CBIZ(CBZ) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for CBIZ, Inc Condensed Consolidated Balance Sheets Consolidated Balance Sheets | ASSETS (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $558 | $1,997 | | Restricted cash | 33,394 | 30,383 | | Accounts receivable, net | 365,758 | 242,168 | | Funds held for clients | 199,065 | 157,909 | | Total current assets | 611,559 | 451,674 | | Goodwill and other intangible assets, net | 951,902 | 840,783 | | Total assets | $1,942,444 | $1,627,934 | | LIABILITIES | | | | Total current liabilities | 458,375 | 423,289 | | Bank debt | 298,900 | 155,300 | | Total non-current liabilities | 724,221 | 500,097 | | Total liabilities | 1,182,596 | 923,386 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | 759,848 | 704,548 | - Total assets increased by $314.5 million (19.3%) from December 31, 2021, to March 31, 2022, primarily driven by increases in accounts receivable and goodwill[9] - Total liabilities increased by $259.2 million (28.1%) over the same period, largely due to a significant increase in bank debt and contingent purchase price liabilities[9] Condensed Consolidated Statements of Comprehensive Income Statements of Comprehensive Income | (in thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $391,722 | $300,730 | | Operating expenses | 290,299 | 223,971 | | Gross margin | 101,423 | 76,759 | | Operating income | 85,114 | 62,276 | | Net income | $58,127 | $50,209 | | Basic EPS | $1.12 | $0.94 | | Diluted EPS | $1.10 | $0.92 | | Comprehensive income | $60,052 | $51,063 | - Revenue increased by 30.3% year-over-year, from $300.7 million in Q1 2021 to $391.7 million in Q1 2022[11] - Net income grew by 15.8% to $58.1 million in Q1 2022, up from $50.2 million in Q1 2021, with diluted EPS increasing from $0.92 to $1.10[11] Condensed Consolidated Statements of Stockholders' Equity Statements of Stockholders' Equity | (in thousands) | December 31, 2021 | March 31, 2022 | | :--------------- | :---------------- | :------------- | | Total Stockholders' Equity | $704,548 | $759,848 | | Net income | — | 58,127 | | Other comprehensive income | — | 1,925 | | Share repurchases | — | (5,999) | | Indirect repurchase of shares for minimum tax withholding | — | (6,373) | | Stock options exercised | — | 3,224 | | Stock-based compensation | — | 3,689 | | Business acquisitions | — | 707 | - Total stockholders' equity increased from $704.5 million at December 31, 2021, to $759.8 million at March 31, 2022, primarily due to net income and other comprehensive income, partially offset by share repurchases[13] Condensed Consolidated Statements of Cash Flows Statements of Cash Flows | (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(50,890) | $(14,827) | | Net cash (used in) provided by investing activities | $(81,531) | $229 | | Net cash provided by (used in) financing activities | $170,446 | $(2,960) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $38,025 | $(17,558) | | Cash, cash equivalents and restricted cash at end of period | $188,499 | $152,777 | - Operating activities used $50.9 million in cash in Q1 2022, a significant increase from $14.8 million used in Q1 2021, primarily due to higher working capital requirements[15][90] - Investing activities used $81.5 million in Q1 2022, mainly for business acquisitions ($72.5 million), compared to a net cash inflow of $0.2 million in Q1 2021[15][91] - Financing activities provided $170.4 million in Q1 2022, driven by net proceeds from bank debt and client fund obligations, a reversal from $3.0 million cash used in Q1 2021[15][92] Notes to the Unaudited Condensed Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's business operations, basis of financial statement preparation, and key accounting policies - CBIZ operates through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices, serving businesses, individuals, and governmental entities in the US and Canada[17] - The company consolidates a grantor trust, established in 2021, which holds client funds for payroll processing, as CBIZ is the sole beneficial owner and controls investment decisions[17][19] NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS This note discusses the company's evaluation of new accounting standards related to reference rate reform - CBIZ is currently evaluating the effect of ASU No. 2020-04 and ASU No. 2021-01 on its financial statements, which provide optional guidance for reference rate reform (LIBOR transition)[21] - The amendments are effective for all entities through December 31, 2022, and clarify eligibility for certain optional expedients for derivative instruments affected by the discounting transition[21] NOTE 3. ACCOUNTS RECEIVABLE, NET This note provides a breakdown of accounts receivable, highlighting a significant increase in unbilled revenue Accounts Receivable Composition | (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Trade accounts receivable | $226,704 | $190,710 | | Unbilled revenue, at net realizable value | 155,176 | 67,616 | | Total accounts receivable | 381,880 | 258,326 | | Allowance for doubtful accounts | (16,122) | (16,158) | | Accounts receivable, net | $365,758 | $242,168 | - Unbilled revenue more than doubled from $67.6 million to $155.2 million between December 31, 2021, and March 31, 2022[24] NOTE 4. DEBT AND FINANCING ARRANGEMENTS This note details the company's credit facilities, outstanding debt balances, and associated interest expenses Outstanding Debt | Debt Metric | March 31, 2022 | December 31, 2021 | | :------------ | :------------- | :---------------- | | 2018 Credit Facility Outstanding Balance | $298.9 million | $155.3 million | | Available funds under credit facility | $94.8 million | N/A | Interest Expense | Interest Expense (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | 2018 credit facility | $1,259 | $871 | | Total | $1,259 | $877 | - The weighted average interest rate on the 2018 credit facility was 1.79% for Q1 2022, down from 2.10% for Q1 2021[25] NOTE 5. COMMITMENTS AND CONTINGENCIES This note discloses outstanding letters of credit, license bonds, and the status of significant legal proceedings - Letters of credit to landlords increased to $5.7 million at March 31, 2022, from $3.4 million at December 31, 2021[27] - A jury found in favor of CBIZ on all fraud and contract claims in the Zotec Partners lawsuit, which sought damages up to $177.0 million[27] NOTE 6. FINANCIAL INSTRUMENTS This note describes the company's investments in debt securities and its use of interest rate swaps to manage risk Available-For-Sale Debt Securities | Available-For-Sale Debt Securities (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------- | :---------------- | | Fair value at end of period | $43,665 | $38,670 | Interest Rate Swaps | Interest Rate Swaps (in thousands) | Notional Amount (March 31, 2022) | Fair Value (March 31, 2022) | | :--------------------------------- | :------------------------------- | :-------------------------- | | Interest rate swap 1 | $20,000 | $(32) | | Interest rate swap 2 | $15,000 | $(128) | | Interest rate swaps 3 & 4 | $80,000 | $3,738 | - Unrealized losses on available-for-sale securities were not material at March 31, 2022, as bonds are investment grade and management does not intend to sell prior to recovery[28] NOTE 7. FAIR VALUE MEASUREMENTS This note presents the fair value hierarchy for assets and liabilities measured on a recurring basis Fair Value of Financial Instruments | Fair Value Measurements (in thousands) | Level | March 31, 2022 | December 31, 2021 | | :------------------------------------- | :---- | :------------- | :---------------- | | Deferred compensation plan assets | 1 | $132,284 | $136,321 | | Available-for-sale debt securities | 1 | 43,665 | 38,670 | | Interest rate swaps | 2 | 3,578 | (211) | | Contingent purchase price liabilities | 3 | (136,534) | (79,139) | - Contingent purchase price liabilities, a Level 3 measurement, increased by $57.4 million in Q1 2022, largely due to $64.6 million in additions from business acquisitions[34] NOTE 8. OTHER COMPREHENSIVE INCOME This note details the components of other comprehensive income, including unrealized gains and losses on securities and swaps Components of Other Comprehensive Income | (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net unrealized loss on available-for-sale securities, net of income taxes | $(939) | $(103) | | Net unrealized gain on interest rate swaps, net of income taxes | 2,866 | 961 | | Total other comprehensive income | $1,925 | $854 | NOTE 9. EMPLOYEE STOCK PLANS This note provides details on stock-based compensation expense and activity in various employee stock plans Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Stock options | $173 | $301 | | Restricted stock units and awards | 1,493 | 1,381 | | Performance share units | 2,023 | 1,173 | | Total stock-based compensation expense | $3,689 | $2,855 | Stock Options & Restricted Stock Units Activity | Stock Options & Restricted Stock Units Activity (in thousands, except per share data) | Outstanding at beginning of year | Granted | Exercised or released | Outstanding at March 31, 2022 | | :-------------------------------------------------------------------- | :------------------------------- | :------ | :-------------------- | :---------------------------- | | Number of Stock Options | 1,223 | — | (247) | 976 | | Number of Restricted Stock Units and Awards | 389 | 101 | (146) | 344 | Performance Share Units Activity | Performance Share Units Activity (in thousands, except per share data) | Outstanding at beginning of year | Granted | Vested | Outstanding at March 31, 2022 | | :------------------------------------------------------------------- | :------------------------------- | :------ | :----- | :---------------------------- | | Performance Share Units | 473 | 101 | (211) | 363 | NOTE 10. EARNINGS PER SHARE This note presents the calculation of basic and diluted earnings per share from continuing operations Earnings Per Share Calculation | (in thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Income from continuing operations | $58,131 | $50,216 | | Basic weighted average common shares outstanding | 52,119 | 53,366 | | Diluted weighted average common shares outstanding | 52,955 | 54,436 | | Basic earnings per share from continuing operations | $1.12 | $0.94 | | Diluted earnings per share from continuing operations | $1.10 | $0.92 | - 55 thousand stock-based awards and 363 thousand performance share units were excluded from diluted EPS calculation in Q1 2022 because they were anti-dilutive or their performance conditions were not met[40] NOTE 11. BUSINESS COMBINATIONS This note details the acquisition of Marks Paneth LLP, including the purchase price allocation and expected revenue contribution Marks Paneth LLP Acquisition Details | Acquisition Details (in thousands) | Three Months Ended March 31, 2022 | | :--------------------------------- | :-------------------------------- | | Cash paid | $72,469 | | Recorded contingent consideration | 64,648 | | Total recorded purchase price | $137,117 | | Goodwill | $68,506 | | Client list acquired | $48,000 | - CBIZ acquired Marks Paneth LLP's non-attest assets on January 1, 2022, a New York City-based provider of accounting, tax, and consulting services, integrating it into the Financial Services practice group[41] - The Marks Paneth acquisition is projected to contribute approximately $138.0 million in revenue for 2022[41] NOTE 12. SEGMENT DISCLOSURES This note provides a breakdown of revenue and operating income by the company's three reportable segments Segment Revenue | Segment Revenue (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Financial Services | $288,746 | $204,149 | | Benefits and Insurance Services | 92,486 | 87,239 | | National Practices | 10,490 | 9,342 | | Total Revenue | $391,722 | $300,730 | Segment Operating Income | Segment Operating Income (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Financial Services | $78,946 | $62,403 | | Benefits and Insurance Services | 19,829 | 20,306 | | National Practices | 914 | 801 | | Corporate and Other | (14,575) | (21,234) | | Total Operating Income | $85,114 | $62,276 | NOTE 13. SUBSEQUENT EVENTS This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - CBIZ repurchased approximately 0.2 million shares of common stock at a cost of $7.2 million between March 31, 2022, and April 27, 2022[53] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance for Q1 2022, focusing on revenue growth, acquisitions, and segment results OVERVIEW - CBIZ provides professional business services, products, and solutions to various clients, including businesses, individuals, governmental entities, and non-profits, across the United States and parts of Canada[56] - Services are delivered through three integrated practice groups: Financial Services, Benefits and Insurance Services, and National Practices[56] EXECUTIVE SUMMARY Q1 2022 Financial Highlights | Financial Highlight | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------ | :-------------------------------- | :-------------------------------- | | Total Revenue | $391.7 million | $300.7 million | | Revenue Growth (YoY)| 30.3% | N/A | | Same-unit Revenue Growth (YoY) | 9.6% | N/A | | Revenue from Acquisitions (YoY) | $62.2 million (20.7%) | N/A | | Income from continuing operations | $58.1 million | $50.2 million | | Diluted EPS | $1.10 | $0.92 | - CBIZ's primary capital allocation priorities are strategic acquisitions and share repurchases, aiming to provide value to stockholders[58] - In Q1 2022, CBIZ completed one acquisition for $72.5 million in cash and repurchased 0.3 million shares for approximately $12.4 million[58] RESULTS OF OPERATIONS – CONTINUING OPERATIONS Revenue Total revenue for Q1 2022 increased by 30.3% to $391.7 million, driven by both organic growth and acquisitions Revenue by Segment | Revenue by Segment (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Financial Services | $288,746 | $204,149 | $84,597 | 41.4% | | Benefits and Insurance Services | 92,486 | 87,239 | 5,247 | 6.0% | | National Practices | 10,490 | 9,342 | 1,148 | 12.3% | | Total CBIZ | $391,722 | $300,730 | $90,992 | 30.3% | Non-qualified Deferred Compensation Plan The plan's investment performance caused significant fluctuations in operating expenses and other income with no net impact on pre-tax income - The deferred compensation plan decreased operating expenses by $5.7 million in Q1 2022, compared to an increase of $4.6 million in Q1 2021[61] - The plan resulted in a $6.5 million net loss in 'Other (expense) income, net' for Q1 2022, contrasting with a $5.1 million net gain in Q1 2021[61] Operating Expenses Operating expenses rose primarily due to higher personnel costs from acquisitions and increased business activity Operating Expense Analysis | Operating Expenses (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Total Operating expenses | $290,299 | $223,971 | $66,328 | 29.6% | | Operating expenses % of revenue | 74.1% | 74.5% | | | | Operating expenses excluding deferred compensation | $295,966 | $219,355 | $76,611 | 34.9% | | Operating expenses excluding deferred compensation % of revenue | 75.6% | 72.9% | | | - Personnel costs increased by $61.5 million, with $41.3 million attributed to acquisitions[63] - Operating expenses for Q1 2022 included approximately $4.4 million in non-recurring integration and retention costs related to the Marks Paneth acquisition[63] Corporate General & Administrative ("G&A") Expenses G&A expenses increased due to non-recurring acquisition costs and higher legal and professional fees G&A Expense Analysis | G&A Expenses (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | G&A expenses | $16,309 | $14,483 | $1,826 | 12.6% | | G&A expenses % of revenue | 4.2% | 4.8% | | | | G&A expenses excluding deferred compensation | $17,120 | $13,987 | $3,133 | 22.4% | | G&A expenses excluding deferred compensation % of revenue | 4.4% | 4.7% | | | - The deferred compensation plan decreased G&A expenses by $0.8 million in Q1 2022, but increased them by $0.5 million in Q1 2021[64] Other Income (Expense), Net This category shifted to a net expense due to losses from the deferred compensation plan and higher interest expense Other Income (Expense) Analysis | Other Income (Expense), Net (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Interest expense | $(1,259) | $(877) | $(382) | 43.6% | | Other (expense) income, net | $(6,403) | $4,789 | $(11,192)| (233.7)% | | Total other (expense) income, net | $(7,662) | $3,912 | $(11,574)| (295.9)% | - The increase in interest expense was driven by a higher average debt balance of $244.7 million in Q1 2022, compared to $128.2 million in Q1 2021[68] Income Tax Expense The effective tax rate increased slightly due to a higher state effective tax rate Income Tax Analysis | Income Tax Expense (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Income tax expense | $19,321 | $15,972 | $3,349 | 21.0% | | Effective tax rate | 24.95% | 24.13% | | | Operating Practice Groups This section details the performance of CBIZ's three operating practice groups Financial Services The Financial Services group's revenue grew significantly, driven by strong organic growth and the Marks Paneth acquisition | Financial Services Performance (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Total revenue | $288,746 | $204,149 | $84,597 | 41.4% | | Same-unit revenue | $225,831 | $204,149 | $21,682 | 10.6% | | Acquired businesses revenue | $62,915 | — | $62,915 | N/A | | Operating expenses | $209,800 | $141,746 | $68,054 | 48.0% | | Gross margin / Operating income | $78,946 | $62,403 | $16,543 | 26.5% | | Gross margin percent | 27.3% | 30.6% | | | - Marks Paneth contributed $41.6 million, or 14.4% of the 2022 revenue, to the Financial Services group[75] - Personnel costs in Financial Services increased by $52.1 million, with acquisitions accounting for approximately $41.3 million of this increase[76] Benefits and Insurance Services The Benefits and Insurance Services group's revenue increased due to strong performance in property and casualty and retirement services | Benefits and Insurance Services Performance (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :--------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Total revenue | $92,486 | $87,239 | $5,247 | 6.0% | | Same-unit revenue | $92,486 | $86,478 | $6,008 | 6.9% | | Operating expenses | $72,657 | $66,933 | $5,724 | 8.6% | | Gross margin / Operating income | $19,829 | $20,306 | $(477) | (2.3)% | | Gross margin percent | 21.4% | 23.3% | | | - Personnel costs in Benefits and Insurance Services increased by $3.4 million, or 5.1%, primarily due to annual merit increases and investment in producers[80] National Practices The National Practices group's revenue growth was driven by its cost-plus contract with a single major client | National Practices Performance (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Same-unit revenue | $10,490 | $9,342 | $1,148 | 12.3% | | Operating expenses | $9,576 | $8,541 | $1,035 | 12.1% | | Gross margin / Operating Income | $914 | $801 | $113 | 14.1% | | Gross margin percent | 8.7% | 8.6% | | | - Revenue from a single cost-plus contract client accounted for approximately 75% of the National Practice group's revenue[82] Corporate and Other This category includes unallocated corporate expenses, with operating loss decreasing due to the deferred compensation plan's impact Corporate and Other Performance | Corporate and Other Performance (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | | :--------------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Operating expenses | $(1,734) | $6,751 | $(8,485) | (125.7)% | | Corporate general and administrative expenses | $16,309 | $14,483 | $1,826 | 12.6% | | Operating loss | $(14,575) | $(21,234) | $6,659 | (31.4)% | | Loss from continuing operations before income tax expense | $(22,299) | $(17,594) | $(4,705) | 26.7% | - Excluding the non-qualified deferred compensation plan, corporate operating expenses increased by approximately $2.1 million due to higher personnel and technology costs[85] - Corporate G&A expenses, excluding deferred compensation, increased by $3.1 million, including $1.6 million for Marks Paneth acquisition-related professional services and $1.0 million in legal costs[85] LIQUIDITY Operating Activities Cash used in operations increased significantly due to higher seasonal working capital needs Cash Flow from Operations | Cash Flow from Operating Activities (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(50,890) | $(14,827) | | Working capital use | $125,100 | $76,100 | | Net income | $58,100 | $50,200 | - The company typically experiences a use of cash for working capital in the first quarter due to seasonal accounting and tax services and employee incentive payments[86] - Days sales outstanding (DSO) increased to 94 days at March 31, 2022, from 71 days at December 31, 2021[89] Investing Activities Cash used in investing was primarily for business acquisitions, a substantial increase from the prior year Cash Flow from Investing | Cash Flow from Investing Activities (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by investing activities | $(81,531) | $229 | | Business acquisitions and purchases of client lists, net of cash acquired | $(72,469) | $(2,012) | Financing Activities Cash from financing activities was driven by net proceeds from the credit facility and an increase in client fund obligations Cash Flow from Financing | Cash Flow from Financing Activities (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) financing activities | $170,446 | $(2,960) | | Net proceeds from credit facility | $143,600 | $54,000 | | Changes in client funds obligations | $42,499 | $(26,499) | | Payment for acquisition of treasury stock | $(5,199) | $(31,678) | CAPITAL RESOURCES - At March 31, 2022, CBIZ had $298.9 million outstanding under its 2018 credit facility, with approximately $94.8 million in available funds[93] - CBIZ launched efforts to amend its 2018 credit facility to increase total availability to $600 million and extend maturity to April 2027, with commitments exceeding the target received by April 26, 2022[94] - The company was in compliance with all financial debt covenants as of March 31, 2022[96] - Cash requirements for the remainder of 2022 include acquisitions, debt interest, working capital, earnout payments, share repurchases, and capital expenditures, expected to be met by operating cash and credit facility funds[98] OFF-BALANCE SHEET ARRANGEMENTS - CBIZ maintains administrative service agreements with independent CPA firms, which are variable interest entities, but their impact is not material to financial condition or results[99] - Outstanding letters of credit for leased premises totaled $5.7 million and license bonds were $2.3 million at March 31, 2022[100] - The company has various indemnification agreements in the normal course of business but has not made any material payments historically and is not aware of any material obligations as of March 31, 2022[101] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Management has not made any changes to its critical accounting policies and estimates as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[105] NEW ACCOUNTING PRONOUNCEMENTS - Refer to Note 2 for a discussion of recently issued accounting pronouncements[106] FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, growth management, dependence on outsourcing, key employees, competitive pressures, economic conditions, and regulatory changes[107] - Actual results may differ materially from projections, and the company undertakes no obligation to publicly update these statements[107][108] Item 3. Quantitative and Qualitative Disclosures about Market Risk CBIZ is exposed to interest rate risk from its floating-rate debt and manages this risk using interest rate swaps - CBIZ's floating rate debt under the 2018 credit facility exposes it to interest rate risk; a 100 basis point change would affect annual interest expense by approximately $1.8 million on the $183.9 million subject to rate risk[110] - The company uses interest rate swaps to convert portions of its floating rate debt to a fixed rate basis, with four swaps outstanding totaling $115.0 million in notional value at March 31, 2022[111][112] - Client funds are invested in investment-grade available-for-sale debt securities (corporate and municipal bonds), which are adjusted to fair value with changes recorded in other comprehensive income or loss[113] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022 - CBIZ's Disclosure Controls were evaluated and deemed effective at a reasonable assurance level by the CEO and CFO as of March 31, 2022[114][118] - The Marks Paneth acquisition, completed on January 1, 2022, is currently being integrated into the company's internal control over financial reporting[119] - No other changes to internal control over financial reporting during Q1 2022 have materially affected or are reasonably likely to materially affect the controls[119] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from the financial statement notes - Details on legal proceedings are provided in Note 5, Commitments and Contingencies, of the financial statements[122] Item 1A. Risk Factors This section refers readers to the risk factors disclosed in the company's most recent Annual Report on Form 10-K - Risk factors that could materially and adversely affect CBIZ's business are detailed in 'Risk Factors' of the Annual Report on Form 10-K for the year ended December 31, 2021[123] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of unregistered shares for acquisitions and the company's share repurchase activity Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities (in thousands, except per share data) | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------------------------------------------------- | :------------------------------- | :--------------------------- | | First quarter purchases (Jan 1 – Mar 31, 2022) | 313 | $39.51 | - Approximately 19 thousand shares of common stock were issued in Q1 2022 as payment for contingent consideration for prior acquisitions, under a Section 4(a)(2) exemption[124] - The Board of Directors authorized a renewal of the Share Repurchase Program on February 10, 2022, allowing for the purchase of up to 5.0 million shares, effective April 1, 2022, and expiring April 1, 2023[125] Item 3. Defaults Upon Senior Securities This item is not applicable to CBIZ for the reported period - This section is marked as 'Not applicable'[128] Item 4. Mine Safety Disclosures This item is not applicable to CBIZ for the reported period - This section is marked as 'Not applicable'[128] Item 5. Other Information This item is not applicable to CBIZ for the reported period - This section is marked as 'Not applicable'[128] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q - Exhibits include the Purchase Agreement for Marks Paneth LLP, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[132] Signature The report is signed by the Chief Financial Officer of CBIZ, Inc - The report was signed by Ware H. Grove, Chief Financial Officer, on May 2, 2022[135]