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 atJune 30, 2021 andDecember 31, 2020 , results of operations for the three and six months endedJune 30, 2021 and 2020, and cash flows for the six months endedJune 30, 2021 and 2020, and should be read in conjunction with the 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, 2020 . 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, 2020 . 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 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 endedDecember 31, 2020 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations. EXECUTIVE SUMMARY Revenue for the three months endedJune 30, 2021 increased by$41.7 million , or 17.6%, to$278.6 million from$236.9 million for the same period in 2020. Same-unit revenue increased by approximately$24.8 million , or 10.5%. Revenue from newly acquired operations, net of divestitures, contributed$16.9 million , or 7.1%, of incremental revenue for the three months endedJune 30, 2021 as compared to the same period in 2020. Revenue for the six months endedJune 30, 2021 increased by$65.0 million , or 12.6%, to$579.4 million from$514.4 million for the same period in 2020.Same-unit revenue increased by approximately$34.8 million , or 6.8%. Revenue from newly acquired operations, net of divestitures, contributed$30.2 million , or 5.9%, of incremental revenue for the six months endedJune 30, 2021 as compared to the same period in 2020. A detailed discussion of revenue by practice group is included under "Operating Practice Groups". Income from continuing operations was$8.6 million , or$0.16 per diluted share, in the second quarter of 2021, compared to$21.5 million , or$0.39 per diluted share, in the second quarter of 2020. For the first half of 2021, income from continuing operations was$58.8 million , or$1.09 per diluted share, compared to$58.3 million , or$1.05 per diluted share, for the same period in 2020. 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. We have completed four acquisitions for$43.1 million in cash and$4.1 million in our common stock. We also repurchased 2.1 million shares of our common stock at a total cost of approximately$66.5 million in the first half of 2021. Refer to Note 11, Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions. During the first quarter of 2021, 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, 2022 . The shares may be purchased in the open market, in privately negotiated transactions, or pursuant to Rule 10b5-1 trading plans, which may include purchases 22 -------------------------------------------------------------------------------- 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 six months endedJune 30, 2021 and 2020 (in thousands except percentages). Three Months Ended June 30, % of % of $ % 2021 Total 2020 Total Change Change Financial Services$ 186,589 67.0 %$ 154,083 65.0 %$ 32,506 21.1 % Benefits and Insurance Services 82,620 29.7 % 73,940 31.2 % 8,680 11.7 % National Practices 9,439 3.3 % 8,920 3.8 % 519 5.8 % Total CBIZ$ 278,648 100.0 %$ 236,943 100.0 %$ 41,705 17.6 % Six Months Ended June 30, % of % of $ % 2021 Total 2020 Total Change Change Financial Services$ 390,738 67.4 %$ 342,860 66.6 %$ 47,878 14.0 %
Benefits and Insurance Services 169,859 29.3 % 153,552
29.9 % 16,307 10.6 %
National Practices 18,781 3.3 % 17,986 3.5 % 795 4.4 %
Total CBIZ $ 579,378 100.0 % $ 514,398 100 % $ 64,980 12.6 %
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 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 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.
Operating Expenses
Three Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Operating expenses $ 236,934 $ 209,016 $ 27,918 13.4 %
Operating expenses % of revenue 85.0 % 88.2 %
Operating expenses excluding deferred
compensation $ 230,173 $ 196,784 $ 33,389 17.0 %
Operating expenses excluding deferred
compensation % of revenue 82.6 % 83.1 %
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Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Operating expenses $ 460,905 $ 408,843 $ 52,062 12.7 %
Operating expenses % of revenue 79.6 % 79.5 %
Operating expenses excluding deferred
compensation $ 449,528 $ 411,411 $ 38,117 9.3 %
Operating expenses excluding deferred
compensation % of revenue 77.6 % 80.0 % Three months endedJune 30, 2021 compared toJune 30, 2020 . Total operating expenses for the second quarter of 2021 increased by$27.9 million , or 13.4%, to$236.9 million as compared to$209.0 million in the second quarter of 2020. The non-qualified deferred compensation plan increased operating expenses by$6.8 million in the second quarter of 2021, and by$12.2 million during the same period in 2020. Excluding the non-qualified deferred compensation expenses, operating expenses would have been$230.2 million and$196.8 million , or 82.6% and 83.1%% of revenue, for the second quarter of 2021 and 2020, respectively. 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, operating expense increased during the second quarter of 2021 as compared to the same period in 2020, primarily driven by$27.5 million higher personnel costs,$1.5 million higher travel and entertainment costs,$1.0 million higher marketing expenses, as well as$3.0 million higher other discretionary spending. Personnel costs are discussed in further detail under "Operating Practice Groups". Six months endedJune 30, 2021 compared toJune 30, 2020 . Total operating expenses for the six months endedJune 30, 2021 increased by$52.1 million , or 12.7%, to$460.9 million as compared to$408.8 million in the same period of 2020. The non-qualified deferred compensation plan added$11.4 million of expenses for the six months endedJune 30, 2021 , but decreased operating expenses by$2.6 million during the same period in 2020. Excluding the impact of deferred compensation, operating expense increase was primarily attributed to personnel costs increase of$41.1 million , offset by$4.1 million lower travel and entertainment costs, and$3.0 million lower bad debt expense. Other discretionary spending increased approximately$4.0 million to support business activities. Corporate General & Administrative ("G&A") Expenses Three Months Ended June 30, $ % 2021 2020 Change Change (In thousands, except percentages) G&A expenses$ 13,816 $ 11,161 $ 2,655 23.8 % G&A expenses % of revenue 5.0 % 4.7 % G&A expenses excluding deferred compensation$ 12,966 $ 9,687 $ 3,279 33.8 % G&A expenses excluding deferred compensation % of revenue 4.7 % 4.1 % Six Months Ended June 30, $ % 2021 2020 Change Change (In thousands, except percentages) G&A expenses$ 28,299 $ 21,649 $ 6,650 30.7 % G&A expenses % of revenue 4.9 % 4.2 % G&A expenses excluding deferred compensation$ 26,953 $ 21,979 $ 4,974 22.6 % G&A expenses excluding deferred compensation % of revenue 4.7 % 4.3 % 24
-------------------------------------------------------------------------------- Three months endedJune 30, 2021 compared toJune 30, 2020 . The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of$2.3 million and$0.8 million higher expense for professional services. Six months endedJune 30, 2021 compared toJune 30, 2020 . The increase in G&A expenses excluding deferred compensation is primarily due to higher personnel costs of$3.7 million and$1.2 million higher expenses for professional services. Legal Settlement, net Three and six months endedJune 30, 2021 compared withJune 30, 2020 . OnJune 24, 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 . Under the terms of the settlement agreement, we will pay a total settlement amount of$41.5 million , the impact of which will be mitigated by available errors and omissions insurance proceeds. As a result, we recorded a settlement loss of$30.5 million for the three and six months endedJune 30, 2021 . Other Income (Expense), Net Three Months Ended June 30, $ % 2021 2020 Change Change (In thousands, except percentages) Interest expense$ (959) $ (2,074) $ 1,115 (53.8) %
Gain on sale of operations, net 6,385 57
6,328 N/M
Other income, net (1) 8,373 13,336 (4,963) (37.2) %
Total other income, net $ 13,799 $ 11,319 $ 2,480 N/M
Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Interest expense $ (1,836) $ (3,193) $ 1,357 (42.5) %
Gain on sale of operations, net 6,385 152 6,233 N/M
Other income (expense), net (2) 13,162 (2,464) 15,626 N/M
Total other income (expense), net
N/M
(1) Other income, net includes a net gain of $7.6 million in the second quarter
of 2021, compared to a net gain of $13.7 million for the same period in 2020,
associated with the value of investments held in a rabbi trust related to the
deferred compensation plan. 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.
(2) Other income (expense), net includes a net gain of $12.7 million during the
six months ended June 30, 2021 , compared to a net loss of $2.9 million for the
same period in 2020, associated with the value of investments held in a rabbi
trust related to the deferred compensation plan. 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.
Interest Expense
Three and six months ended June 30, 2021 compared with June 30, 2020 . Our
primary financing arrangement is the 2018 credit facility. During the three
months ended June 30, 2021 , our average debt balance and interest rate
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was $164.6 million and 1.95%, compared to $260.8 million and 2.39% for the same
period of 2020. During the six months ended June 30, 2021 , our average debt
balance and interest rate was $146.5 million and 1.95% compared to $203.0
million and 2.43% for the same period of 2020. The decrease in interest expense
for the three and six months ended June 30, 2021 as compared to the same periods
in 2020 was primarily driven by lower average debt balances. Our indebtedness is
further discussed in Note 4, Debt and Financing Arrangements, to the
accompanying condensed consolidated financial statements.
Gain on Sale of Operations, Net
Three and six months ended June 30, 2021 compared with June 30, 2020 . We sold a
small book of business and a business unit in the Benefits and Insurance
practice group during the first half of 2021. Total proceeds from the sales were
$9.8 million . Net gain from the sale was approximately $6.4 million .
Other Income (Expense), Net
Three and six months ended June 30, 2021 compared with June 30, 2020 . For the
second quarter of 2021, other income, net includes a net gain of $7.6 million
associated with the non-qualified deferred compensation plan. For the same
period in 2020, other income, net includes a net gain of $13.7 million
associated with the non-qualified deferred compensation plan.
For the first half of 2021, other income (expense), net, includes a net gain of
$12.7 million associated with the non-qualified deferred compensation plan. For
the same period in 2020, other income (expense), net, includes a net loss of
$2.9 million associated with the non-qualified deferred compensation plan.
Income Tax Expense
Three Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Income tax expense $ 2,616 $ 6,607 $ (3,991) (60.4) %
Effective tax rate 23.3 % 23.5 %
Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, exceptpercentages)
Income tax expense $ 18,588 $ 20,060 $ (1,472) (7.3) %
Effective tax rate 24.0 % 25.6 %
Three and six months ended June 30, 2021 compared with June 30, 2020 . The
effective tax rate for the second quarter of 2021 was 23.3%, compared to an
effective tax rate of 23.5% for the comparable period in 2020. The effective tax
rate for the first half of 2021 was 24.0%, compared to an effective tax rate of
25.6% for the same period in 2020. The decrease in the effective tax rate year
over year was primarily due to a larger tax benefit recognized in the current
year related to stock-based compensation.
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.
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Financial Services
Three Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 173,755 $ 153,402 $ 20,353 13.3 %
Acquired businesses 12,834 - 12,834
Divested operations - 681 (681)
Total revenue $ 186,589 $ 154,083 $ 32,506 21.1 %
Operating expenses 150,920 127,417 23,503 18.4 %
Gross margin $ 35,669 $ 26,666 $ 9,003 33.8 %
Gross margin percent 19.1 % 17.3 %
Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 369,754 $ 340,922 $ 28,832 8.5 %
Acquired businesses 20,984 - 20,984
Divested operations - 1,938 (1,938)
Total revenue $ 390,738 $ 342,860 $ 47,878 14.0 %
Operating expenses 292,666 266,015 26,651 10.0 %
Gross margin $ 98,072 $ 76,845 $ 21,227 27.6 %
Gross margin percent 25.1 % 22.4 %
Three months ended June 30, 2021 compared to June 30, 2020
Revenue
The Financial Services practice group revenue for the three months ended
June 30, 2021 grew by 21.1% to $186.6 million from $154.1 million during the
same period in 2020. Same-unit revenue grew by $20.4 million , or 13.3%, across
all service lines, primarily driven by those units that provide traditional
accounting and tax-related services, which increased $10.3 million , and those
units that provide project-oriented advisory services, which increased by $8.0
million , as well as moderate growth of $1.9 million in government healthcare
compliance business. The impact of acquired businesses, net of divestitures,
contributed $12.2 million , or 6.5% of 2021 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 $45.2 million and $39.7 million for
the three months ended June 30, 2021 and 2020, respectively.
Operating Expenses
Operating expenses increased by $23.5 million , or 18.4%, as compared to the same
period last year. The increase in operating expense was primarily attributed to
higher personnel costs of $20.8 million , or 13.8%, with acquisitions
contributing approximately $8.9 million to the increase in personnel costs. In
addition, travel and entertainment, professional services, and other
discretionary spending increased by approximately $1.7 million . The increase in
personnel costs was offset by $0.5 million lower bad debt expense. Operating
expense as a percentage of revenue decreased to 80.9% for the quarter ended
June 30, 2021 from 82.7% of revenue for the prior year quarter.
Six months ended June 30, 2021 compared to June 30, 2020
Revenue
Revenue for the six months ended June 30, 2021 grew by 14.0% to $390.7 million
from $342.9 million during the same period in 2020. Same-unit revenue grew by
$28.8 million , or 8.5%, across all service lines, primarily driven by
27
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those units that provide traditional accounting and tax-related services, which
increased $18.2 million , and those units that provide project-oriented advisory
services, which increased by $7.0 million , as well as an increase of $3.3
million in government healthcare compliance business. The impact of acquired
businesses, net of divestitures, contributed $19.0 million , or 4.9% of 2021
revenue.
Fees earned under the ASAs, as described above, were approximately $100.0
million and $92.4 million for the six months ended June 30, 2021 and 2020,
respectively.
Operating Expenses
Operating expenses increased by $26.7 million , or 10.0%, as compared to the same
period last year. The increase in operating expenses was primarily attributed to
higher personnel costs of $31.1 million , or 10.6%, with acquisitions
contributing approximately $13.1 million to the increase in personnel costs. The
increase in personnel costs was offset by $2.0 million lower travel and
entertainment spending and $2.8 million lower bad debt expense. In the first
half of 2020, due to the COVID-19 pandemic, we recorded bad debt expense of $2.0
million , which did not recur in 2021. Operating expense as a percentage of
revenue decreased to 74.9% during the six months ended June 30, 2021 from 77.6%
of revenue during the same period in 2020.
Benefits and Insurance Services
Three Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 77,574 $ 73,677 $ 3,897 5.3 %
Acquired businesses 5,046 - 5,046
Divested operations - 263 (263)
Total revenue $ 82,620 $ 73,940 $ 8,680 11.7 %
Operating expenses 67,776 61,283 6,493 10.6 %
Gross margin $ 14,844 $ 12,657 $ 2,187 17.3 %
Gross margin percent 18.0 % 17.1 %
Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 158,250 $ 153,110 $ 5,140 3.4 %
Acquired businesses 11,609 11,609
Divested operations - 442 (442)
Total revenue $ 169,859 $ 153,552 $ 16,307 10.6 %
Operating expenses 134,709 126,506 8,203 6.5 %
Gross margin $ 35,150 $ 27,046 $ 8,104 30.0 %
Gross margin percent 20.7 % 17.6 %
Three months ended June 30, 2021 compared to June 30, 2020
Revenue
The Benefits and Insurance Services practice group revenue increased by $8.7
million , or 11.7%, to $82.6 million during the three months ended June 30, 2021
compared to $73.9 million for the same period in 2020. The increase was
primarily driven by the property and casualty and human capital management
service lines as well as growth in our project based services. Acquired
businesses, net of divestitures, contributed $4.8 million in incremental revenue
for the three months ended June 30, 2021 . Same-unit revenue increased by $3.9
million , or 5.3% when compared to the same period in 2020.
Operating Expenses
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Operating expenses increased by $6.5 million , or 10.6%, when compared to the
same period last year. The increase in operating expense was mostly attributable
to higher personnel costs of $4.3 million , or 6.3%, primarily related to
acquired businesses, which contributed $3.3 million of the increase in personnel
costs. In addition, travel and entertainment and other discretionary spending
increased by $1.4 million to support increased business activities. Operating
expense as a percentage of revenue decreased to 82.0% for the quarter ended
June 30, 2021 from 82.9% of revenue for the same period in 2020.
Six months ended June 30, 2021 compared to June 30, 2020
Revenue
The Benefits and Insurance Services practice group revenue increased by $16.3
million , or 10.6%, to $169.9 million during the six months ended June 30, 2021
compared to $153.6 million for the same period in 2020, primarily driven by
acquired businesses, net of divestitures, which contributed $11.2 million in
incremental revenue. Same-unit revenue increased by $5.1 million , or 3.4% when
compared to the same period in 2020, primarily driven by growth property and
casualty, employee benefits, and human capital management service lines as well
as our project based services.
Operating Expenses
Operating expenses increased by $8.2 million , or 6.5%, when compared to the same
period last year. The increase in operating expense was mostly attributable to
higher personnel costs of $7.2 million , or 5.3%, primarily related to acquired
businesses, which contributed $6.6 million of the increase in personnel costs,
as well as $1.2 million in other discretionary spending to support increased
business activities. The increase in personnel costs was offset by $1.0 million
lower travel and entertainment spending. Operating expense as a percentage of
revenue decreased to 79.3% during the six months ended June 30, 2021 from 82.4%
of revenue for the same period in 2020.
National Practices
Three Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Same-unit revenue $ 9,439 $ 8,920 $ 519 5.8 %
Operating expenses 8,487 7,990 497 6.2 %
Gross margin $ 952 $ 930 $ 22 2.4 %
Gross margin percent 10.1 % 10.4 %
Six Months Ended June 30,
$ %
2021 2020 Change Change
(In thousands, exceptpercentages)
Same-unit revenue $ 18,781 $ 17,986 $ 795 4.4 %
Operating expenses 17,028 16,273 755 4.6 %
Gross margin $ 1,753 $ 1,713 $ 40 2.3 %
Gross margin percent 9.3 % 9.5 %
Three and six months ended June 30, 2021 compared with June 30, 2020
Revenue and Operating Expenses
The National Practices group is primarily driven by a cost-plus contract with a
single client, which has existed since 1999. The cost-plus contract is a
five-year contract with the most recent renewal through December 31, 2023 .
Revenues from this single client accounted for approximately 75% of the National
Practice group's revenue. During the three and six months ended June 30, 2021 ,
revenue increased by $0.5 million , or 5.8%, and increased by $0.8 million , or
4.4%, respectively, while operating expenses increased by $0.5 million , or 6.2%,
and increased by $0.8 million , or 4.6%, respectively.
LIQUIDITY
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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. 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 six 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 84 days and 87 days at June 30, 2021 and 2020, respectively. DSO at
December 31, 2020 was 72 days.
The following table presents selected cash flow information (in thousands). For
additional details, refer to the accompanying Condensed Consolidated Statements
of Cash Flows.
Six Months Ended June 30,
2021 2020
Net cash provided by operating activities $ 66,294 $ 55,523
Net cash (used in) provided by investing activities (40,137) 12,807
Net cash used in financing activities (42,582) (70,560)
Net decrease in cash, cash equivalents and restricted cash
Operating Activities- Cash provided by operating activities was$66.3 million during the six months endedJune 30, 2021 and primarily due to net income of$58.8 million and certain non-cash items, such as depreciation and amortization expense of$12.9 million , deferred income tax of$5.4 million , and stock-based compensation expense of$5.5 million . The cash inflow was offset by working capital use of$7.0 million . Cash provided by operating activities was$55.5 million during the six months endedJune 30, 2020 primarily due to$58.3 million of net income and certain non-cash items, such as depreciation and amortization expense, totaling$18.5 million . This cash inflow was offset by$21.3 million cash used to fund working capital needs. Investing Activities - Cash used in investing activities during the six months endedJune 30, 2021 was$40.1 million and consisted primarily of$43.2 million used for business acquisitions,$3.3 million in capital expenditures, and$4.0 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 . Cash provided by investing activities during the six months endedJune 30, 2020 consisted primarily of proceeds from the sales and maturities of client fund investments of$25.3 million and a net increase in funds held for clients of$3.1 million . This was offset by net cash used in investing activities for business acquisitions of$7.9 million , purchases of client fund investments of$3.4 million and capital expenditures of$5.3 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, Organization and Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Financing Activities - Cash used in financing activities during the six months endedJune 30, 2021 was$42.6 million and primarily consisted of$64.5 million in share repurchases,$27.8 million net decrease in client fund obligations, and$7.9 million in contingent consideration payments related to prior acquisitions. The use of cash was partially offset by$55.3 million in net proceeds from additional borrowings under our 2018 credit facility and$5.4 million proceeds from exercise of stock options during the six months endedJune 30, 2021 . Cash used in financing 30 -------------------------------------------------------------------------------- activities during the six months endedJune 30, 2020 primarily consisted of$50.8 million net decrease in client fund obligations,$31.1 million used to repurchase our common stock, as well as$6.2 million in contingent consideration payments related to prior acquisitions, partially offset by$14.5 million in net proceeds from additional borrowings under our 2018 credit facility. CAPITAL RESOURCES Credit Facility - AtJune 30, 2021 , we had$163.3 million outstanding under the 2018 credit facility as well as letters of credit and performance guarantees totaling$5.3 million . Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately$233.4 million atJune 30, 2021 . The weighted average interest rate under the 2018 credit facility was 1.95% in the first half of 2021, compared to 2.43% for the same period in 2020. The 2018 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 2018 credit facility. Debt Covenant Compliance - We are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) a minimum fixed charge coverage ratio. We are in compliance with our financial covenants as ofJune 30, 2021 . 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 2018 credit facility and debt, refer to Note 4, Debt and Financing Arrangements, to the accompanying 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. We have completed four acquisitions for$43.1 million in cash and$4.1 million in our common stock. We also repurchased 2.1 million shares of our common stock at a total cost of approximately$66.5 million during the six months endedJune 30, 2021 . Refer to Note 11, Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions. 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, 2020 ), which qualify as variable interest entities. The accompanying 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$3.0 million and$1.7 million atJune 30, 2021 andDecember 31, 2020 , 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$2.2 million atJune 30, 2021 andDecember 31, 2020 , 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 ofJune 30, 2021 , we are not aware of any material obligations arising under indemnification agreements that would require payment. 31 -------------------------------------------------------------------------------- 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 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 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, 2020 . NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 2, New Accounting Pronouncements, to the accompanying condensed consolidated financial statements for a discussion of recently issued accounting pronouncements. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact included in this Quarterly Report, 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, 2020 . 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. 32
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