CBIZ, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results; it is not a standalone quarterly filing. CBIZ provides financial, insurance, and advisory services, primarily to small and midsized businesses, through Financial Services, Benefits and Insurance Services, and National Practices.
Financial performance and position
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $948.4 million | $922.0 million | +2.9% |
| Income from continuing operations | $71.0 million | $61.6 million | +15.3% |
| Net income | $70.7 million | $61.6 million | +14.9% |
| Diluted EPS from continuing operations | $1.27 | $1.09 | +16.5% |
| Adjusted EBITDA (non-GAAP) | $120.6 million | $109.1 million | +10.5% |
| Cash from operating activities | $98.2 million | $105.2 million | −6.7% |
| Bank debt at year-end | $105.5 million | $135.5 million | −$30.0 million |
- Financial Services revenue increased 2.6% to $616.6 million; same-unit growth was 2.5%, led by traditional accounting and tax services.
- Benefits and Insurance Services revenue increased 2.7% to $296.2 million, but same-unit revenue was nearly flat (+0.1%). National Practices revenue increased 9.2% to $35.6 million.
- Reported gross margin was $124.9 million (13.2% of revenue), versus $131.7 million (14.3%) in 2018; operating income was $80.5 million, versus $92.5 million. CBIZ said deferred-compensation-plan effects increased reported operating costs; excluding those effects, operating expenses were 85.0% of revenue versus 86.2% in 2018.
- Net cash used in investing activities was $27.7 million, including $11.7 million for acquisitions and $13.9 million of capital expenditures. Net cash used in financing was $54.5 million, including $27.2 million of share repurchases and $30.0 million of net debt repayments.
- Year-end cash and cash equivalents were $0.6 million; restricted cash was $29.6 million and funds held for clients were $179.5 million, substantially matched by client-fund obligations. The $400 million unsecured credit facility had $105.5 million drawn and approximately $287.7 million available; CBIZ reported covenant compliance.
- Current assets were $456.0 million and current liabilities $365.9 million, but these include substantial client funds and corresponding obligations. Adoption of the lease standard added $161.0 million of operating lease liabilities at year-end.
Fourth-quarter results
Fourth-quarter revenue was $203.1 million, up from $199.0 million in fourth-quarter 2018. CBIZ reported a $1.2 million net loss for the quarter, compared with a $1.0 million net loss in the prior-year quarter; continuing-operations loss was $1.1 million versus $1.0 million. Fourth-quarter operating loss was $8.1 million. The filing describes significant seasonality in accounting and tax work, with most annual EPS generally earned in the first half; it does not provide a specific explanation for the quarter’s loss beyond the reported expense and other-income components.
Changes, outlook, and material items
- Same-unit revenue contributed $18.2 million of 2019 growth, while acquisitions net of divestitures contributed $8.2 million. CBIZ completed six acquisitions and bought one client list during the year.
- Other income included a $19.2 million net gain on investments in the non-qualified deferred compensation rabbi trust. Corresponding compensation expense is recorded in operating and G&A expenses; management said the plan has no impact on pretax continuing income or diluted EPS. Changes in contingent acquisition consideration also affected earnings.
- CBIZ repurchased 1.3 million shares for approximately $27.2 million in 2019. The board authorized a renewed program of up to 5.0 million shares in February 2020, expiring April 1, 2021. The company does not anticipate paying cash dividends in the foreseeable future.
- Management expected operating cash flow and available credit to be sufficient for the next 12 months, including working capital, debt service, acquisitions, contingent earnouts, capital expenditures, and repurchases. The filing gives no numerical 2020 revenue or earnings guidance.
- Material litigation remained unresolved. A Pennsylvania lawsuit seeks $124 million to $266 million plus punitive damages; trial was scheduled for May 2020. A separate Arizona matter includes pending claims alleging approximately $16 million in damages. CBIZ said outcomes and potential losses could not be estimated and that it intended to defend the cases.
- Key risks include collection and realization of billed and unbilled receivables, employee retention, acquisition execution, cybersecurity and data privacy, regulatory changes, interest-rate and LIBOR-transition exposure, and goodwill impairment. Goodwill was $588.2 million; no impairment was recognized in 2019. KPMG identified estimating losses on billed and unbilled receivables as a critical audit matter. The auditor and management reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether organic growth, particularly the near-flat same-unit performance in Benefits and Insurance Services, improves and supports margins.
- How much of earnings growth is attributable to sustainable operations versus accounting and valuation effects; reconcile the deferred-compensation gains and offsetting expenses.
- Receivables quality and subsequent collections: year-end net receivables were $222.0 million, with a $14.4 million allowance; DSO was 75 days, unchanged year over year.
- Developments and any financial exposure in the Pennsylvania and Arizona litigation, including trial outcomes and insurance coverage.
- Acquisition earnout obligations, integration results, and liquidity after repurchases: contingent purchase-price liabilities were $32.1 million at year-end.
- Credit-facility availability, covenant headroom, and the effect of replacing LIBOR in the facility and related swaps.