retrospective or modified retrospective transition method. We will adopt the requirements of the new standard effective January 1, 2018 and expect to use the modified retrospective transition method with the cumulative effect adjustment directly to the opening balance of retained earnings at the date of initial adoption.Note 16. Subsequent EventsNone noted.Six Months Ended June 30, 2023 Financial
ServicesBenefits
and
Insurance
ServicesNational
PracticesCorporate
and
OtherTotal Revenue $ 634,016 $ 195,892 $ 23,200 $ — $ 853,108 Operating expenses 487,888 155,297 21,128 20,685 684,998 Gross margin 146,128 40,595 2,072 (20,685) 168,110 Corporate general and administrative expenses — — — 31,391 31,391 Operating income (loss) 146,128 40,595 2,072 (52,076) 136,719 Other income (expense): Interest expense — (1) — (9,174) (9,175) Gain on sale of operations, net 99 — — — 99 Other income, net 490 330 1 9,712 10,533 Total other income, net 589 329 1 538 1,457 Income (loss) before income tax expense $ 146,717 $ 40,924 $ 2,073 $ (51,538) $ 138,176 ItemSix Months Ended June 30, 2022 Financial
ServicesBenefits
and
Insurance
ServicesNational
PracticesCorporate
and
OtherTotal Revenue $ 548,054 $ 184,194 $ 21,426 $ — $ 753,674 Operating expenses (income) 419,443 147,677 19,475 (6,560) 580,035 Gross margin 128,611 36,517 1,951 6,560 173,639 Corporate general and administrative expenses — — — 27,235 27,235 Operating income (loss) 128,611 36,517 1,951 (20,675) 146,404 Other income (expense): Interest expense — (1) — (2,903) (2,904) Gain on sale of operations, net 135 — — — 135 Other income (expense), net 171 (36) 1 (22,446) (22,310) Total other income (expense), net 306 (37) 1 (25,349) (25,079) Income (loss) before income tax expense $ 128,917 $ 36,480 $ 1,952 $ (46,024) $ 121,325 Management’s Discussion and Analysis of Financial Condition and Results of OperationsSeptemberJune 30, 20172023 and December 31, 2016,2022, results of operations for the three months and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, and cash flows for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2016.2022. This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2016.OverviewStates. We also provide limited information technology services through our National Practices segment to a client with offices in 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 14, 12, Segment Disclosures,, to the accompanying unaudited condensed consolidated financial statements for a general description of services provided by each practice group.20162022 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations.Executive SummaryRevenueSeptemberJune 30, 20172023 increased $7.9by $36.6 million, or 4.0%10.1%, to $207.7$398.5 million from $199.8$362.0 million for the same period in 2016. The increase2022. Same-unit revenue increased by approximately $15.0 million, or 4.1%, as compared to the same period in revenue was attributable to an increase in2022. Revenue from newly acquired operations, net of $9.6divestitures, contributed $21.6 million, or 4.8%6.0%, and a decreaseof incremental revenue for the three months ended June 30, 2023 as compared to the same period in same-unit revenue of $1.7 million, or 0.8%.ninesix months ended SeptemberJune 30, 20172023 increased $39.2by $99.4 million, or 6.3%13.2%, to $660.2$853.1 million from $621.0$753.7 million for the same period in 2016.2022. Same-unit revenue increased by approximately $53.9 million, or 7.2%, as compared to the same period in 2022. Revenue from newly acquired operations, net of divestitures, contributed $28.6$45.5 million, or 4.6%6.0%, and same-unitof incremental revenue increased $10.6 million, or 1.7%.Income from Continuing OperationsIncome from continuing operations decreased $1.1 million, or 10.2%, to $9.9 million duringfor the threesix months ended SeptemberJune 30, 20172023 as compared to $11.0 million during the same period in 2016.Income from continuing operations increased $5.12022. A detailed discussion of revenue by practice group is included under "Operating Practice Groups".12.4%,$0.53 per diluted share, in the second quarter of 2023, compared to $46.3$31.3 million, duringor $0.60 per diluted share, in the ninesecond quarter of 2022. For the six months ended SeptemberJune 30, 20172023, net income was $100.0 million, or $1.98 per diluted share, compared to $41.2$89.4 million, duringor $1.70 per diluted share, for the same period in 2016.Operations – Continuing Operations”Operations" for a detailed discussion of the components of income from continuing operations.Earnings Per Diluted Share from Continuing OperationsEarnings per diluted share from continuing operations were $0.18 and $0.20 for the three months ended September 30, 2017 and 2016, respectively. The fully diluted weighted average share count increased by approximately 2.0 million shares to 55.8 million shares for the three months ended September 30, 2017 from 53.8 million shares during the same period in 2016.Earnings per diluted share from continuing operations were $0.83 and $0.77 for the nine months ended September 30, 2017 and 2016, respectively. The fully diluted weighted average share count increased by approximately 2.3 million
Strategic Use of Capitalshares to 55.6 million shares for the nine months ended September 30, 2017 from 53.3 million shares for the same period in 2016.Acquisitions the use of capital is to make strategic acquisitions. We also have the financing flexibility and the capacity to carry outactively 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 active acquisition programattractive use of capital and an efficient means to take an opportunistic approach towards using fundsprovide value to repurchase shares. We seek to strengthen our operations and customer service capabilities by selectively acquiring businesses that expand our market position and strengthen our existing service offerings.stockholders. During the third quarter of 2017,six months ended June 30, 2023, we completed one client list purchase. four acquisitions for $48.5 million in cash. We also repurchased 1.1 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately $56.8 million in the six months ended June 30, 2023. Refer to Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions.nine monthsquarter of 2017, we have completed three acquisitions and two client list purchases. For further discussion regarding acquisitions, refer to Note 12, Acquisitions, to the accompanying consolidated financial statements.Share RepurchasesOn February 9, 2017,2023, the CBIZ Board of Directors authorized the purchase of up to 5.0 million shares of CBIZour common stock under theour Share Repurchase Program (the “Share Repurchase Program”), which may be suspended or discontinued at any time and expires on April 1, 2018.2024. The shares may be purchased in the open market, in privately negotiated ortransactions, and pursuant to Rule 10b5-1 trading plan purchases,plans, which may includeCBIZour employees, officers and directors, in accordance with the Securities and Exchange Commission (the “SEC”) rules. CBIZ management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors.During the nine months ended September 30, 2017, we repurchased approximately 0.6 million shares of our common stock at a total cost of approximately $8.8 million under the Share Repurchase Plan. We also withheld approximately 0.1 million shares with an aggregate value of approximately $1.4 million during the same period from employees who exercised stock options or who received vested restricted stock awards. Such shares were withheld, if applicable, to cover the required tax withholdings.Results of Operations – Continuing Operationsninesix months ended SeptemberJune 30, 20172023 and 2016 (in thousands except percentages).2022:Three Months Ended June 30, 2023 % of
Total2022 % of
Total$
Change%
Change(Amounts in thousands, except percentages) Financial Services $ 290,930 73.0 % $ 259,308 71.6 % $ 31,622 12.2 % Benefits and Insurance Services 95,838 24.0 % 91,708 25.3 % 4,130 4.5 % National Practices 11,734 3.0 % 10,936 3.1 % 798 7.3 % Total CBIZ $ 398,502 100.0 % $ 361,952 100.0 % $ 36,550 10.1 % Six Months Ended June 30, 2023 % of
Total2022 % of
Total$
Change%
Change(Amounts in thousands, except percentages) Financial Services $ 634,016 74.3 % $ 548,054 72.7 % $ 85,962 15.7 % Benefits and Insurance Services 195,892 23.0 % 184,194 24.4 % 11,698 6.4 % National Practices 23,200 2.7 % 21,426 2.9 % 1,774 8.3 % Total CBIZ $ 853,108 100.0 % $ 753,674 100.0 % $ 99,434 13.2 % Groups”. (“G&A”) expenses” and are directly offset by deferred compensation gains or losses in “Other income (expense), net” in the accompanying Consolidated Statements of Comprehensive Income. The non-qualified deferred compensation planhas no impact on “Income from continuing operations before income tax expense” or diluted earnings per share from continuing operations.Operating ExpensesThree months ended September 30, 2017 compared to September 30, 2016. The majority of our operating expenses relate to personnel costs, which includes (i) salaries and benefits, (ii) commissions paid to producers (iii) incentive compensation, and (iv) share-based compensation. Operating expenses increased $10.7 million, or 6.1%, in the third quarter of 2017 compared to the third quarter of 2016, and increased to 88.9% of revenue from 87.1% of revenue for the prior year. Personnel costs increased $9.3 million, or 6.9%, to support our growth in revenue, with acquisitions contributing approximately $6.0 million to personnel costs. The remaining fluctuation consists of other operating expenses, none of which are individually significant.The non-qualified deferred compensation added expense of $2.7 million in the third quarter of 2017 compared to expense of $2.1 million during the same period in 2016. Excluding this item, operating expenses would have been $182.0 million and $171.9 million, or 87.6% and 86.1% of revenue, for the third quarter of 2017 and 2016, respectively.Nine months ended September 30, 2017 compared to September 30, 2016. Operating expenses increased $39.4 million, or 7.5%, in the first nine months of 2017 compared to the first nine months of 2016, and increased to 85.7% of revenue from 84.7% of revenue for the prior year. The increase in operating expenses was due to the same factors as discussed above in the quarterly section. Personnel costs increased $35.0 million, or 8.5%. Acquisitions contributed approximately $16.2 million to personnel costs. Occupancy costs increased approximately $2.1 million, 6.3%. The remaining fluctuation consists of other operating expenses, none of which are individually significant.The non-qualified deferred compensation added expense of $7.6 million for the first nine months of 2017 compared to expense of $3.7 million during the same period in 2016. Excluding this item, operating expenses would have been $558.0 million and $522.5 million, or 84.5% and 84.1% of revenue, for the first nine months of 2017 and 2016, respectively.G&A ExpensesThree months ended September 30, 2017 compared to September 30, 2016. Our G&A expenses were $8.0 million inthe third quarter of 2017 compared to $8.7 million for the same period in 2016 and decreased to 3.7% of revenue from4.4% of revenue for the prior year. Personnel costs decreased $0.9 million, or 18.8%, primarily due to a decrease in incentive-based compensation. G&A expenses, excluding the impact of the non-qualified deferred compensation plan, would have been $7.7 million and $8.4 million, or 3.7% and 4.2% of revenue, for the third quarters of 2017 and 2016, respectively.Nine months ended September 30, 2017 compared to September 30, 2016. For the first nine months of 2017, G&A expenses were $26.0 million compared to $27.3 million for the same period in 2016 and decreased to 3.9% of revenue from 4.4% of revenue for the prior year. Personnel cost decreased $1.3 million, or 8%, primarily due to a decrease in the executive incentive plan and in incentive-based compensation. G&A expenses, excluding the impact of the non-qualified deferred compensation plan, would have been $25.2 million and $26.7 million, or 3.8% and 4.3% of revenue, for the first nine months of 2017 and 2016, respectively.Other Income (Expense), NetInterest ExpenseThree and nine months ended September 30, 2017 compared with September 30, 2016. Interest expense for the three and nine months ended September 30, 2017 and 2016 remained flat. Our average debt balances decreased year-over-year, but our average interest rates increased. For the third quarter of 2017, our average debt balance and interest rate was $212.0 million and 2.82%, compared to $231.8 million and 2.53% for the third quarter of 2016. For the first nine months of 2017, our average debt balance and interest rate was $208.6 million and 2.67%, compared to $234.6 million and 2.43% for the first nine months of 2016. Our debt is further discussed in Note 5, Debt and Financing Arrangements, to the accompanying consolidated financial statements.Other Income, NetThree and nine months ended September 30, 2017 compared with September 30, 2016. Other income, net includes a net gain of $3.0 million and $2.4 million for the third quarter of 2017 and 2016, respectively, and a net gain of $8.4 million and $4.3 million for the first nine months of 2017 and 2016, respectively, associated with the value of investments held in a rabbi trust related to the non-qualified deferred compensation plan. The adjustments to the investments held are offset by a corresponding increase or decrease to compensation expense, and are recorded as “Operating expenses” and “G&A expenses” in the accompanyingunaudited Condensed Consolidated Statements of Comprehensive Income. The non-qualified deferred compensation plan has no impact on “Income from continuing operations before income tax expense” or “Diluteddiluted earnings per share from continuing operations”.
Income and expenses related to the deferred compensation plan for the three and six months ended June 30, 2023 and 2022 are as follows:In addition toThree Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 (Amounts in thousands) Operating expenses (income) $ 5,102 $ (13,338) $ 9,862 $ (19,005) Corporate general and administrative expenses (income) 631 (1,811) 1,273 (2,622) Other income (expense), net 5,733 (15,149) 11,135 (21,627) Three Months Ended June 30, 2023 2022 (Amounts in thousands, except percentages) As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue Gross margin $ 54,515 $ 5,102 $ 59,617 15.0 % $ 72,216 $ (13,338) $ 58,878 16.3 % Operating income 38,722 5,733 44,455 11.2 % 61,290 (15,149) 46,141 12.7 % Other (expense) income, net 5,421 (5,733) (312) (0.1) % (15,903) 15,149 (754) (0.2) % Income before income tax expense 38,609 — 38,609 9.7 % 43,877 — 43,877 12.1 % Six Months Ended June 30, 2023 2022 (Amounts in thousands, except percentages) As Reported Deferred Compensation Plan Adjusted % of Revenue As Reported Deferred Compensation Plan Adjusted % of Revenue Gross margin $ 168,110 $ 9,862 $ 177,972 20.9 % $ 173,639 $ (19,005) $ 154,634 20.5 % Operating income 136,719 11,135 147,854 17.3 % 146,404 (21,627) 124,777 16.6 % Other income (expense), net 10,533 (11,135) (602) (0.1) % (22,310) 21,627 (683) (0.1) % Income before income tax expense 138,176 — 138,176 16.1 % 121,325 — 121,325 16.0 % Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Operating expenses by segment: Financial Services $ 243,445 $ 209,643 $ 33,802 16.1 % Benefits and Insurance Services 78,374 75,020 3,354 4.5 % National Practices 10,545 9,899 646 6.5 % Corporate and Other 11,623 (4,826) 16,449 N/M Total Operating expenses $ 343,987 $ 289,736 $ 54,251 18.7 % Operating expenses % of revenue 86.3 % 80.0 % Operating expenses excluding deferred compensation $ 338,885 $ 303,074 $ 35,811 11.8 % Operating expenses excluding deferred
compensation % of revenue85.0 % 83.7 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Operating expenses (income) by segment: Financial Services $ 487,888 $ 419,443 $ 68,445 16.3 % Benefits and Insurance Services 155,297 147,677 7,620 5.2 % National Practices 21,128 19,475 1,653 8.5 % Corporate and Other 20,685 (6,560) 27,245 N/M Total Operating expenses $ 684,998 $ 580,035 $ 104,963 18.1 % Operating expenses % of revenue 80.3 % 77.0 % Operating expenses excluding deferred compensation $ 675,136 $ 599,040 $ 76,096 12.7 % Operating expenses excluding deferred
compensation % of revenue79.1 % 79.5 % adjustments toincreased operating expenses by $5.1 million for the fair value of our contingent purchase price liability related to prior acquisitions resulted in additional expense of $0.5three months ended June 30, 2023, but decreased operating expenses by $13.3 million during the third quartersame period in 2022. Excluding the non-qualified deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $338.9 million and $303.1 million, or 85.0% and 83.7% of 2017revenue, for the three months ended June 30, 2023 and 2022, respectively. In addition, operating expenses for the three months ended June 30, 2023 included approximately $0.6 million non-recurring integration costs associated with the Somerset acquisition, and operating expenses for the three months ended June 30, 2022 included $1.8 million non-recurring integration and retention costs associated with the Marks Paneth acquisition.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) G&A expenses $ 15,793 $ 10,926 $ 4,867 44.5 % G&A expenses % of revenue 4.0 % 3.0 % G&A expenses excluding deferred compensation $ 15,162 $ 12,737 $ 2,425 19.0 % G&A expenses excluding deferred compensation % of revenue 3.8 % 3.5 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) G&A expenses $ 31,391 $ 27,235 $ 4,156 15.3 % G&A expenses % of revenue 3.7 % 3.6 % G&A expenses excluding deferred compensation $ 30,118 $ 29,857 $ 261 0.9 % G&A expenses excluding deferred compensation % of revenue 3.5 % 4.0 % Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Interest expense $ (5,534) $ (1,645) $ (3,889) 236.4 % Gain on sale of operations, net — 135 (135) (100.0) % 5,421 (15,903) 21,324 (134.1) % Total other expense, net $ (113) $ (17,413) $ 17,300 (99.4) % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Interest expense $ (9,175) $ (2,904) $ (6,271) 215.9 % Gain on sale of operations, net 99 135 (36) (26.7) % 10,533 (22,310) 32,843 (147.2) % Total other income (expense), net $ 1,457 $ (25,079) $ 26,536 (105.8) % $0.2$5.7 million during the three months ended June 30, 2023, compared to a net loss of $15.1 million for the same period in 2016. For2022, associated with the first nine monthsvalue of 2017investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and 2016,Other" for segment reporting purposes. The adjustments to the fair value of our contingent purchase price liabilityinvestments held in a rabbi trust related to prior acquisitions contributed $0.2 millionthe deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as “Operating expenses” and $0.9 million“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 respectively.Income Tax ExpenseThree months ended September 30, 2017 compared to September 30, 2016. Income tax expense from continuing operations(expense), net for the three months ended SeptemberJune 30, 2017 decreased2023 and 2022, is expense of $0.8 million and $0.8 million respectively, related to $6.2net changes in the fair value of contingent consideration related to prior acquisitions.from $7.3during the six months ended June 30, 2023, compared to a net loss of $(21.6) million for the third quartersame period in 2022, associated with the value of 2016. investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes. The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as “Operating expenses” and “G&A expenses.” The deferred compensation plan has no impact on “Income before income tax expense” or diluted earnings per share. In addition, included in Other income (expense), net for the six months ended June 30, 2023 and 2022, is expense of $1.4 million and $1.5 million, respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Income tax expense $ 11,746 $ 12,622 $ (876) (6.9) % Effective tax rate 30.4 % 28.8 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Income tax expense $ 38,153 $ 31,943 $ 6,210 19.4 % Effective tax rate 27.6 % 26.3 % third quarter of 2017three months ended June 30, 2023 was 38.5%30.4%, compared to an effective tax rate of 39.8%28.8% for the comparable period in 2016.2022. The decreaseincrease in the effective tax rate was primarily relatesdue to lowera smaller proportional tax benefit as compared to pre-tax income related to stock-based compensation expense during the three months ended June 30, 2023 as compared to the same quarter in 2022. The effective tax expenserate further increased due to the adoptiontax effect of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) beginning January 1, 2017. A $0.2 million tax benefit associated with share-based compensation, which would have previously been recorded in additional paid-in capital on our Consolidated Balance Sheets, is now recorded directly to incomehigher non-deductible expenses and higher state tax expense on our Consolidated Statementsduring the second quarter of Comprehensive Income.Nine months ended September 30, 20172023 as compared to September 30, 2016. Income tax expense from continuing operations for the nine months ended September 30, 2017 decreased to $26.7 million from $27.4 million for the nine months ended September 30, 2016. same period in 2022.ninesix months ended SeptemberJune 30, 20172023 was 36.5%27.6%, compared to an effective tax rate of 39.9%26.3% for the comparablesame period in 2016. A $3.0 million tax benefit associated with share-based compensation and the decrease2022. The increase in the effective tax rate year over year was primarily relate to lower income tax expense due to the adoptioneffect of ASU 2016-09higher pre-tax income on our tax benefit related to stock-based compensation. In addition, we incurred higher non-deductible expenses and higher state tax expense during the six months ended June 30, 2023 as discussed abovecompared to the same period in 2022 which also contributed to the increase in the quarterly section.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Revenue Same-unit $ 269,345 $ 259,308 $ 10,037 3.9 % Acquired businesses 21,585 — 21,585 N/M Total revenue $ 290,930 $ 259,308 $ 31,622 12.2 % Operating expenses 243,445 209,643 33,802 16.1 % Gross margin / Operating income Gross margin / Operating income $ 47,485 $ 49,665 $ (2,180) (4.4) % Total other income, net Total other income, net 235 220 15 N/M Income before income tax expense Income before income tax expense 47,720 49,885 (2,165) (4.3) % Gross margin percent 16.3 % 19.2 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Revenue Revenue Same-unit Same-unit $ 588,519 $ 548,054 $ 40,465 7.4 % Acquired businesses Acquired businesses 45,497 — 45,497 Total revenue Total revenue $ 634,016 $ 548,054 $ 85,962 15.7 % Operating expenses Operating expenses 487,888 419,443 68,445 16.3 % Gross margin / Operating income Gross margin / Operating income $ 146,128 $ 128,611 $ 17,517 13.6 % Total other income, net Total other income, net 589 306 283 92.5 % Income before income tax expenses Income before income tax expenses 146,717 128,917 17,800 13.8 % Gross margin percent Gross margin percent 23.0 % 23.5 % SeptemberJune 30, 20172023 compared to SeptemberJune 30, 20165.9%12.2% to $130.3$290.9 million from $259.3 million during the same period in 2017 from $123.02022. Same-unit revenue grew by $10.0 million, in 2016, reflecting growth from acquired business of $8.0 million offset by a reduction in same-unit revenue of $0.7 million. The growth in revenue from acquired businesses was provided by CMF Associates, L.L.C. (“CMF”)or 3.9%, acquired June 1, 2017, and The Seff Group, P.C. (“Seff”), acquired November 1, 2016, adding $6.5 million and $1.5 million, respectively, in incremental revenue. The reduction in same-unit revenue wasprimarily driven by those units that provide traditional accounting and taxtax-related services, which decreased 2.2%, primarily due to weather-related disruptionsincreased $8.5 million and an increase of approximately $3.8 million in our Florida based offices causing a delay in tax services in the third quarter, offset by those units that provided national services,provide project-oriented advisory services. The increase was offset by a decrease of approximately $2.3 million in government healthcare compliance business due to project delays. The impact of acquired businesses contributed $21.6 million, or 7.4% of 2023 revenue, of which increased 3.0%.$34.7$65.9 million and $33.2$61.0 million for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.$7.4$33.8 million, at September 30, 2017,or 16.1%, as compared to 86.7%the same period last year. Personnel costs increased by $28.4 million, of which acquisitions contributed approximately $14.5 million to the increase. Compared to the same period in 2022, corporate allocated costs, travel and entertainment costs, depreciation and amortization costs, technology costs, facility costs, direct costs, and marketing costs increased by approximately $1.7 million, $1.3 million, $1.0 million, $0.7 million, $0.7 million, $0.5 million, and $0.3 million respectively. Other discretionary costs, net decreased by approximately $0.8 million, primarily driven by lower professional fees and85.9%80.8% ofyear. This increase is primarily due to an increase in personnel costs of $5.5 million, driven by incremental growth in our headcount and salaries and related benefits. Acquisitions contributed approximately $5.1 million to the increase in personnel costs.Nineyear quarter.SeptemberJune 30, 20172023 compared to SeptemberJune 30, 2016ninesix months ended SeptemberJune 30, 20172023 grew by 5.9%15.7% to $421.5$634.0 million from $398.1$548.1 million during the same period in 2016.2022. Same-unit growth of $11.0revenue grew by $40.5 million, or 2.8%7.4%, wasacross almost all service lines, primarily driven by those units that provide national services, which increased 5.5%, as well as those units that provide traditional accounting and tax relatedtax-related services, which increased 1.6%.$33.3 million and an increase of approximately $7.6 million in those units that provide project-oriented advisory services. The acquisitionsincrease was offset by approximately $0.5 million decrease in government healthcare compliance business due to project delays. The impact of CMF and Seff, as detailed above, provided incrementalacquired businesses contributed $45.5 million, or 7.2% of 2022 revenue, of $8.4which Somerset and Stinnett contributed a total of $44.3 million, and $4.0 million, respectively.$125.5$150.7 million and $117.4$137.0 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.$22.1$68.4 million, for the nine months ended September 30, 2017,or 16.3%, as compared to 82.6% of revenue, from 81.9% of revenue for the prior year. This increase is primarily due to an increase in personnel costs of $18.5 million, driven by the same factors as discussed above in the quarterly section. Acquisitionsperiod last year. Personnel costs increased by $56.6 million, of which acquisitions contributed approximately $8.0$26.0 million to the increaseincrease. Compared to the same period in personnel costs.2022, corporate allocated costs, travel and entertainment costs, technology costs, depreciation and amortization costs, direct costs, facility costs, and marketing costs increased by approximately $3.3 million, $3.2 million, $1.5 million, $1.5 million, $0.9 million, $0.8 million, and $0.5 million respectively. Other discretionary costs, net increased by approximately $0.1 million. Operating expense as a percentage of revenue increased to 77.0% during the six months ended June 30, 2023 from 76.5% of revenue during the same period in 2022.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Revenue Same-unit $ 95,838 $ 91,708 $ 4,130 4.5 % Total revenue $ 95,838 $ 91,708 $ 4,130 4.5 % Operating expenses 78,374 75,020 3,354 4.5 % Gross margin / Operating income Gross margin / Operating income $ 17,464 $ 16,688 $ 776 4.7 % Total other income (expense), net Total other income (expense), net 153 (13) 166 N/M Income before income tax expense Income before income tax expense 17,617 16,675 942 5.6 % Gross margin percent 18.2 % 18.2 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Revenue Same-unit $ 195,892 $ 184,194 $ 11,698 6.4 % Total revenue $ 195,892 $ 184,194 $ 11,698 6.4 % Operating expenses 155,297 147,677 7,620 5.2 % Gross margin/ Operating income $ 40,595 $ 36,517 $ 4,078 11.2 % Total other income (expense), net 329 (37) 366 (989.2) % Income before income tax expenses 40,924 36,480 4,444 12.2 % Gross margin percent 20.7 % 19.8 % SeptemberJune 30, 2017 Compared2023 compared to SeptemberJune 30, 2016$0.7$4.1 million, or 1.0%4.5%, to $69.7$95.8 million at Septemberduring the three months ended June 30, 20172023 compared to $69.0$91.7 million for the same period in 2016.2022. The increase was across almost all of the major service lines, primarily driven by $1.6$2.2 million of incrementalincrease in employee benefit and retirement benefit services lines, $1.2 million in payroll related services, and $0.3 million in property and casualty services. In addition, revenue from the acquisitions of Slaton Insurance (“Slaton”) and Pacific Coastal Pension (“Pacific Coastal”), both acquired in 2017, and Actuarial Consultants, Inc. (“ACI”), acquired in 2016. The reduction in same-unit revenue was due to softness in our transaction-related businesses and not in our core services.$1.5by $3.4 million, at September 30, 2017,or 4.5%, when compared to 84.9%the same period last year. Personnel costs increased by $3.1 million primarily due to timing of revenue from 83.5% of revenue forannual merit increases as well as investment in producers. Compared to the prior period.same period in 2022, corporate allocated costs, travel and entertainment cost, direct costs, as well as marketing costs increased by approximately $0.6 million, $0.4 million, $0.2 million, and $0.1 million, respectively. The increase in operating expenses was primarily due to an increase in personneloffset by $0.4 million lower bad debt expense, $0.3 million lower depreciation and amortization costs of $1.5as well as $0.1 million partially driven by incremental growth in headcount and salaries and related benefits. Acquisitions contributed approximately $0.9 millionlower facility costs as compared to the increasesame period in personnel costs.Nine2022. Operating expenses as a percentage of revenue remained unchanged at 81.8% for the quarter ended June 30, 2023 from 81.8% of revenue for the same period in 2022.SeptemberJune 30, 2017 Compared2023 compared to SeptemberJune 30, 2016For the nine months ended September 30, 2017,$16.0$11.7 million, or 7.8%6.4%, to $215.4$195.9 million at Septemberduring the six months ended June 30, 20172023 compared to $199.8$184.2 million for the same period in 2016.2022. The increase was across almost all of the major service lines, primarily driven by $16.2$6.1 million of incrementalincrease in employee benefit and retirement benefit services lines, $2.8 million increase in payroll related services, and $2.5 million increase in the property and casualty services. In addition, revenue from the acquisitions listed above as well as the acquisition of Flex-Pay Business Services, Inc. (“Flex-Pay”), The Savitz Organization (“Savitz”), and Ed Jacobs & Associates (“EJ&A”), all acquired in 2016. The reduction in same-unit revenue was due to the same factors as discussed above in the quarterly section.$11.5$7.6 million, at September 30, 2017,or 5.2%, when compared to the same period last year. Personnel cost increased by $6.6 million primarily due to timing of annual merit increases, bonus accrual, as well as investment in producers. Compared to the same period in 2022, corporate allocated costs, travel and decreased to 83.2% of revenue from 83.9% of revenue for the prior period.entertainment cost, technology costs, direct costs, as well as marketing costs increased by approximately $1.1 million, $0.9 million, $0.2 million, $0.2 million, and $0.2 million, respectively. The increase in operating expenses was primarily due to an increase in personneloffset by $0.6 million lower depreciation and amortization costs, of $9.2$0.6 million including acquisitions which contributed approximately $8.2lower bad debt expense as well as $0.5 million lower facility costs as compared to the increasesame period in personnel costs.2022. Operating expense as a percentage of revenue slightly improved to 79.3% during the six months ended June 30, 2023 from 80.2% of revenue for the same period in 2022.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Same-unit revenue $ 11,734 $ 10,936 $ 798 7.3 % Operating expenses 10,545 9,899 646 6.5 % Gross margin / Operating income Gross margin / Operating income $ 1,189 $ 1,037 $ 152 14.7 % Total other income, net Total other income, net 1 1 — N/M Income before income tax expense Income before income tax expense 1,190 1,038 152 14.6 % Gross margin percent 10.1 % 9.5 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Same-unit revenue $ 23,200 $ 21,426 $ 1,774 8.3 % Operating expenses 21,128 19,475 1,653 8.5 % Gross margin / Operating income Gross margin / Operating income $ 2,072 $ 1,951 $ 121 6.2 % Total other income, net Total other income, net 1 1 — N/M Income before income tax expenses Income before income tax expenses 2,073 1,952 121 6.2 % Gross margin percent 8.9 % 9.1 % ninesix months ended SeptemberJune 30, 20172023 compared to Septemberwith June 30, 2016client.client, which has existed since 1999. The cost-plus contract is a five-year contract with the most recent renewal through December 31, 2023. The Company is in the process of renewing the contract. Revenues from this single client accounted for approximately 70%75% of the National Practice group’s revenue. ForDuring the third quarter,three and six months ended June 30, 2023, revenue remained flat at $7.8increased by $0.8 million, or 7.3%, and $1.8 million, or 8.3%, respectively, while operating expenses increased $0.2by $0.6 million, or 3.1%. For6.5%, and $1.7 million, or 8.5%, respectively.nineindividual 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.Three Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Operating expenses (income) $ 11,623 $ (4,826) 16,449 N/M Corporate general and administrative expenses 15,793 10,926 4,867 44.5 % Operating loss (27,416) (6,100) (21,316) N/M Total other expense, net (502) (17,621) 17,119 (97.2) % Loss before income tax expense (27,918) (23,721) (4,197) 17.7 % Six Months Ended June 30, 2023 2022 $
Change%
Change(Amounts in thousands, except percentages) Operating expenses (income) $ 20,685 $ (6,560) 27,245 N/M Corporate general and administrative expenses 31,391 27,235 4,156 15.3 % Operating loss (52,076) (20,675) (31,401) 151.9 % Total other income (expense), net 538 (25,349) 25,887 (102.1) % Loss before income tax expenses (51,538) (46,024) (5,514) 12.0 % SeptemberJune 30, 2017, revenue increased $0.1 million, or 0.6%, and2023 compared to June 30, 20222.8%.118.7%, during the six months ended June 30, 2023, as compared to the same period in 2022. The non-qualified deferred compensation plan increased operating expenses by $9.9 million for the six months ended June 30, 2023, and decreased operating expense by $19.0 million during the same period in 2022. Excluding the non-qualified deferred compensation expenses, operating expense decreased by approximately $1.6 million, primarily driven by lower personnel costs.operating expenses was driven by an increase in salaries and benefits.group.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.increase in first quartersix 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”) from continuing operations represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve monthsmonths' daily revenue. We provide DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of our ability to collect on receivables in a timely manner. DSO was 89 days and 7688 days at SeptemberJune 30, 20172023 and 2022. DSO at December 31, 2016, respectively. DSO at September 30, 20162022 was 8674 days.information (in thousands).information. For additional details, refer to the accompanying Condensed Consolidated Statements of Cash Flows.Six Months Ended June 30, 2023 2022 (Amounts in thousands) Net cash provided by operating activities $ 29,729 $ 28,508 Net cash used in investing activities (65,617) (89,756) Net cash provided by financing activities 21,793 91,655 Net (decrease) increase in cash, cash equivalents and restricted cash $ (14,095) $ 30,407 Operating - from continuing operations provided cash of $34.4was $29.7 million for bothduring the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively. The increase in2023, primarily consisted of net income of $4.8$100.0 million and certain non-cash items, such as depreciation and amortization expense of $17.8 million, deferred income tax of $4.6 million, and stock-based compensation expense of $6.6 million The cash flow was offset by a $2.4working capital use of $101.6 million. Cash provided bydecreaseduring the six months ended June 30, 2022, primarily consisted of net income of $89.4 million and certain non-cash items, such as depreciation and amortization expense of $16.5 million, deferred income tax of $4.7 million, and stock-based compensation expense of $6.4 million. The cash inflow was offset by working capital use of $91.3 million.noncash items as well as a $2.4investing activities during the six months ended June 30, 2023 was $65.6 million increaseand consisted primarily of $48.6 million used for business acquisitions, $11.7 million in capital expenditures, and $9.0 million in other investing activities primarily related to working capital payments and notes receivable. The use of cash was offset by $3.7 million net cash inflow related to funds held for working capital items.Operating activities provided cash of $33.6 million for the first nine months of 2017, compared o $34.9 million of cash 1provided for the same period in 2016. The $1.3 million decrease was primarily due to an increase in cashclients and other activities. Cash used in discontinued operations primarily related to a small office under the Financial Services segment. Investing ActivitiesCash provided by investing activities forduring the first ninesix months of 2017ended June 30, 2022 was $89.8 million and consisted primarily of $72.5 million used for business acquisition, $3.6 million in capital expenditures, $12.2 million net activity related to funds held for clients, of $79.7and $1.6 million partially offset by $26.4 million of cash usedin other activities related to the acquisitions of CMF, Slatonworking capital payments and Savitz, as well as $8.9 million of additions to property and equipment. Cash used for investing activities in 2016 consisted primarily of $26.8 million of cash used related to the acquisitions of Savitz and Flex-Pay.OrganizationBasis of Presentation and Summary of Significant Accounting Policies,, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.used inprovided by financing activities forduring the first ninesix months ended June 30, 2023 was $21.8 million and primarily consisted of 2017 consisted primarily of a net decrease of $79.7 million in client fund obligations, partially offset by $14.6$144.9 million in net proceeds from ourthe credit facility and the repurchase$4.3 million proceeds from exercise of our common stock at a cost of approximately $8.8 million under the Share Repurchase Program. We also withheld shares with an aggregate value of approximately $1.4 million from employees who exercised stock options, or who received vested restricted stock awards. Such shares were withheld, if applicable,partially offset by $57.0 million in share repurchases, $40.4 million net decrease in client fund obligations and $30.0 million in contingent consideration payments related to cover the required tax withholdings.forduring the first ninesix months ended June 30, 2022 was $91.7 million and primarily consisted of 2016 consisted primarily of $13.8$110.7 million in net proceeds from ourthe credit facility, $29.0 million net increase in client fund obligations and $3.9 million proceeds from exercise of stock options, partially offset by the repurchase of our common stock at a cost of approximately $6.7$41.6 million under the Share Repurchase Program. We also withheld shares with an aggregate value of approximately $1.3 million from employees who exercised stock options or who received vested restricted stock awards. Such shares were withheld, if applicable, to cover the required tax withholdings. During the first nine months of 2016, we also paid $5.8in share repurchases and $8.2 million in contingent consideration forpayments related to prior business acquisitions.Capital ResourcesSeptemberJune 30, 2017, there was $206.02023, we had $410.6 million outstanding under the 2022 credit facility as well as $4.4 million outstanding letters of credit totaling $2.3 million.credit. Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $142.5$177.5 million at SeptemberJune 30, 2017.For further discussion regarding2023. The weighted average interest rate under the credit facility was 4.94% during the six months ended June 30, 2023, compared to 1.93% for the same period in 2022. The credit facility allows for the allocation of funds for future strategic initiatives, including acquisitions and the repurchase of our debt, refer to Note 5, Debt and Financing Arrangements,common stock, subject to the accompanying consolidated financial statements.a minimum fixedinterest charge coverage ratio. We are in compliance with our financial covenants as of SeptemberJune 30, 2017.2023. Our ability to service our debt and to fund future strategic initiatives will depend upon our ability to generate cash in the future.AcquisitionsWe completed three acquisitions and two client list purchase during the nine months ended September 30, 2017. For further details on acquisitions,discussion regarding our 2022 credit facility and debt, refer to Note 12, Acquisitions,4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements.Share Repurchasesninesix months ended SeptemberJune 30, 2017,2023, we completed four acquisitions for $48.5 million in cash. We also repurchased approximately 0.61.1 million shares of our common stock at a total cost of approximately $8.8 million under the Share Repurchase Plan. We also withheld approximately 0.1 million shares with an aggregate value of approximately $1.4$56.8 million during the same period from employees who exercised stock options or who received vested restricted stock awards. Such shares were withheld, if applicable,six months ended June 30, 2023. Refer to coverNote 11, Business Combinations, to the required tax withholdings.Off-Balance Sheet ArrangementsOrganizationBasis of Presentation and Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016)2022), which qualify as variable interest entities. The accompanying unaudited condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations, or cash flows of CBIZ.$2.3$4.4 million and $5.0 million at SeptemberJune 30, 20172023 and December 31, 2016.2022, respectively. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at September 30, 2017 and December 31, 2016 totaled $2.5was $2.3 million and $2.3 million at June 30, 2023 and December 31, 2022, respectively.itwe 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 SeptemberJune 30, 2017,2023, we are not aware of any material obligations arising under indemnification agreements that would require payment.Critical Accounting Policies Thereno materialprepared 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 from the information providedand estimates as previously disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading Critical Accounting Policies in theour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.New Accounting Pronouncements15, 2, New Accounting Pronouncements,, to the accompanying unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS"intends," "believes," "estimates," "expects," "projects," "anticipates,""intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future," "seeks,"future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance. In may 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 differ materially from those projected. Such risks and uncertainties include, but are not limited to, the impact of COVID-19 on the Company’s business and operations and those of our clients; the Company’s ability to adequately manage and sustain its growth; the Company’s dependence on the current trend of outsourcing business services; the Company’s dependence on the services of its CEO and other key employees; competitive pricing pressures; general business and economic conditions; and changes in governmental regulation and tax laws affecting the Company’s insurance business or its business service operations. Such 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 or assumptions materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.Such risks and uncertainties include, but are not limited to:our ability to adequately manage our growth;our dependence on the services of our executive officers and other key employees;competitive pricing pressures;general business and economic conditions;changes in governmental regulation and tax laws affecting its operations;reversal or decline in the current trend of outsourcing business services;revenue seasonality or fluctuations in and collectability of receivables;liability for errors and omissions of CBIZ businesses;regulatory investigations and future regulatory activity (including without limitation inquiries into compensation arrangements within the insurance brokerage industry);reliance on information processing systems and availability of software licenses; andvolatility in our stock price.2016.2022. Except as required by the federal securities laws, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. 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.Quantitative and Qualitative Disclosures about Market Riskourthe 2022 credit facility exposes us to interest rate risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. A change in the Federal Funds Rate, or the reference rate set by Bank of America, N.A., would affect the rate at which we could borrow funds under the credit facility. OurThe balance outstanding under our credit facility at SeptemberJune 30, 20172023 was $206.0$410.6 million, of which $126.0$285.6 million is subject to rate risk. If market rates were to increase or decrease 100 basis points from the levels at SeptemberJune 30, 2017,2023, interest expense would increase or decrease approximately $1.3$2.9 million annually.SeptemberJune 30, 2017,2023, we had fivefour interest rate swaps with notional values, fixed rates of $10.0interest and expiration dates of (i) $50.0 million $15.0- 0.834% - April, 2025, (ii) $30.0 million - 1.186% - December, 2026, (iii) $20.0 million - 2.450% - August, 2027 and (iv) $25.0 million $10.0 million, and $20.0 million with various maturity dates ranging from November 2017 to May 2022. Refer to Note 7, Financial Instruments, for further details on our interest rate swaps.- 3.669% - April, 2028, respectively. Management will continue to evaluate the potential use of interest rate swaps as we deem appropriate under certain operating and market conditions. We do not enter into derivative instruments for trading or speculative purposes.business,operations, funds held for clientscollected from our clients’ accounts in advance are segregated and may be invested in short-term investments, such as corporate and municipal bonds. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial investment.acquisition, and are classified as available-for-sale securities. At each respective balance sheet date, these investments are adjusted to fair value with fair value adjustments being recorded to other comprehensive income or loss and reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income for the respective period. If an adjustmentinvestment is deemed to be other-than-temporarily impaired due to credit loss, then the adjustment is recorded to “Other"Other income net”(expense), net" in the accompanying Condensed Consolidated Statements of Comprehensive Income. Refer to Note 7, 6, Financial Instruments,, and Note 8, 7, Fair Value Measurements,, to the accompanying unaudited condensed consolidated financial statements for further discussion regarding these investments and the related fair value assessments.Controls and Procedures(“Internal Controls”) will prevent all errorerrors and all fraud. Although our Disclosure Controls are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CBIZ have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of someourCBIZ’s Disclosure Controls were effective at that reasonable assurance level.There waschange inchanges to our Internal Controls that occurredinternal control over financial reporting during the quarter ended SeptemberJune 30, 20172023 that hashave materially affected, or isare reasonably likely to materially affect, our Internal Controls.internal control over financial reporting.Legal Proceedings6, 5, Commitments and Contingencies,, to the accompanying condensed consolidated financial statements.Risk Factors20162022 as filed with the SEC. These risks could materially and adversely affect the business, financial condition and results of operations of CBIZ.Unregistered Sales of Equity Securities and Use of Proceedsninesix months ended SeptemberJune 30, 2017, we issued2023, approximately 0.2 million75 thousand shares of our common stock were issued as payment for contingent consideration for previous acquisitions.above referencedforegoing shares were issued in transactions not involving a public offering in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act. The persons to whom the shares were issued had access to full information about CBIZthe Company and represented that they acquired the shares for their own account and not for the purpose of distribution. The certificates for the shares contain a restrictive legend advising that the shares may not be offered for sale, sold, or otherwise transferred without having first been registered under the Securities Act or pursuant to an exemption from the Securities Act.(c)Our first priority for the use of capital is to make strategic acquisitions. We have the financing flexibility and the capacity to carry out an active acquisition program and to take an opportunistic approach towards using funds to repurchase shares. 9, 2017, the CBIZ7, 2023, our Board of Directors authorized the purchasecontinuation of up to 5.0 million shares of CBIZ common stock under the Share Repurchase Program, which mayhas been renewed annually for the past nineteen years. It was effective beginning April 1, 2023, and the amount of shares to be suspended or discontinued at any timepurchased was reset to five million, and expires on April 1, 2018.one year from the effective date. The Share Repurchase Program allows us to purchase shares may be purchasedof our common stock (i) in the open market, (ii) in privately negotiated ortransactions, and (iii) under Rule 10b5-1 trading plan purchases, whichplans. Privately negotiated transactions may includeCBIZour employees, Officers and Directors, in accordance with the SEC rules. CBIZ management will determineRule 10b5-1 trading plans allow for repurchases during periods when we would not normally be active in the timingtrading market due to regulatory restrictions. The Share Repurchase Program does not obligate us to acquire any specific number of shares and amount ofmay be suspended at any time.transactions based on its evaluation of market conditions and other factors.Shares repurchasedShare Repurchase Program during the three months ended SeptemberJune 30, 20172023 (reported on a trade-date basis) are summarized in the table below (in(amounts in thousands, except per share data).1)We have utilized, and may utilize in the future, a Rule 10b5-1 trading plan to allow for repurchases by us during periods when we would not normally be active in the trading market due to regulatory restrictions. Under the Rule 10b5-1 trading plan, we were able to repurchase shares below a pre-determined price per share. Additionally, the maximum number of shares that may be purchased by the Company each day is governed by Rule 10b-18 under the Exchange Act.Issuer Purchases of Equity Securities Second Quarter Purchases Total
Number of
Shares
PurchasedAverage
Price Paid
Per
ShareTotal Number of
Shares
Purchased as
Part of Publicly
Announced PlanMaximum
Number of
Shares That
May Yet Be
Purchased
Under the PlanApril 1 – April 30, 2023 233 $ 50.88 233 4,767 May 1 – May 31, 2023 273 $ 50.37 273 4,494 June 1 – June 30, 2023 41 $ 51.97 41 4,453 Second quarter purchases 547 $ 50.70 547 (2)Includes shares withheld from employees to satisfy certain tax obligations due in connection with restricted stock granted under the CBIZ, Inc. 2014 Stock Incentive Plan.(3)Average price paid per share includes fees and commissions.(4)Effective April 1, 2017, the shares available to be repurchased was reset to 5.0 million shares pursuant to the Share Repurchase Plan authorized on February 9, 2017, which will expire one year from the effective date. Amounts in this column represent the shares available to be repurchased, pursuant to the Share Repurchase Plan.we are not permittedour ability to declare or make any dividend payments other than dividend payments made by one of our wholly owned subsidiaries to the parent company.is limited. Refer to Note 8, 4, Debt and Financing Arrangements,, to the condensed consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2016 for a description of working capital restrictions and limitations on the payment of dividends.Defaults Upon Senior SecuritiesMine Safety DisclosuresOther InformationNot applicable.
Based on the previously reported voting results at the Company’s annual meeting of stockholders on the advisory proposal on the frequency of say-on-pay votes, the Company will continue to include an advisory vote on named executive officer compensation every one (1) year until the next required vote on the frequency of shareholder advisory votes on the compensation of named executive officers.31.1 * XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* 101.SCH Inline XBRL Taxonomy Extension Schema Document* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 *The following materials from CBIZ, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2017 and the year ended December 31, 2016; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (v) Notes to the Consolidated Financial Statements.*Indicates documents filed herewith.*Indicates document furnished* Indicates documents filed herewith.
** Indicates document furnished herewith.CBIZ, Inc.(Registrant)(Registrant) Date:November 2, 2017Date: By:/s/ Ware H. Grove 37