CBIZ, Inc.: Form 10-Q for the period ended Jun 30, 2024

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we”, “us”, “our”, "CBIZ" or the "Company" shall mean CBIZ, Inc., a Delaware corporation, and its operating subsidiaries.

The following discussion is intended to assist in the understanding of our financial position at June 30, 2024 and December 31, 2023, results of operations for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023, and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” included in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2023.

OVERVIEW

We provide professional business services, products and solutions that help our clients grow and succeed by better managing their finances and employees. These services are primarily provided to small and medium-sized businesses, as well as individuals, governmental entities and not-for-profit enterprises throughout the United States and parts of Canada. We deliver integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 11, Segment Disclosures, to the accompanying unaudited condensed consolidated financial statements for a general description of services provided by each practice group.

Refer to the Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations.

EXECUTIVE SUMMARY

Revenue for the three months ended June 30, 2024 increased by $21.5 million, or 5.4%, to $420.0 million from $398.5 million for the same period in 2023. Same-unit revenue increased by approximately $11.0 million, or 2.8%, as compared to the same period in 2023. Revenue from newly acquired operations contributed $10.5 million, or 2.6%, of incremental revenue for the three months ended June 30, 2024 as compared to the same period in 2023.

Revenue for the six months ended June 30, 2024 increased by $61.2 million, or 7.2%, to $914.3 million from $853.1 million for the same period in 2023. Same-unit revenue increased by approximately $37.9 million, or 4.4%, as compared to the same period in 2023. Revenue from newly acquired operations contributed $23.3 million, or 2.7%, of incremental revenue for the six months ended June 30, 2024 as compared to the same period in 2023. A detailed discussion of revenue by practice group is included under "Operating Practice Groups".

Net income was $19.8 million, or $0.39 per diluted share, in the second quarter of 2024, compared to $26.9 million, or $0.53 per diluted share, in the second quarter of 2023. For the six months ended June 30, 2024, net income was $96.7 million, or $1.92 per diluted share, compared to $100.0 million, or $1.98 per diluted share, for the same period in 2023. Refer to “Results of Operations" for a detailed discussion of the components of net income.

On July 30, 2024, we entered into a Merger Agreement to acquire the non-attest business of Marcum for a total consideration of approximately 2.3 billion. The Merger and the transactions contemplated by the Merger Agreement are referred to herein as the “Transaction". Subject to the satisfaction of closing conditions, the Transaction is expected to close in the fourth quarter of 2024. Refer to Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements for further discussion regarding the Transaction.

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 six months ended June 30, 2024, we completed three acquisitions for $22.5 million in cash. We also repurchased 0.2 million shares of our common stock for tax withholding purposes at a total cost of approximately $11.2 million in the six months ended June 30, 2024.

During the first quarter of 2024, the CBIZ Board of Directors authorized the purchase of up to 5.0 million shares of our common stock under our Share Repurchase Program (the “Share Repurchase Program”), which may be suspended or discontinued at any time and expires on March 31, 2025. The shares may be purchased in the open market, in privately negotiated transactions, and pursuant to Rule 10b5-1 trading plans. Privately negotiated transactions may include purchases from our employees, officers and directors, in accordance with the Securities and Exchange Commission (the “SEC”) rules. CBIZ management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors.

RESULTS OF OPERATIONS

Revenue

The following tables summarize total revenue for the three and six months ended June 30, 2024 and 2023:

(Amounts in thousands, except percentages)

A detailed discussion of same-unit revenue by practice group is included under “Operating Practice Groups.”

Non-qualified Deferred Compensation Plan

We sponsor a non-qualified deferred compensation plan (the "deferred compensation plan"), under which a CBIZ employee’s compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee. Income and expenses related to the deferred compensation plan, which are recorded in "Corporate and Other" for segment reporting purposes, are included in “Operating expenses”, “Gross margin” and “Corporate general and administrative expenses” and are directly offset by deferred compensation gains or losses in “Other (expense) income, net” in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income. The deferred compensation plan has no impact on “Income before income tax expense” or diluted earnings per share.

Income and expenses related to the deferred compensation plan for the three and six months ended June 30, 2024 and 2023 are as follows:

(Amounts in thousands)

23

Excluding the impact of the above-mentioned income and expenses related to the deferred compensation plan, the operating results for the three and six months ended June 30, 2024 and 2023 are as follows:

(Amounts in thousands, except percentages)

24

The following tables summarize total operating expenses for the three and six months ended June 30, 2024 and 2023:

(Amounts in thousands, except percentages)

Three months ended June 30, 2024 compared to June 30, 2023. Total operating expenses for the three months ended June 30, 2024 increased by $22.4 million, or 6.5%, to $366.4 million as compared to $344.0 million in the same period of 2023. The deferred compensation plan increased operating expenses by $2.3 million for the three months ended June 30, 2024, and by $5.1 million during the same period in 2023. Excluding the deferred compensation expenses, which were recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $364.1 million and $338.9 million, or 86.7% and 85.0% of revenue, for the three months ended June 30, 2024 and 2023, respectively. In addition, operating expenses for the three months ended June 30, 2024 included approximately $0.2 million non-recurring integration costs associated with the acquisitions completed in 2024, and operating expenses for the three months ended June 30, 2023 included $0.6 million non-recurring integration costs associated with the Somerset CPAs and Advisors ("Somerset") acquisition.

The majority of our operating expenses relate to personnel costs, which include (i) salaries and benefits, (ii) commissions paid to producers, (iii) incentive compensation, and (iv) stock-based compensation. Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses increased by approximately $25.2 million during the three months ended June 30, 2024 as compared to the same period in 2023, driven by $18.1 million higher personnel costs (of which $5.0 million was the result of acquisitions), $2.8 million higher direct costs, $2.1 million higher technology costs, $0.9 million higher professional service costs, $0.6 million higher travel and entertainment costs, $0.4 million higher facility costs, and

$0.3 million higher discretionary spending to support business growth. Personnel costs are discussed in further detail under “Operating Practice Groups”.

Six months ended June 30, 2024 compared to June 30, 2023. Total operating expenses for the six months ended June 30, 2024 increased by $57.9 million, or 8.4%, to $742.9 million as compared to $685.0 million in the same period of 2023. The deferred compensation plan increased operating expenses by $10.9 million for the six months ended June 30, 2024, and by $9.9 million during the same period in 2023. Excluding the impact of deferred compensation, which was recorded in "Corporate and Other" for segment reporting purposes, operating expenses would have been $732.0 million and $675.1 million, or 80.1% and 79.1% of revenue, for the six months ended June 30, 2024 and 2023, respectively, an increase of $56.9 million as compared to the same period in 2023. In addition, operating expense for the six months ended June 30, 2024 included approximately $0.3 million non-recurring integration costs related to the acquisitions completed in 2024, and operating expenses for the six months ended June 30, 2023 included $1.0 million non-recurring integration and retention costs associated with the Somerset acquisition. The increase in operating expense was driven by personnel costs increase of $41.2 million (of which $12.5 million was the result of acquisitions), $4.1 higher direct cost, $3.7 million higher technology costs, $2.7 million higher professional service costs, $2.3 million higher facility costs, $1.9 higher travel and entertainment costs, $0.9 million higher depreciation and amortization expense, and $0.1 million higher other discretionary spending to support business growth. Personnel costs are discussed in further detail under “Operating Practice Groups”.

Corporate General & Administrative (“G&A”) Expenses

(Amounts in thousands, except percentages)

Three months ended June 30, 2024 compared to June 30, 2023. The deferred compensation plan increased G&A expenses by $0.3 million for the three months ended June 30, 2024, and increased G&A expenses by $0.6 million during the same period in 2023. G&A expenses, excluding the impact of the deferred compensation plan, would have been $21.7 million, or 5.2% of revenue, for the three months ended June 30, 2024, compared to $15.2 million, or 3.8% of revenue, for the same period in 2023, an increase of approximately $6.6 million. The increase was primarily driven by $5.6 million higher legal and other professional services costs largely associated with the announced Transaction, $0.4 millon higher travel and entertainment costs, $0.4 million higher technology costs, $0.2 million higher depreciation costs, and $0.7 million higher other discretionary spending to support the business growth. The increase in G&A expenses was partially offset by $0.7 million lower personnel costs and $0.1 million lower facilitiy related costs. G&A expense for the three months ended June 30, 2024 included approximately $0.1 million of non-recurring transaction and integration costs associated with the acquisitions completed in 2024, and G&A expense for the three months ended June 30, 2023 included approximately $0.3 million of non-recurring transaction and integration costs associated with the Somerset acquisition.

Six months ended June 30, 2024 compared to June 30, 2023. The deferred compensation plan increased G&A expense by $1.4 million for the six months ended June 30, 2024, and increased G&A expenses by $1.3 million during the same period in 2023. G&A expenses, excluding the impact of the deferred compensation plan, would have been $39.4 million, or 4.3% of revenue, for the six months ended June 30, 2024, compared to $30.1 million, or 3.5% of revenue, for the same period in 2023. The increase in G&A expenses was primarily driven by $7.8 million higher legal and other professional services costs largely associated with the announced Transaction, $0.4 millon higher travel and entertainment costs, $0.3 million higher technology costs, $0.3 million higher depreciation costs, and $1.0 million higher other discretionary spending to support the business growth. The increase in G&A expenses for the six months ended June 30, 2024 was partially offset by $0.5 million lower personnel costs and $0.1 million lower facilitiy related costs. In addition, G&A expense for the six months ended June 30, 2024 included a $0.6 million non-recurring transaction and integration costs related to the aquistions completed in 2024 . G&A expense for the six months ended June 30, 2023 included a $1.5 million non-recurring transaction and integration costs related to the Somerset acquisition.

Other (Expense) Income, Net

(Amounts in thousands, except percentages)

Interest Expense

Three and six months ended June 30, 2024 compared with June 30, 2023. During the three months ended June 30, 2024, our average debt balance and weighted average effective interest rate was $410.1 million and 4.85%, respectively, compared to $403.1 million and 5.24% for the same period of 2023. The increase in interest expense for the three months ended June 30, 2024 as compared to the same period in 2023 was primarily driven by a higher average debt balance.

During the six months ended June 30, 2024, our average debt balance and interest rate was $367.9 million and 5.41% compared to $352.9 million and 4.94% for the same period of 2023. The increase in interest expense for the six months ended June 30, 2024 as compared to the same period in 2023 was primarily driven by a higher average debt balance as well as a 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.

Other Income, Net

Three and six months ended June 30, 2024 compared with June 30, 2023. For the three months ended June 30, 2024, other income, net includes a net gain of $2.6 million associated with the deferred compensation plan. For the same period in 2023, other income, net includes a net gain of $5.7 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, the decrease in other income, net for the three months ended June 30, 2024 was not material as compared to the same period in 2023.

For the six months ended June 30, 2024, other income, net includes a net gain of $12.2 million associated with the deferred compensation plan. For the same period in 2023, other income, net includes a net gain of $11.1 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, other income, net decreased by $0.3 million in 2024 as compared to 2023.

Income Tax Expense

(Amounts in thousands, except percentages)

Three and six months ended June 30, 2024 compared with June 30, 2023. The effective tax rate for the three months ended June 30, 2024 was 29.8%, compared to an effective tax rate of 30.4% for the comparable period in 2023. The decrease in the effective tax rate for the three month period ending June 30, 2024 was primarily due to the tax effect of lower non-deductible expenses and lower state tax expenses relative to pre-tax income during the second quarter of 2024 as compared to the same period in 2023.

The effective tax rate for the six months ended June 30, 2024 was 26.9%, compared to an effective tax rate of 27.6% for the same period in 2023. The decrease in the effective tax rate for the six month period ending June 30, 2024 was primarily due to the tax effect of lower non-deductible expenses and lower state tax expenses relative to pre-tax income during the six months ended June 30, 2024 as compared to the same period in 2023.

Operating Practice Groups

We deliver our integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. A description of these groups' operating results and factors affecting their businesses is provided below.

Same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures. Divested operations represent operations that did not meet the criteria for treatment as discontinued operations.

Financial Services

(Amounts in thousands, except percentages)

Three months ended June 30, 2024 compared to June 30, 2023

Revenue

The Financial Services practice group revenue for the three months ended June 30, 2024 grew by 6.3% to $309.2 million from $290.9 million during the same period in 2023. Same-unit revenue grew by $8.8 million, or 3.0%, primarily driven by those units that provide government healthcare compliance business consulting, which increased by $8.3 million, and those units that provide project based advisory services, which increased by approximately $2.2 million. The increase was offset by a decrease in revenue of approximately $1.7 million from those units that provide traditional accounting and tax-related services for the three months ended June 30, 2024.The impact of acquired businesses contributed $9.5 million, or 3.1%, of 2024 revenue.

We provide a range of services to affiliated CPA firms under joint referral and administrative service agreements (“ASAs”). Fees earned under the ASAs are recorded as revenue in the accompanying Condensed Consolidated Statements of Comprehensive Income and were approximately $68.9 million and $65.9 million for the three months ended June 30, 2024 and 2023, respectively.

Operating expenses increased by $19.4 million, or 8.0%, as compared to the same period last year. Personnel costs increased by $12.9 million, of which acquisitions contributed approximately $4.6 million to the increase. Compared to the same period in 2023, direct costs, technology costs, professional services costs, travel and entertainment costs, corporate allocated costs, facility costs, depreciation and amortization costs, and employee gifts and activities increased by approximately $2.6 million, $1.4 million, $0.8 million, $0.6 million, $0.4 million, $0.4 million, $0.2 million, and $0.1 million, respectively. Other discretionary costs, net increased by approximately $1.5 million. Operating expenses as a percentage of revenue increased slightly to 85.0% for the three months ended June 30, 2024 from 83.7% of revenue for the prior year quarter.

Six months ended June 30, 2024 compared to June 30, 2023

Revenue

Revenue for the six months ended June 30, 2024 grew by 7.5% to $681.9 million from $634.0 million during the same period in 2023. Same-unit revenue grew by $26.2 million, or 4.1%, across almost all service lines, primarily driven by those units that provide government healthcare compliance business consulting, which increased by $13.0 million, the units that provide traditional accounting and tax-related services, which increased $9.0 million, and by those units that provide project-oriented advisory services, which increased by approximately $4.2 million.The impact of acquired businesses contributed a total of $21.6 million, or 3%, of Financial Services practice group's revenue for the six months ended June 30, 2024.

Fees earned under the ASAs, as described above, were approximately $156.8 million and $150.7 million for the six months ended June 30, 2024 and 2023, respectively.

Operating expenses increased by $40.5 million, or 8.3%, as compared to the same period last year. Personnel costs increased by $27.0 million, of which acquisitions contributed approximately $11.6 million to the increase. Compared to the same period in 2023, direct costs, technology costs, facility costs, professional services costs, travel and entertainment costs, corporate allocated costs, depreciation and amortization costs, bad debt, and marketing costs increased by approximately $4.2 million, $2.2 million, $2.1 million, $1.9 million, $1.2 million, $1 million, $0.8 million, $0.3 million, and $0.3 million respectively. Other discretionary costs, net increased by approximately $1.5 million. Operating expense as a percentage of revenue increased to 77.5% during the six months ended June 30, 2024 from 77.0% of revenue during the same period in 2023.

Benefits and Insurance Services

(Amounts in thousands, except percentages)

30

Three months ended June 30, 2024 compared to June 30, 2023

Revenue

The Benefits and Insurance Services practice group revenue increased by $1.6 million, or 1.6%, to $97.4 million during the three months ended June 30, 2024 compared to $95.8 million for the same period in 2023. Same-unit revenue grew by $0.6 million, or 0.7%, primarily driven by a $3.2 million increase in the employee benefit and retirement benefit services lines, and a $0.5 million increase in the payroll-related services, partially offset by a $2.2 million decrease in property and casualty services. During the three months ended June 30, 2024, property and casualty service line experienced the departure of a small group of producers and support staff and a loss of clients served by this group, which contributed to the $2.2 million decrease in revenue generated by the property and casualty services.

Operating expenses increased by $4.9 million, or 6.2%, when compared to the same period last year. Personnel costs increased by $3.9 million, of which acquisitions contributed approximately $0.5 million, primarily due to the impact of annual merit increases as well as investment in producers. Compared to the same period in 2023, technology costs and bad debt costs increased by approximately $0.4 million and $0.3 million, respectively, and was partially offset by $0.1 million lower travel and entertainment costs as compared to the same period in 2023. Operating expenses as a percentage of revenue increased to 85.4% for the quarter ended June 30, 2024 from 81.8% of revenue for the same period in 2023, primarily due to decrease in revenue generated from the property and casualty services.

Six months ended June 30, 2024 compared to June 30, 2023

Revenue

The Benefits and Insurance Services practice group revenue increased by $9.9 million, or 5.1%, to $205.8 million, during the six months ended June 30, 2024 compared to $195.9 million for the same period in 2023. Same-unit revenue grew by $8.2 million, or 4.2%, across almost all of the major service lines, primarily driven by a $7.7 million increase in employee benefit and retirement benefit services lines, a $1.2 million increase in payroll related services, and a $0.5 million increase in the property and casualty services, partially offset by an approximately $1.0 million decrease in other project based services.

Operating expenses increased by $11.6 million, or 7.5%, when compared to the same period last year. Personnel cost increased by $9.9 million primarily due to timing of annual merit increases, bonus accrual, as well as investment in producers. Compared to the same period in 2023, technology costs, direct costs, bad debt costs, as well as facility costs increased by approximately $0.6 million, $0.3 million, $0.2 million, and $0.2 million, respectively. Operating expense as a percentage of revenue slightly increased to 81.1% during the six months ended June 30, 2024 from 79.3% of revenue for the same period in 2023.

National Practices

(Amounts in thousands, except percentages)

Three and six months ended June 30, 2024 compared with June 30, 2023

Revenue and Operating Expenses

The National Practices group is primarily driven by a cost-plus contract with a single client, which has existed since 1999. The cost-plus contract is a five-year contract with the most recent renewal through December 31, 2028. Revenues from this single client accounted for approximately 75% of the National Practice group’s revenue. During the three and six months ended June 30, 2024, revenue increased by $1.6 million, or 13.9%, and $3.4 million, or 14.7%, respectively, while operating expenses increased by $1.5 million, or 14.1%, and $2.8 million, or 13.4%, respectively.

Corporate and Other

Corporate and Other are operating expenses that are not directly allocated to the individual business units. These expenses primarily consist of certain health care costs, gains or losses attributable to assets held in our deferred compensation plan, stock-based compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses.

(Amounts in thousands, except percentages)

Three months ended June 30, 2024 compared to June 30, 2023

Total operating expenses decreased by $3.3 million during the three months ended June 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased operating expenses by $2.3 million for the three months ended June 30, 2024 and by $5.1 million during the same period in 2023. Excluding the deferred compensation expenses, operating expenses decreased by $0.5 million during the three months ended June 30, 2024, as compared to the same period in 2023. The decrease was primarily driven by lower marketing as well as facility related costs.

Total corporate general and administrative expenses increased by $6.3 million, or 39.6%, during the three months ended June 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased corporate general and administrative expenses by $0.3 million for the three months ended June 30, 2024 and by $0.6 million during the same period in 2023. Excluding the deferred compensation expenses, corporate general and administrative expense increased by approximately $6.6 million. The increase was primarily driven by $5.6 million higher legal and other professional services costs largely associated with the announced Transaction, $0.4 millon higher travel and entertainment costs, $0.4 million higher technology costs, $0.2 million higher depreciation costs, and $0.7 million higher other discretionary spending to support the business growth. The increase in G&A expenses was partially offset by $0.7 million lower personnel costs and $0.1 million lower facility related costs. G&A expense for the three months ended June 30, 2024 included approximately $0.1 million non-recurring transaction and integration costs associated with the acquisitions completed in 2024, and G&A expense for the three months ended June 30, 2023 included approximately $0.3 million non-recurring transaction and integration costs associated with the Somerset acquisition.

Total other expense, net increased by $3.1 million during the three months ended June 30, 2024, as compared to the same period in 2023. For the three months ended June 30, 2024, total other expense, net includes a net gain of $2.6 million associated with the deferred compensation plan. For the same period in 2023, total other expense, net includes a net gain of $5.7 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, total other expense, net would have been $6.2 million in 2024 and $6.2 million in 2023, relatively unchanged.

Six months ended June 30, 2024 compared to June 30, 2023

Total operating expenses increased by $3.0 million, or 14.3%, during the six months ended June 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased operating expenses by $10.9 million for the six months ended June 30, 2024, and by $9.9 million during the same period in 2023. Excluding the deferred compensation expenses, operating expense increase by approximately $2.0 million during the six months ended June 30, 2024, primarily driven by higher personnel related costs, as compared to the same period in 2023.

Total G&A expenses increased by $9.4 million, or 29.8%, during the six months ended June 30, 2024, as compared to the same period in 2023. The deferred compensation plan increased G&A expenses by $1.4 million for the six months ended June 30, 2024, and by $1.3 million during the same period in 2023. Excluding the deferred compensation expenses, G&A expense increased by approximately $9.3 million during the six months ended June 30, 2024, compared to the same period in 2023. The increase in G&A expenses was primarily driven by $7.8 million higher legal and other professional services costs largely associated with the announced Transaction, $0.4 million higher travel and entertainment costs, $0.3 million higher technology costs, $0.3 million higher depreciation costs, and $1.0 million higher other discretionary spending to support the business growth. The increase in G&A expenses was partially offset by $0.5 million lower personnel costs and $0.1 million lower facility related costs. In addition, G&A expense for the six months ended June 30, 2024 included a $0.6 million non-recurring transaction and integration costs related to the acquisitions completed in 2024. G&A expense for the six months ended June 30, 2023 included a $1.5 million non-recurring transaction and integration costs related to the Somerset acquisition.

Total other income, net increased by $0.7 million during the six months ended June 30, 2024, as compared to the same period in 2023. Total other income, net for the six months ended June 30, 2024 includes a net gain of $12.2 million associated with the deferred compensation plan. For the same period in 2023, total other income, net includes a net gain of $11.1 million associated with the deferred compensation plan. Excluding the impact of the deferred compensation plan, total other income, net decreased by $0.4 million, primarily due to $1.2 million higher interest expense due to higher average outstanding balance and interest rates during 2024 as compared to 2023, offset by $0.8 million lower net changes in the fair value of contingent consideration related to prior acquisitions.

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 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”) represent accounts receivable and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve months' daily revenue. We provide DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of our ability to collect on receivables in a timely manner. Trailing-twelve-month DSO, including the impact of acquisitions, was 95 days and 94 days at June 30, 2024 and 2023, respectively. DSO at December 31, 2023 was 78 days.

The following table presents selected cash flow information. For additional details, refer to the accompanying Condensed Consolidated Statements of Cash Flows.

(Amounts in thousands)

Operating Activities - Cash provided by operating activities was $24.4 million during the six months ended June 30, 2024, primarily consisted of working capital use of $101.5 million, which was offset by net income of $96.7 million and certain non-cash items, such as depreciation and amortization expense of $19.0 million, deferred income tax of $3.1 million, and stock-based compensation expense of $5.0 million. Cash provided by operating activities was $29.7 million during the six months ended June 30, 2023 and primarily consisted of net income of $100.0 million and certain non-cash items, such as depreciation and amortization expense of $17.8 million, deferred income tax of $4.6 million, and stock-based compensation expense of $6.6 million. The cash inflow was offset by working capital use of $101.6 million during the six months ended June 30, 2023.

Investing Activities - Cash used in investing activities during the six months ended June 30, 2024 was $33.2 million and consisted primarily of $22.5 million used for business acquisitions, $7.0 million in capital expenditures, and $3.8 million in other investing activities primarily related to acquistion related working capital adjustment payments and notes receivable. The net cash flow related to funds held for clients and other activities were immaterial. Cash used in investing activities during the three months ended June 30, 2023 was $65.6 million and consisted primarily of $48.6 million used for business acquisitions, $11.7 million in capital expenditures, and $9.0 million in other investing activities primarily related to working capital payments and notes receivable. During the six months ended June 30, 2023, the use of cash was offset by $3.7 million net cash inflow related to funds held for clients and other activities.

The balances in funds held for clients and client fund obligations can fluctuate with the timing of cash receipts and the related cash payments. The nature of these accounts is further described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Financing Activities - Cash used in financing activities during the six months ended June 30, 2024 was $11.9 million and primarily consisted of $68.6 million in net proceeds from the credit facility, partially offset by $11.2 million cash used in share repurchases for tax withholding purposes, a $28.3 million net decrease in client fund obligations and $41.0 million in contingent consideration payments related to prior acquisitions. Cash provided by financing activities during the six months ended June 30, 2023 was $21.8 million and primarily consisted of $144.9 million in net proceeds from the credit facility and $4.3 million proceeds from exercise of stock options, partially offset by $57.0 million in share repurchases, a $40.4 million net decrease in client fund obligations and $30.0 million in contingent consideration payments related to prior acquisitions.

CAPITAL RESOURCES

Credit Facility - At June 30, 2024, we had $381.0 million outstanding under the 2022 credit facility as well as $3.2 million outstanding letters of credit. Available funds under the 2022 credit facility, based on the terms of the commitment, were approximately $209.8 million at June 30, 2024. The weighted average interest rate under the 2022 credit facility was 5.41% during the six months ended June 30, 2024, compared to 4.94% for the same period in 2023. The 2022 credit facility allows for the allocation of funds for future strategic initiatives, including acquisitions and the repurchase of our common stock, subject to the terms and conditions of the 2022 credit facility.

Debt Covenant Compliance - Under the 2022 credit facility, we are required to meet certain financial covenants with respect to (i) total leverage ratio and (ii) minimum interest charge coverage ratio. We are in compliance with our financial covenants as of June 30, 2024. Our ability to service our debt and to fund future strategic initiatives will depend upon our ability to generate cash in the future. For further discussion regarding our 2022 credit facility and debt, 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 six months ended June 30, 2024, we completed three acquisitions for $22.5 million in cash. We also repurchased 0.2 million shares of our common stock at a total cost of approximately $11.2 million during the six months ended June 30, 2024.

Cash Requirements - Cash requirements for the remainder of 2024 and beyond will include acquisitions, interest payments on debt, seasonal working capital requirements, contingent purchase price payments for previous acquisitions, share repurchases, income tax payments, and capital expenditures. We believe that cash provided by operations, as well as available funds under our 2022 credit facility will be sufficient to meet cash requirements for the remainder of 2024 and beyond.

In addition, the Company has obtained committed financing to, among other things, fund the cash portion of the purchase price of the announced acquisition of Marcum pursuant to a commitment letter (the “Commitment Letter”) entered into on July 30, 2024, with Bank of America, N.A. and BofA Securities, Inc., which provides commitments for senior secured credit facilities (the “Senior Credit Facilities”) in an aggregate principal amount of $2.0 billion, consisting of (x) a $600 million five year senior secured revolving credit facility and (y) a $1.4 billion five year senior secured term loan facility. The funding of the Senior Credit Facilities is contingent on the satisfaction of customary conditions, including (i) execution and delivery of definitive documentation with respect to the Senior Credit Facilities in accordance with the terms set forth in the Commitment Letter and (ii) consummation of the acquisition of Marcum. Refer to Note 12. Subsequent Events, to the accompanying unaudited condensed consolidated financial statements for further discussion of the announced acquisition.

OFF-BALANCE SHEET ARRANGEMENTS

We maintain administrative service agreements with independent CPA firms (as described more fully under Item 1. “Business – Financial Services” and in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023), which qualify as variable interest entities. The accompanying unaudited condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations, or cash flows of CBIZ.

We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $3.2 million and $3.5 million at June 30, 2024 and December 31, 2023, respectively. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding was $2.3 million and $2.3 million at June 30, 2024 and December 31, 2023, respectively.

We have various agreements under which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations, warranties, covenants or agreements, related to matters such as title to assets sold and certain tax matters. Payment by us under such indemnification clauses is generally conditioned upon the other party making a claim. Such claims are typically subject to challenge by us and to dispute resolution procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount and, in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, we have not made any payments under these agreements that have been material individually or in the aggregate. As of June 30, 2024, we are not aware of any material obligations arising under indemnification agreements that would require payment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The SEC defines critical accounting policies as those that are most important to the portrayal of a company’s financial condition and results and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our discussion and analysis of our results of operations, financial condition and liquidity are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets and liabilities, revenues and expenses and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements. As more information becomes known, these estimates and assumptions could change, which would have an impact on actual results that may differ materially from these estimates and judgments under different assumptions. We have not made any changes to our critical accounting policies and estimates as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 2, New Accounting Pronouncements, to the accompanying unaudited condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including without limitation, "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives for future performance are forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are commonly identified by the use of such terms and phrases as "intends", "believes", "estimates", "expects", "projects", "anticipates", "foreseeable future", "seeks", and words or phrases of similar import in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated services, sales efforts, expenses, and financial results.

From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements that we make, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to: we may be more sensitive to revenue fluctuations than other companies, which could result in fluctuations in the market price of our common stock; payments on accounts receivable may be slower than expected, or amounts due on receivables or notes may not be fully collectible; we are dependent on the services of our executive officers, other key employees, producers and service personnel, the loss of whom may have a material adverse effect on our business, financial condition and results of operations; restrictions imposed by independence requirements and conflict of interest rules may limit our ability to provide services to clients of the attest firms with which we have contractual relationships and the ability of such attest firms to provide attestation services to our clients; our goodwill and intangible assets could become impaired, which could lead to material non-cash charges against earnings; certain liabilities resulting from acquisitions are estimated and could lead to a material non-cash impact on earnings; governmental regulations and interpretations are subject to changes, which could have a material adverse effect on our clients, our business, our business services operations, our business models, or our revenue; changes in the United States healthcare or public health environment, including new healthcare legislation or regulations, may adversely affect the revenue and margins in our or our clients’ businesses; we are subject to risks relating to processing customer transactions for our payroll and other transaction processing businesses; cyber-attacks or other security breaches involving our computer systems or the systems of one or more of our vendors or clients could materially and adversely affect our business; we are subject to risk as it relates to software that we license from third parties; we could be held liable for errors and omissions, contract claims, or other litigation judgments or expenses; the future issuance of additional shares could adversely affect the price of our common stock; our principal stockholders may have substantial control over our operations; we require a significant amount of cash for interest payments on our debt and to expand our business as planned; terms of our credit facility may adversely affect our ability to run our business and/or reduce stockholder returns; our failure to satisfy covenants in our debt instruments could cause a default under those instruments; we are reliant on information processing systems and any failure of these systems could have a material adverse effect on our business, financial condition and results of operations; we may not be able to acquire and finance additional businesses which may limit our ability to pursue our business strategy; the business services industry is competitive and fragmented; if we are unable to compete effectively, our business, financial condition and results of operations may be negatively impacted; there is volatility in our stock price.

With respect to the pending Transaction as described in Note 12. Subsequent Events, to the accompanying unaudited condensed consolidated financial statements, such risks and uncertainties include, but are not limited to: the ability of the parties to consummate the Transaction in a timely manner or at all; satisfaction of the conditions precedent to consummation of the Transaction, including the ability to secure regulatory approvals in a timely manner or at all, and the approval by Marcum's partners and the approval by the Company’s stockholders; the possibility of litigation related to the Transaction and the effects thereof; the possibility that anticipated benefits and/or synergies of the Transaction will not be achieved in a timely manner or at all; the possibility that the costs of the Transaction and/or liabilities assumed will be more significant than anticipated; the possibility that integration will prove more costly and/or time consuming than anticipated; the possibility that the Transaction could disrupt ongoing plans and operations of the parties or their respective relationships with clients, other business partners and employees; the possibility that the financing will not be obtained as anticipated and the effects of the increased leverage of the Company following the Transaction; and other risks described in under Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.

Such forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Should one or more of these risks materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

Consequently, no forward-looking statement can be guaranteed. A more detailed description of risk factors may be found in “Item 1A, Risk Factors” of this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. Except as required by the federal securities laws, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the SEC, such as quarterly, periodic and annual reports.

Our floating rate debt under the 2022 credit facility exposes us to interest rate risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. A change in the Federal Funds Rate, or the reference rate set by Bank of America, N.A., would affect the rate at which we could borrow funds under the 2022 credit facility. The balance outstanding under our 2022 credit facility at June 30, 2024 was $381.0 million, of which $231.0 million is subject to rate risk. If market rates were to increase or decrease 100 basis points from the levels at June 30, 2024, interest expense would increase or decrease approximately $2.3 million annually.

We do not engage in trading market risk sensitive instruments. We periodically use interest rate swaps to manage interest rate risk exposure. The interest rate swaps effectively modify our exposure to interest rate risk, primarily through converting portions of our floating rate debt under the 2022 credit facility to a fixed rate basis. These agreements involve the receipt or payment of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amounts.

As of June 30, 2024, we have the following interest rate swaps outstanding (in thousands):

Management will continue to evaluate the potential use of interest rate swaps as we deem appropriate under certain operating and market conditions. We do not enter into derivative instruments for trading or speculative purposes.

In connection with the services provided by our payroll operations, funds collected from our clients’ accounts in advance are segregated and may be invested in short-term investments, such as corporate and municipal bonds. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial acquisition, and are classified as available-for-sale securities. At each respective balance sheet date, these investments are adjusted to fair value with fair value adjustments being recorded to other comprehensive income or loss and reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income for the respective period. If an investment is deemed to be other-than-temporarily impaired due to credit loss, then the adjustment is recorded to "Other income, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income. Refer to Note 6, Financial Instruments, and Note 7, Fair Value Measurements, to the accompanying unaudited condensed consolidated financial statements for further discussion regarding these investments and the related fair value assessments.

(a) Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management has evaluated the effectiveness of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report. This evaluation (“Controls Evaluation”) was done with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Disclosure Controls are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls

Management, including our CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent all errors and all fraud. Although our Disclosure Controls are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CBIZ have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. A design of a control system is also based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Conclusions

Our Disclosure Controls are designed to provide reasonable assurance of achieving their objectives and, based upon the Controls Evaluation, our CEO and CFO have concluded that as of the end of the period covered by this report, CBIZ’s Disclosure Controls were effective at that reasonable assurance level.

(b) Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. These risks could materially and adversely affect the business, financial condition and results of operations of CBIZ.

On July 30, 2024, we entered into a Merger Agreement to acquire the non-attest business of Marcum for a total consideration of approximately $2.3 billion. The Merger and the transactions contemplated by the Merger Agreement are referred to herein as the “Transaction". Subject to the satisfaction of closing conditions, the Transaction is expected to close in the fourth quarter of 2024. Refer to Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements for further discussion regarding the Transaction. Risks related to the Transaction follow:

If the conditions to the Transaction are not satisfied, the Transaction will not be completed.

The completion of the Transaction is subject to various closing conditions, including, among others, (a) the expiration of all waiting periods and receipt of all approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (b) the Company obtaining stockholder approval of the issuance of the shares in connection with the Transaction as required by the rules of the New York Stock Exchange; (c) Marcum obtaining the requisite approval of its partners as specified in the Merger Agreement; and (d) the Company obtaining debt financing. Certain of the conditions to the closing of the Transaction are not within our control, and we cannot predict when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the completion of the Transaction or prevent it from occurring. Any delay or failure in completing the Transaction could cause us not to realize some or all of the benefits that we expect to achieve. There can be no assurance that the conditions to the closing of the Transaction will be satisfied or that the Transaction will be completed.

Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.

If the Transaction is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of the Transaction, we could be subject to a number of negative consequences, including, among others: (i) negative reactions from investors and the financial markets, including negative impacts on our stock price; (ii) payments of a termination fee if the Transaction is not completed due to failure to receive approval of our stockholders or failure to receive financing; and (iii) significant transaction expenses, both direct and indirect in the form of opportunity costs, to us in connection with the Transaction, which have been and will be incurred regardless of whether the Transaction is completed. If the Transaction is not completed or if completion of the Transaction is delayed, any of these risks may adversely affect our business, financial condition, financial results, and stock price.

We may fail to realize the anticipated benefits of the Transaction, or it may prove disruptive and could result in the combined business failing to meet our expectations.

The success of the Transaction will depend, in part, on our ability to successfully integrate Marcum with our current operations. The Transaction will be the Company’s largest acquisition to date, and the size and complexity of the Transaction creates inherent challenges, risk and uncertainty in the integration process. If we are not able to successfully integrate Marcum, operationally and culturally, the anticipated benefits of the Transaction may not be realized fully or at all or may take longer or cost more to realize than expected. The process of integrating Marcum’s operations will likely require a disproportionate amount of resources and management attention. Our management team may also encounter unforeseen difficulties in managing the integration process. It is possible that the integration process could result in the loss of valuable employees or difficulty in attracting new talent, the disruption of our and Marcum’s ongoing businesses and client relationships or inconsistencies in standards, controls, procedures, practices, and policies that could adversely impact our operations. Disruption and distraction caused by this process could also prevent us from pursuing, or otherwise divert resources and attention from, otherwise attractive business and growth opportunities.

Even if we successfully integrate Marcum, there can be no assurance we will realize anticipated benefits. While our management and advisors have spent significant time and resources evaluating Marcum’s business, it is difficult to predict future performance and benefits from a Transaction involving large and complex organizations. It is also possible that we may have underestimated liabilities that we are assuming, or we may assume liabilities that are unknown or that we did not foresee, any of which could increase the effective cost of the Transaction and adversely impact our financial condition or results. The performance and benefits that we ultimately achieve may be influenced by a variety of factors, many of which are outside of our control. If we do not achieve the anticipated benefits of the Transaction, at all or in the expected timeframe, our business would be adversely affected.

Our increased leverage following the Transaction may adversely impact our business.

We will incur substantial indebtedness to fund the Transaction. As a result, our leverage ratio will increase significant immediately following the closing. If we do not perform in accordance with our expectations following the Transaction, we could be unable to reduce leverage to normalized levels, whether in anticipated timeframes or at all. We could also face difficulties servicing and complying with the covenants and other terms of our debt instruments. In addition, if we are unable to reduce our levels of indebtedness following the Transaction, we may be unable to pursue business and growth opportunities and uses of capital that would be beneficial to us and our stockholders, such as additional acquisitions and share repurchases. We also cannot provide assurance that we will be able to consummate the financing on the terms contemplated by our financing commitments, if at all. If the financing that we ultimately obtain is on less favorable terms than currently contemplated, the foregoing risks could be exacerbated.

The significant number of shares issuable as consideration for the Transaction may adversely impact our stock price.

There can be no assurance the Transaction will be accretive to earnings per share, at all or in expected timeframes. If the Company does not perform as expected following the Transaction or costs are greater than anticipated, our earnings per share could be adversely impacted by the significant increase in outstanding shares. In addition, although restrictions on resale under applicable securities laws will prevent sales in at least the six months following closing, Marcum partners will not be subject to contractual limitations on their ability to resell shares once they receive them. While the delivery of the stock consideration in installments over approximately three years may mitigate the potential for sales of a large volume at any particular time, persistent selling, or the perception of persistent selling, could adversely impact the market price of our common stock.

Our current stockholders will have a reduced ownership and voting interest after the Transaction compared to their current ownership.

Once fully issued, the shares issuable to Marcum partners in the transaction are expected to constitute approximately 22% of our outstanding shares, without giving effect to any subsequent issuances, repurchases or other changes in the number of shares outstanding. As a result, our current stockholders will own a meaningfully smaller percentage of the Company than they currently own, and collectively will have less ability to influence the Company's management and policies. In addition, to the extent that Marcum partners retain a significant portion of the shares that are issued to them, they will collectively have significant influence on any matters requiring a vote of stockholders.

The Transaction could exacerbate the existing business risk that we face.

During the pendency of and following the Transaction, we will continue to be subject to the business risks that we currently face as described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. However, it may be more challenging to effectively manage and mitigate these risks as a result of the significant resources that will be dedicated to the execution and integration of the Transaction. Disruptions or distractions as a result these efforts could make the risks we already face more likely to be realized, or subject us to additional risks. As part of our integration efforts, we will also need to ensure that our risk management policies and controls are appropriate for a larger and more complex organization. This will be an inherently challenging process that will take time, and we could be subject to elevated risks if we are not successful or are delayed in implementing effective policies and controls. In addition, the expanded size and complexity of our business after the Transaction is completed, as well as changes to the nature of our business, could increase the magnitude of some of the risks we face. There are substantial uncertainties associated with all of the foregoing, and any these risks may adversely affect our business, financial condition, financial results, and stock price.

Except as disclosed above, there have been no material changes to the risk factors disclosed under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.