CBIZ, INC. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to "we", "us", "our", "CBIZ" or the "Company" shall meanCBIZ, Inc. , aDelaware corporation, and its operating subsidiaries. The following discussion is intended to assist in the understanding of our financial position atSeptember 30, 2022 andDecember 31, 2021 , results of operations for the three and nine months endedSeptember 30, 2022 and 2021, and cash flows for the nine months endedSeptember 30, 2022 and 2021, 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 endedDecember 31, 2021 . 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 endedDecember 31, 2021 .
OVERVIEW
We provide professional business services, products and solutions that help our clients grow and succeed by better managing their finances and employees. These services are provided to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughoutthe United States and parts ofCanada . We deliver integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 12, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements for a general description of services provided by each practice group.
Refer to the Annual Report on Form 10-K for the year ended
EXECUTIVE SUMMARY
Revenue for the three months endedSeptember 30, 2022 increased by$80.5 million , or 28.5%, to$363.3 million from$282.7 million for the same period in 2021. Same-unit revenue increased by approximately$34.8 million , or 12.3%, as compared to the same period in 2021. Revenue from newly acquired operations, net of divestitures, contributed$45.7 million , or 16.2%, of incremental revenue for the three months endedSeptember 30, 2022 as compared to the same period in 2021. Revenue for the nine months endedSeptember 30, 2022 increased by$254.8 million , or 29.6%, to$1,116.9 million from$862.1 million for the same period in 2021. Same-unit revenue increased by approximately$95.3 million , or 11.1%, as compared to the same period in 2021. Revenue from newly acquired operations, net of divestitures, contributed$159.5 million , or 18.5%, of incremental revenue for the nine months endedSeptember 30, 2022 as compared to the same period in 2021. A detailed discussion of revenue by practice group is included under "Operating Practice Groups". Income from continuing operations was$27.5 million , or$0.53 per diluted share, in the third quarter of 2022, compared to$21.7 million , or$0.41 per diluted share, in the third quarter of 2021. For the nine months endedSeptember 30, 2022 , income from continuing operations was$116.9 million , or$2.22 per diluted share, compared to$80.5 million , or$1.50 per diluted share, for the same period in 2021. Refer to "Results of Operations - Continuing Operations" for a detailed discussion of the components of income from continuing operations.
Strategic Use of Capital
Our first priority for use of capital is to make strategic acquisitions. We also have the financing flexibility and the capacity to actively repurchase shares of our common stock. We believe that repurchasing shares of our common stock can be a prudent use of our financial resources, and that investing in our stock is an attractive use of capital and an efficient means to provide value to our stockholders. During the nine months endedSeptember 30, 2022 , we completed two acquisitions for$79.1 million in cash. We also repurchased 1.8 million shares of our common stock on open market as well as for tax withholding purposes at a total cost of approximately$75.3 million in the nine months endedSeptember 30, 2022 . Refer to Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions. 23 -------------------------------------------------------------------------------- During the first quarter of 2022, the CBIZ Board of Directors authorized the purchase of up to 5.0 million shares of our common stock under our Share Repurchase Program (the "Share Repurchase Program"), which may be suspended or discontinued at any time and expires onApril 1, 2023 . The shares may be purchased in the open market, in privately negotiated transactions, and pursuant to Rule 10b5-1 trading plans, which may include purchases from our employees, officers and directors, in accordance with theSecurities and Exchange Commission (the "SEC") rules. CBIZ management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors.
RESULTS OF OPERATIONS - CONTINUING OPERATIONS
Revenue
The following tables summarize total revenue for the three and nine months ended
Three Months Ended
% of % of $ %
2022 Total 2021 Total Change Change
(Amounts in thousands, except percentages)
Financial Services $ 259,998 71.6 % $ 187,232 66.2 % $ 72,766 38.9 %
Benefits and Insurance
Services 92,067 25.3 % 85,797 30.3 % 6,270 7.3 %
National Practices 11,197 3.1 % 9,690 3.5 % 1,507 15.6 %
Total CBIZ $ 363,262 100.0 % $ 282,719 100.0 % $ 80,543 28.5 %
Nine Months Ended
% of % of $ %
2022 Total 2021 Total Change Change
(Amounts in thousands, except percentages)
Financial Services $ 808,052 72.3 % $ 577,970 67.0 % $ 230,082 39.8 %
Benefits and Insurance
Services 276,261 24.7 % 255,656 29.7 % 20,605 8.1 %
National Practices 32,623 3.0 % 28,471 3.3 % 4,152 14.6 %
Total CBIZ $ 1,116,936 100.0 % $ 862,097 100.0 % $ 254,839 29.6 %
A detailed discussion of same-unit revenue by practice group is included under
"Operating Practice Groups."Non-qualified Deferred Compensation Plan
We sponsor a non-qualified deferred compensation plan, under which a CBIZ employee's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee. Income and expenses related to the non-qualified deferred compensation plan, which are recorded in "Corporate and Other" for segment reporting purposes, are included in "Operating expenses", "Gross margin" and "Corporate general and administrative expenses" and are directly offset by deferred compensation gains or losses in "Other income (expense), net" in the accompanying unaudited 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 diluted earnings per share from continuing operations.
Income and expenses related to the deferred compensation plan for the three and
nine months end
Three Months Ended September
30, Nine Months Ended September 30,
2022 2021 2022 2021
(Amounts in thousands)
Operating (income) expenses $ (3,995) $ (212) $ (23,000) $ 11,165
Corporate general and administrative (income)
expenses (697) (86) (3,319) 1,260
Other (expense) income, net (4,692) (298) (26,319) 12,425
Excluding the impact of the above-mentioned income and expenses related to the
deferred compensation plan, the operating results for the three and nine months
ended September 30, 2022 and 2021 are as follows:
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Three Months Ended September 30,
2022 2021
(Amounts in thousands, except percentages)
Deferred Deferred
As Reported Compensation Plan Adjusted % of Revenue As Reported Compensation Plan Adjusted % of Revenue
Gross margin $ 57,245 $ (3,995) $ 53,250 14.7 % $ 44,391 $ (212) $ 44,179 15.6 %
Operating income 41,352 (4,692) 36,660 10.1 % 31,356 (298) 31,058 11.0 %
Other (expense) income, net (2,618) 4,692 2,074 0.6 % (1,133) 298 (835) (0.3) %
Income from continuing
operations before income tax
expense 36,605 - 36,605 10.1 % 29,207 - 29,207 10.3 %
Nine Months Ended September 30,
2022 2021
(Amounts in thousands, except percentages)
Deferred Deferred
As Reported Compensation Plan Adjusted % of Revenue As Reported Compensation Plan Adjusted % of Revenue
Gross margin $ 230,884 $ (23,000) $ 207,884 18.6 % $ 162,864 $ 11,165 $ 174,029 20.2 %
Operating income 187,756 (26,319) 161,437 14.5 % 91,062 12,425 103,487 12.0 %
Other (expense) income, net (24,919) 26,319 1,400 0.1 % 12,029 (12,425) (396) - %
Income from continuing
operations before income tax
expense 157,939 - 157,939 14.1 % 106,624 - 106,624 12.4 %
Operating Expenses
Three Months Ended
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Operating expenses by segment:
Financial Services $ 220,337 $ 156,178 $ 64,159 41.1 %
Benefits and Insurance Services 73,321 69,039 4,282 6.2 %
National Practices 9,743 8,514 1,229 14.4 %
Corporate and Other 2,616 4,597 (1,981) (43.1) %
Total Operating expenses $ 306,017 $ 238,328 $ 67,689 28.4 %
Operating expenses % of revenue 84.2 % 84.3 %
Operating expenses excluding deferred
compensation $ 310,012 $ 238,540 $ 71,472 30.0 %
Operating expenses excluding deferred
compensation % of revenue 85.3 % 84.4 %
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Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Operating expenses (income) by segment:
Financial Services $ 639,780 $ 448,844 $ 190,936 42.5 %
Benefits and Insurance Services 220,998 203,748 17,250 8.5 %
National Practices 29,218 25,542 3,676 14.4 %
Corporate and Other (3,944) 21,099 (25,043) N/M
Total Operating expenses $ 886,052 $ 699,233 $ 186,819 26.7 %
Operating expenses % of revenue 79.3 % 81.1 %
Operating expenses excluding deferred
compensation $ 909,052 $ 688,068 $ 220,984 32.1 %
Operating expenses excluding deferred
compensation % of revenue 81.4 % 79.8 % Three months endedSeptember 30, 2022 compared toSeptember 30, 2021 . Total operating expenses for the three months endedSeptember 30, 2022 increased by$67.7 million , or 28.4%, to$306.0 million as compared to$238.3 million in the same period of 2021. The non-qualified deferred compensation plan decreased operating expenses by$4.0 million for the three months endedSeptember 30, 2022 , and by$0.2 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been$310.0 million and$238.5 million , or 85.3% and 84.4% of revenue, for the three months endedSeptember 30, 2022 and 2021, respectively. In addition, operating expense for the three months endedSeptember 30, 2022 included approximately$1.3 million non-recurring integration and retention costs related to theMarks Paneth acquisition. 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) stock-based compensation. Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by approximately$71.5 million during the three months endedSeptember 30, 2022 as compared to the same period in 2021, primarily driven by$60.9 million higher personnel costs (of which$33.7 million was the result of acquisitions),$3.0 million higher travel and entertainment costs,$2.7 million higher facility costs,$1.4 million higher technology related costs,$1.2 million higher depreciation and amortization expense, and$1.2 million higher professional services costs, as well as$1.1 million higher other discretionary spending to support business growth. Personnel costs are discussed in further detail under "Operating Practice Groups". Nine months endedSeptember 30, 2022 compared toSeptember 30, 2021 . Total operating expenses for the nine months endedSeptember 30, 2022 increased by$186.8 million , or 26.7%, to$886.1 million as compared to$699.2 million in the same period of 2021. The non-qualified deferred compensation plan decreased operating expenses by$23.0 million for the nine months endedSeptember 30, 2022 , and increased operating expenses by$11.2 million during the same period in 2021. Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by$221.0 million during the nine months endedSeptember 30, 2022 as compared to the same period in 2021. Operating expense for the nine months endedSeptember 30, 2022 included approximately$8.0 million non-recurring integration and retention costs related to theMarks Paneth acquisition. The increase in operating expense was primarily driven by personnel costs increase of$179.2 million (of which$109.0 million was the result of acquisitions),$9.4 million higher travel and entertainment costs,$9.0 million higher facility costs,$6.0 million higher technology related costs,$4.7 million higher depreciation and amortization expense, and$3.7 million higher professional services costs, as well as$9.0 million higher other discretionary spending to support business growth. 26
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Corporate General & Administrative ("G&A") Expenses
Three Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
G&A expenses $ 15,893 $ 13,035 $ 2,858 21.9 %
G&A expenses % of revenue 4.4 % 4.6 %
G&A expenses excluding deferred
compensation $ 16,590 $ 13,121 $ 3,469 26.4 %
G&A expenses excluding deferred
compensation % of revenue 4.6 % 4.6 %
Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
G&A expenses $ 43,128 $ 41,334 $ 1,794 4.3 %
G&A expenses % of revenue 3.9 % 4.8 %
G&A expenses excluding deferred
compensation $ 46,447 $ 40,074 $ 6,373 15.9 %
G&A expenses excluding deferred
compensation % of revenue 4.2 % 4.6 %
Three months ended September 30, 2022 compared to September 30, 2021 . The
deferred compensation plan decreased G&A expenses by $0.7 million for the three
months ended September 30, 2022 , and decreased G&A expenses by $0.1 million
during the same period in 2021. G&A expenses, excluding the impact of the
deferred compensation plan, would have been $16.6 million , or 4.6% of revenue,
for the three months ended September 30, 2022 , compared to $13.1 million , or
4.6% of revenue, for the same period in 2021, an increase of approximately $3.5
million . The increase was primarily due to a $3.9 million increase in personnel
costs as a result of adjustment to the performance-based variable compensations
due to improved financial results.
Nine months ended September 30, 2022 compared to September 30, 2021 . The
deferred compensation plan decreased G&A expense by $3.3 million for the nine
months ended September 30, 2022 , but increased G&A expenses by $1.3 million
during the same period in 2021. G&A expenses, excluding the impact of the
deferred compensation plan, would have been $46.4 million , or 4.2% of revenue,
for the nine months ended September 30, 2022 , compared to $40.1 million , or 4.6%
of revenue, for the same period in 2021. The increase in G&A expenses was
primarily due to approximately $3.7 million higher personnel costs as a result
of adjustment to the performance-based variable compensations due to improved
financial results, a $1.9 million non-recurring transaction and integration
costs related to the Marks Paneth acquisition, as well as $0.7 million higher
other discretionary costs to support business growth.
Legal Settlement, net
Three and nine months endedSeptember 30, 2022 compared withSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , we reached a settlement agreement withUniversity of Pittsburgh Medical Center ("UPMC") pertaining a lawsuit filed in theU.S. District Court for the Western District of Pennsylvania . As a result of the settlement, we recorded a settlement loss of$30.5 million for the nine months endedSeptember 30, 2021 . 27 --------------------------------------------------------------------------------
Other (Expense) Income, Net
Three Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Interest expense $ (2,305) $ (1,016) $ (1,289) N/M
Gain on sale of operations, net 176 - 176 N/M
Other expense, net (1) (2,618) (1,133) (1,485) N/M
Total other (expense) income, net $ (4,747) $ (2,149) $ (2,598) N/M
Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Interest expense $ (5,209) $ (2,852) $ (2,357) 82.6 %
Gain on sale of operations, net 311 6,385 (6,074) (95.1) %
Other (expense) income, net (2) (24,919) 12,029 (36,948) N/M
Total other (expense) income, net
$ (45,379) N/M (1) Other expense, net includes a net loss of$4.7 million during the three months endedSeptember 30, 2022 , compared to a net loss of$0.3 million for the same period in 2021, associated with the value of investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes. The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as "Operating expenses" and "G&A expenses." The deferred compensation plan has no impact on "Income from continuing operations before income tax expense" or diluted earnings per share from continuing operations. In addition, included in Other expense, net for the three months endedSeptember 30, 2022 and 2021, is expense of$0.4 million and$0.8 million respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions. (2) Other (expense) income, net includes a net loss of$26.3 million during the nine months endedSeptember 30, 2022 , compared to a net gain of$12.4 million for the same period in 2021, associated with the value of investments held in a rabbi trust related to the deferred compensation plan, which were recorded in "Corporate and Other" for segment reporting purposes. The adjustments to the investments held in a rabbi trust related to the deferred compensation plan are offset by a corresponding increase or decrease to compensation expense, which is recorded as "Operating expenses" and "G&A expenses." The deferred compensation plan has no impact on "Income from continuing operations before income tax expense" or diluted earnings per share from continuing operations. In addition, included in Other (expense) income, net for the nine months endedSeptember 30, 2022 and 2021, is expense of$1.9 million and$1.6 million , respectively, related to net changes in the fair value of contingent consideration related to prior acquisitions. Interest Expense Three and nine months endedSeptember 30, 2022 compared withSeptember 30, 2021 . Our primary financing arrangement is the credit facility which was amended and restated in May, 2022. During the three months endedSeptember 30, 2022 , our average debt balance and weighted average effective interest rate was$273.2 million and 2.97%, compared to$176.5 million and 1.80% for the same period of 2021. The increase in interest expense for the three months endedSeptember 30, 2022 as compared to the same period in 2021 was primarily driven by higher average debt balance as well as higher weighted average effective interest rate. During the nine months endedSeptember 30, 2022 , our average debt balance and interest rate was$267.2 million and 2.29% compared to$156.6 million and 1.89% for the same period of 2021. The increase in interest expense for the nine months endedSeptember 30, 2022 as compared to the same period in 2021 was primarily driven by higher average debt balance as well as higher weighted average effective interest rate. Our indebtedness is further discussed in Note 4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements.
Gain on Sale of Operations, Net
Three and nine months endedSeptember 30, 2022 compared withSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , we sold a small book of business and a business unit in the Benefits and Insurance practice group. Total proceeds from the sales were$9.8 million . As a result, we recorded a net gain of$6.4 million from the sales for the nine months endedSeptember 30, 2021 .
Other (Expense) Income, Net
28
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Three and nine months ended September 30, 2022 compared with September 30, 2021 .
For the three months ended September 30, 2022 , other (expense) income, net
includes a net loss of $4.7 million associated with the non-qualified deferred
compensation plan. For the same period in 2021, other (expense) income, net
includes a net loss of $0.3 million associated with the non-qualified deferred
compensation plan. Excluding the impact of the deferred compensation plan, other
(expense) income, net decreased by $2.9 million in 2022 as compared to 2021
primarily due to a $2.4 million gain related to the sale of a book of business
as well as $0.4 million lower adjustment to the fair value of the contingent
purchase price liability.
For the nine months ended September 30, 2022 , other (expense) income, net
includes a net loss of $26.3 million associated with the non-qualified deferred
compensation plan. For the same period in 2021, other (expense) income, net
includes a net gain of $12.4 million associated with the non-qualified deferred
compensation plan. Excluding the impact of the deferred compensation plan, other
(expense) income, net decreased by $1.8 million in 2022 as compared to 2021 due
to a $2.4 million gain related to the sale of a book of business in 2022 as
compared to an immaterial gain from the sale of certain assets in 2021.
Income Tax Expense
Three Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Income tax expense $ 9,131 $ 7,512 $ 1,619 21.6 %
Effective tax rate 24.9 % 25.7 %
Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, exceptpercentages)
Income tax expense $ 41,074 $ 26,100 $ 14,974 57.4 %
Effective tax rate 26.0 % 24.5 %
Three and nine months ended September 30, 2022 compared with September 30, 2021 .
The effective tax rate for the three months ended September 30, 2022 was 24.9%,
compared to an effective tax rate of 25.7% for the comparable period in 2021.
The decrease in the effective tax rate year over year was primarily due to a
larger tax benefit recognized related to stock-based compensation expense. This
tax benefit was partially offset by the tax effect of higher non-deductible
expenses during the third quarter of 2022 as compared to the same period in
2021.
The effective tax rate for the nine months ended September 30, 2022 was 26.0%,
compared to an effective tax rate of 24.5% for the same period in 2021. The
increase in the effective tax rate year over year was primarily due to the
effect of higher pre-tax income on our tax benefit related to stock-based
compensation. In addition, we incurred higher non-deductible expenses during the
nine months ended September 30, 2022 as compared to the same period in 2021
which also contributed to the increase in the effective tax rate.
Operating Practice Groups
We deliver our integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. A description of these groups' operating results and factors affecting their businesses is provided below.
Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. Divested operations represent operations that did not meet the criteria for treatment as discontinued operations.
29
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Financial Services
Three Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Revenue
Same-unit $ 214,265 $ 187,232 $ 27,033 14.4 %
Acquired businesses 45,733 - 45,733
Total revenue $ 259,998 $ 187,232 $ 72,766 38.9 %
Operating expenses 220,337 156,178 64,159 41.1 %
Gross margin / Operating income $ 39,661 $ 31,054 $ 8,607 27.7 %
Total other income, net 279 18 261 N/M
Income from continuing operations before
income tax expense 39,940 31,072 8,868 28.5 %
Gross margin percent 15.3 % 16.6 %
Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Revenue
Same-unit $ 647,343 $ 577,970 $ 69,373 12.0 %
Acquired businesses 160,709 - 160,709
Total revenue $ 808,052 $ 577,970 $ 230,082 39.8 %
Operating expenses 639,780 448,844 190,936 42.5 %
Gross margin / Operating income $ 168,272 $ 129,126 $ 39,146 30.3 %
Total other income, net 585 310 275 88.7 %
Income from continuing operations before
income tax expenses 168,857 129,436 39,421 30.5 %
Gross margin percent 20.8 % 22.3 %
Three months ended
Revenue
The Financial Services practice group revenue for the three months endedSeptember 30, 2022 grew by 38.9% to$260.0 million from$187.2 million during the same period in 2021. Same-unit revenue grew by$27.0 million , or 14.4%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased$19.4 million , and an increase of$7.1 million in government healthcare compliance business, as well as an increase of approximately$0.5 million in those units that provide project-oriented advisory services. The impact of acquired businesses contributed$45.7 million , or 17.6% of 2022 revenue, of whichMarks Paneth and Stinnett contributed a total of$40.7 million , or 15.7% of 2022 revenue. We provide a range of services to affiliated CPA firms under joint referral and administrative service agreements ("ASAs"). Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately$54.1 million and$39.7 million for the three months endedSeptember 30, 2022 and 2021, respectively.
Operating Expenses
Operating expenses increased by$64.2 million , or 41.1%, as compared to the same period last year. Personnel costs increased by$51.1 million , or 32.7%, with acquisitions contributing approximately$33.7 million to the increase. Compared to the same period in 2021, facility costs, depreciation and amortization costs, professional and consulting services, technology costs, as well as marketing and recruiting costs increased by approximately$2.9 million ,$1.4 million ,$1.4 million ,$0.9 million , and$0.8 million respectively. In addition, travel and entertainment costs increase by approximately$2.0 million and other discretionary costs increased by approximately$3.7 million 30 -------------------------------------------------------------------------------- to support the business growth. Operating expense as a percentage of revenue decreased to 84.7% for the three months endedSeptember 30, 2022 from 83.4% of revenue for the prior year quarter.
Nine months ended
Revenue
Revenue for the nine months endedSeptember 30, 2022 grew by 39.8% to$808.1 million from$578.0 million during the same period in 2021. Same-unit revenue grew by$69.4 million , or 12.0%, across all service lines, primarily driven by those units that provide traditional accounting and tax-related services, which increased$42.8 million , an increase of$15.3 million in government healthcare compliance business, and an increase of approximately$11.0 million in those units that provide project-oriented advisory services. The impact of acquired businesses contributed$160.7 million , or 19.9% of 2022 revenue, of whichMarks Paneth and Stinnett contributed a total of$119.9 million , or 14.8% of 2022 revenue.
Fees earned under the ASAs, as described above, were approximately
Operating Expenses
Operating expenses increased by$190.9 million , or 42.5%, as compared to the same period last year. Personnel costs increased by$146.6 million , or 32.7%, with acquisitions contributing approximately$110.0 million to the increase. Compared to the same period in 2021, facility costs, depreciation and amortization costs, technology costs, professional and consulting services, as well as marketing and recruiting costs increased by approximately$9.5 million ,$5.5 million ,$4.4 million ,$3.6 million , and$2.9 million , respectively, primarily due to theMarks Paneth acquisition. In addition, travel and entertainment costs increased by approximately$6.0 million and other discretionary costs increased by approximately$12.4 million to support the business growth. Operating expense as a percentage of revenue increased to 79.2% during the nine months endedSeptember 30, 2022 from 77.7% of revenue during the same period in 2021.
Benefits and Insurance Services
Three Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Revenue
Same-unit $ 92,067 $ 85,797 $ 6,270 7.3 %
Total revenue $ 92,067 $ 85,797 $ 6,270 7.3 %
Operating expenses 73,321 69,039 4,282 6.2 %
Gross margin / Operating income $ 18,746 $ 16,758 $ 1,988 11.9 %
Total other (expense) income, net 2,398 (9) 2,407 N/M
Income from continuing operations before
income tax expense 21,144 16,749 4,395 26.2 %
Gross margin percent 20.4 % 19.5 %
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Nine Months Ended September 30,
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Revenue
Same-unit $ 276,261 $ 254,460 $ 21,801 8.6 %
Divested operations - 1,196 (1,196)
Total revenue $ 276,261 $ 255,656 $ 20,605 8.1 %
Operating expenses 220,998 203,748 17,250 8.5 %
Gross margin/ Operating income $ 55,263 $ 51,908 $ 3,355 6.5 %
Total other income, net 2,361 7,248 (4,887) (67.4) %
Income from continuing operations before
income tax expenses 57,624 59,156 (1,532) (2.6) %
Gross margin percent 20.0 % 20.3 %
Three months ended
Revenue
The Benefits and Insurance Services practice group revenue increased by$6.3 million , or 7.3%, to$92.1 million during the three months endedSeptember 30, 2022 compared to$85.8 million for the same period in 2021. The increase was across all service lines, primarily driven by$3.5 million increase in employee benefit and retirement benefit services lines,$1.3 million increase in the property and casualty services, and$0.8 million in payroll related services, as well as growth in our other project based services.
Operating Expenses
Operating expenses increased by$4.3 million , or 6.2%, when compared to the same period last year. Personnel costs increased by$3.5 million , or 5.1%, primarily due to timing of annual merit increases as well as investment in producers. Compared to the same period in 2021, travel and entertainment cost, technology costs, as well as marketing and recruiting costs increased by approximately$0.3 million ,$0.2 million , and$0.2 million , respectively. In addition, other operating expenses and other direct costs increased by approximately$0.3 million to support increased business activities, offset by$0.2 million lower bad debt expense as compared to the same period in 2021. Operating expense as a percentage of revenue slightly improved to 79.6% for the quarter endedSeptember 30, 2022 from 80.5% of revenue for the same period in 2021.
Total Other (Expense) Income, Net
We sold a small book of business in our property and casualty service line
during the three months ended
Nine months ended
Revenue
The Benefits and Insurance Services practice group revenue increased by$20.6 million , or 8.1%, to$276.3 million during the nine months endedSeptember 30, 2022 compared to$255.7 million for the same period in 2021. Same-unit revenue increased by$21.8 million , or 8.6% when compared to the same period in 2021. The increase was across all service lines, primarily driven by$8.7 million increase in the property and casualty services,$8.4 million increase in employee benefit and retirement benefit services lines, and$1.6 million in payroll related services as well as growth in our other project based services.
Operating Expenses
Operating expenses increased by$17.3 million , or 8.5%, when compared to the same period last year. Personnel cost increased by$12.4 million , or 6.1%, primarily due to timing of annual merit increases, bonus accrual, as well as investment in producers. Compared to the same period in 2021, travel and entertainment cost, technology costs, marketing and recruiting costs, as well as bad debt expense increased by approximately$1.4 million ,$0.6 million ,$0.5 million and$0.5 million , respectively. In addition, other operating expenses and other direct costs increased by approximately$2.0 million to support increased business activities. Operating expense as a percentage of revenue 32 --------------------------------------------------------------------------------
remained relatively unchanged at 80.0% during the nine months ended
Total Other Income, Net
We sold a business unit during the nine months endedSeptember 30, 2021 for total proceeds of$9.8 million . Net gain from the sale was approximately$6.4 million . We also sold a small book of business in our property and casualty service line during the nine months endedSeptember 30, 2022 for total proceeds of$2.5 million and recorded a net gain of approximately$2.4 million from the sale. National Practices Three Months Ended September 30, $ % 2022 2021 Change Change (Amounts in thousands, except percentages) Same-unit revenue$ 11,197 $ 9,690 $ 1,507 15.6 % Operating expenses 9,743 8,514 1,229 14.4 % Gross margin / Operating income$ 1,454 $ 1,176 $ 278 23.6 % Total other income, net 8 1 7 N/M Income from continuing operations before income tax expense 1,462 1,177 285 24.2 % Gross margin percent 13.0 % 12.1 % Nine Months Ended September 30, $ % 2022 2021 Change Change (Amounts in thousands, except percentages) Same-unit revenue$ 32,623 $ 28,471 $ 4,152 14.6 % Operating expenses 29,218 25,542 3,676 14.4 % Gross margin / Operating income$ 3,405 $ 2,929 $ 476 16.3 % Total other income, net 9 1 8 N/M Income from continuing operations before income tax expenses 3,414 2,930 484 16.5 % Gross margin percent 10.4 % 10.3 %
Three and nine months ended
Revenue and Operating Expenses
The National Practices group is primarily driven by a cost-plus contract with a single client, which has existed since 1999. The cost-plus contract is a five-year contract with the most recent renewal throughDecember 31, 2023 . Revenues from this single client accounted for approximately 75% of the National Practice group's revenue. During the three and nine months endedSeptember 30, 2022 , revenue increased by$1.5 million , or 15.6%, and$4.2 million , or 14.6%, respectively, while operating expenses increased by$1.2 million , or 14.4%, and$3.7 million , or 14.4%, respectively. 33 --------------------------------------------------------------------------------
Corporate and Other
Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses primarily consist of certain health care costs, gains or losses attributable to assets held in our 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
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Operating expenses $ 2,616 $ 4,597 (1,981) (43.1) %
Corporate general and administrative
expenses 15,893 13,035 2,858 21.9 %
Operating loss (18,509) (17,632) (877) 5.0 %
Total other expense, net (7,432) (2,159) (5,273) N/M
Loss from continuing operations before
income tax expense (25,941) (19,791) (6,150) 31.1 %
Nine Months Ended
$ %
2022 2021 Change Change
(Amounts in thousands, except percentages)
Operating (income) expenses $ (3,944) $ 21,099 (25,043) N/M
Corporate general and administrative
expenses 43,128 41,334 1,794 4.3 %
Legal settlement, net - 30,468 (30,468) (100.0) %
Operating loss (39,184) (92,901) 53,717 (57.8) %
Total other (expense) income, net (32,772) 8,003 (40,775) N/M
Loss from continuing operations before
income tax expenses (71,956) (84,898) 12,942 (15.2) %
Three months ended
Total operating expenses decreased by$2.0 million , or 43.1%, during the three months endedSeptember 30, 2022 , as compared to the same period in 2021. The non-qualified deferred compensation plan decreased operating expenses by$4.0 million for the three months endedSeptember 30, 2022 and decreased operating expenses by$0.2 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, operating expense increased by approximately$1.8 million , primarily driven by higher personnel and facility costs to support business growth. Total corporate general and administrative expenses increased by$2.9 million , or 21.9%, during the three months endedSeptember 30, 2022 , as compared to the same period in 2021. The non-qualified deferred compensation plan decreased corporate general and administrative expenses by$0.7 million for the three months endedSeptember 30, 2022 , and by$0.1 million during the same period in 2021. Excluding the non-qualified deferred compensation expenses, corporate general and administrative expense increased by approximately$3.5 million , primarily driven by$3.9 million higher personnel costs, offset by$0.4 million lower costs primarily lower professional services costs as compared to the same period in 2021. Total other (expense) income, net increased by$5.3 million during the three months endedSeptember 30, 2022 , as compared to the same period in 2021. For the three months endedSeptember 30, 2022 , total other expense, net includes a net loss of$4.7 million associated with the non-qualified deferred compensation plan. For the same period in 2021, other income, net includes a net loss of$0.3 million associated with the non-qualified deferred compensation plan. Excluding the impact of the non-qualified deferred compensation plan, total other expense, net would have been$2.7 million in 2022 and$1.9 million in 2021, a change of$0.8 million primarily attributed to$1.3 million higher interest expense, offset by$0.4 million lower fair value adjustments to the contingent purchase price.
Nine months ended
34
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Total operating expenses decreased by $25.0 million , or 118.7%, during the nine
months ended September 30, 2022 , as compared to the same period in 2021. The
non-qualified deferred compensation plan decreased operating expenses by $23.0
million for the nine months ended September 30, 2022 , and increased operating
expense by $11.2 million during the same period in 2021. Excluding the
non-qualified deferred compensation expenses, operating expense increased by
approximately $9.1 million , primarily driven by higher personnel costs and
facility costs to support business growth.
Total G&A expenses increased by $1.8 million , or 4.3%, during the nine months
ended September 30, 2022 , as compared to the same period in 2021. The
non-qualified deferred compensation plan decreased G&A expenses by $3.3 million
for the nine months ended September 30, 2022 , and increased G&A expense by $1.3
million during the same period in 2021. Excluding the non-qualified deferred
compensation expenses, G&A expense increased by approximately $6.4 million ,
primarily driven by $3.7 million higher personnel costs, $1.9 million higher
transaction and integration related professional services costs associated with
the Marks Paneth acquisition, $0.5 million higher travel and entertainment
costs, and $0.3 million higher other discretionary costs to support the business
growth.
During the nine months ended September 30, 2021 , we reached a settlement
agreement with UPMC pertaining a lawsuit filed in the U.S. District Court for
the Western District of Pennsylvania . As a result of the settlement, we recorded
a settlement loss of $30.5 million for the nine months ended September 30, 2021 .
Total other (expense) income, net increased by $40.8 million , or 509.5%, during
the nine months ended September 30, 2022 , as compared to the same period in
2021. Total other (expense) income, net for the nine months ended September 30,
2022 includes a net loss of $26.3 million associated with the non-qualified
deferred compensation plan. For the same period in 2021, total other income, net
includes a net gain of $12.4 million associated with the non-qualified deferred
compensation plan. Excluding the impact of the non-qualified deferred
compensation plan, total other (expense) income, net increased by $2.0 million ,
primarily due to $2.4 million higher interest expense due to higher average
outstanding balance and interest rates during 2022 as compared to 2021, offset
by $0.4 million decrease in miscellaneous expenses.
LIQUIDITY
Our principal sources of liquidity are cash generated from operating activities
and financing activities. Our cash flows from operating activities are driven
primarily by our operating results and changes in our working capital
requirements while our cash flows from financing activities are dependent upon
our ability to access credit or other capital. We historically maintain low cash
levels and apply any available cash to pay down the outstanding debt balance.
We historically experience a use of cash to fund working capital requirements
during the first quarter of each fiscal year. This is primarily due to the
seasonal accounting and tax services period under the Financial Services
practice group, as well as payment of accrued employees' incentives programs.
Upon completion of the seasonal accounting and tax services period, cash
provided by operations during the remaining three quarters of the fiscal year
substantially exceeds the use of cash in the first quarter of the fiscal year.
Accounts receivable balances increase in response to the first nine months
revenue generated by the Financial Services practice group. A significant amount
of this revenue is billed and collected in subsequent quarters. Days sales
outstanding ("DSO") from continuing operations represent accounts receivable and
unbilled revenue (net of realization adjustments) at the end of the period,
divided by trailing twelve months daily revenue. We provide DSO data because
such data is commonly used as a performance measure by analysts and investors
and as a measure of our ability to collect on receivables in a timely manner.
DSO was 93 days and 88 days at September 30, 2022 and 2021, respectively. DSO at
December 31, 2021 was 71 days.
The following table presents selected cash flow information. For additional
details, refer to the accompanying Condensed Consolidated Statements of Cash
Flows.
Nine Months Ended September 30,
2022 2021
(Amounts in thousands)
Net cash provided by operating activities $ 60,059 $ 80,946
Net cash used in investing activities (95,550) (70,728)
Net cash provided by financing activities 6,025 1,678
Net (decrease) increase in cash, cash equivalents and
restricted cash $ (29,466) $ 11,896
35-------------------------------------------------------------------------------- Operating Activities - Cash provided by operating activities was$60.1 million during the nine months endedSeptember 30, 2022 and primarily due to net income of$116.9 million and certain non-cash items, such as depreciation and amortization expense of$24.7 million , deferred income tax of$5.7 million , and stock-based compensation expense of$12.0 million . The cash inflow was offset by working capital use of$100.0 million . Cash provided by operating activities was$80.9 million during the nine months endedSeptember 30, 2021 and primarily due to net income of$80.5 million and certain non-cash items, such as depreciation and amortization expense of$19.9 million , deferred income tax of$7.1 million , and stock-based compensation expense of$8.4 million . The cash inflow was offset by working capital use of$30.4 million Investing Activities - Cash used in investing activities during the nine months endedSeptember 30, 2022 was$95.6 million and consisted primarily of$79.3 million used for business acquisition,$6.0 million in capital expenditures,$8.4 million net activity related to funds held for clients, and$4.7 million in other activities related to working capital payments and notes receivable. The use of cash was offset by$2.9 million cash inflow primarily related to$2.5 million proceeds from the sale of a small book of business as well as receipts of cash payments related to certain prior divestitures. Cash used in investing activities during the nine months endedSeptember 30, 2021 was$70.7 million and consisted primarily of$66.2 million used for business acquisitions,$6.5 million in capital expenditures, and$8.0 million net activity related to funds held for clients. The use of cash was offset by other investing activities, such as proceeds from sales of divested operations of$9.8 million . The balances in funds held for clients and client fund obligations can fluctuate with the timing of cash receipts and the related cash payments. The nature of these accounts is further described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Financing Activities - Cash provided by financing activities during the nine months endedSeptember 30, 2022 was$6.0 million and primarily consisted of$115.8 million in net proceeds from the credit facility and$8.0 million proceeds from exercise of stock options, partially offset by$73.3 million in share repurchases,$30.0 million net decrease in client fund obligations,$12.4 million in contingent consideration payments related to prior acquisitions and$2.1 million paid as deferred financing costs related to the 2022 credit facility. Cash used in financing activities during the nine months endedSeptember 30, 2021 was$1.7 million and primarily consisted of$82.2 million in net proceeds from the credit facility,$8.4 million net increase in client fund obligations and$7.1 million proceeds from exercise of stock options, partially offset by$88.0 million in share repurchases and$7.9 million in contingent consideration payments related to prior acquisitions.
CAPITAL RESOURCES
Credit Facility - AtSeptember 30, 2022 , we had$271.1 million outstanding under the 2022 credit facility as well as$5.7 million outstanding letters of credit. Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately$310.9 million atSeptember 30, 2022 . The weighted average interest rate under the credit facility was 2.29% during the nine months endedSeptember 30, 2022 , compared to 1.89% for the same period in 2021. The credit facility allows for the allocation of funds for future strategic initiatives, including acquisitions and the repurchase of our common stock, subject to the terms and conditions of the 2022 credit facility. Debt Covenant Compliance - Under the 2022 credit facility, we are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) interest charge coverage ratio. We are in compliance with our financial covenants as ofSeptember 30, 2022 . Our ability to service our debt and to fund future strategic initiatives will depend upon our ability to generate cash in the future. For further discussion regarding our 2022 credit facility and debt, refer to Note 4, Debt and Financing Arrangements, to the accompanying unaudited condensed consolidated financial statements. Use of Capital - Our first priority for use of capital is to make strategic acquisitions. We also have the financing flexibility and the capacity to actively repurchase shares of our common stock. We believe that repurchasing shares of our common stock can be a prudent use of our financial resources, and that investing in our stock is an attractive use of capital and an efficient means to provide value to our stockholders. During the nine months endedSeptember 30, 2022 , we completed two acquisitions for$79.1 million in cash. We also repurchased 1.8 million shares of our common stock at a total cost of approximately$75.3 million during the nine months endedSeptember 30, 2022 . Refer to Note 11, Business Combinations, to the accompanying unaudited condensed consolidated financial statements for further discussion on acquisitions. 36 -------------------------------------------------------------------------------- Cash Requirements for 2022 - Cash requirements for the remainder of 2022 will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent purchase price payments for previous acquisitions, share repurchases and capital expenditures. We believe that cash provided by operations, as well as available funds under our credit facility will be sufficient to meet cash requirements.
OFF-BALANCE SHEET ARRANGEMENTS
We maintain administrative service agreements with independent CPA firms (as described more fully under "Business - Financial Services" and in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 ), which qualify as variable interest entities. The accompanying unaudited condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations, or cash flows of CBIZ. We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled$5.7 million and$3.4 million atSeptember 30, 2022 andDecember 31, 2021 , respectively. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding was$2.3 million and$2.3 million atSeptember 30, 2022 andDecember 31, 2021 , respectively. We have various agreements under which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by us under such indemnification clauses is generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As ofSeptember 30, 2022 , we are not aware of any material obligations arising under indemnification agreements that would require payment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
TheSEC defines critical accounting policies as those that are most important to the portrayal of a company's financial condition and results and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. We have not made any changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 2, New Accounting Pronouncements, to the accompanying unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact included in this Quarterly 37 -------------------------------------------------------------------------------- Report, including without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives for future performance are forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are commonly identified by the use of such terms and phrases as "intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results. From time to time, we also 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 materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Consequently, no forward-looking statement can be guaranteed. A more detailed description of risk factors may be found in "Item 1A, Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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 theSEC , such as quarterly, periodic and annual reports. 38
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