CBIZ, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed July 29, 2022. CBIZ provides professional services through Financial Services, Benefits and Insurance Services, and National Practices, primarily to businesses and other organizations in the U.S. and parts of Canada. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $362.0 | $278.6 | $753.7 | $579.4 |
| Operating income (loss) | $61.3 | $(2.6) | $146.4 | $59.7 |
| Income from continuing operations | $31.3 | $8.6 | $89.4 | $58.8 |
| Diluted EPS from continuing operations | $0.60 | $0.16 | $1.70 | $1.09 |
| Operating margin | 16.9% | (0.9)% | 19.4% | 10.3% |
- Revenue rose 29.9% in Q2 and 30.1% in the first half. Same-unit revenue increased 11.4% and 10.5%, respectively; acquisitions net of divestitures contributed $51.6 million and $113.8 million of incremental revenue.
- Financial Services drove most growth: revenue increased 39.0% in Q2 and 40.3% year to date, including Marks Paneth. Benefits and Insurance revenue grew 11.0% and 8.4%; National Practices grew 15.9% and 14.1%.
- Operating expenses increased 22.3% in Q2 and 25.8% year to date, slower than revenue growth as reported. Excluding deferred-compensation effects, operating expenses were 83.7% of Q2 revenue versus 82.6% a year earlier, and 79.5% year to date versus 77.6%.
- Q2 gross margin was $72.2 million versus $41.7 million; first-half gross margin was $173.6 million versus $118.5 million. These reported amounts are affected by deferred-compensation plan accounting.
- Net cash from operating activities was $28.5 million for the first half, down from $66.3 million. A $91.3 million working-capital use, primarily reflecting receivables growth and timing, offset earnings and noncash items. Investing used $89.8 million; financing provided $91.7 million.
- At June 30, cash and cash equivalents were $3.9 million, restricted cash $42.2 million, and funds held for clients $185.3 million. The client funds and related obligations are associated with payroll services and are not equivalent to unrestricted cash.
- Bank debt was $266.0 million, compared with $155.3 million at year-end 2021. The company reported $323.2 million of available borrowing capacity under its $600 million credit facility, net of letters of credit and subject to facility terms. It was in compliance with financial covenants.
- Accounts receivable, net, was $410.5 million versus $242.2 million at year-end; DSO was 88 days, compared with 84 days a year earlier and 71 days at year-end 2021.
Material changes and unusual items
- CBIZ acquired Marks Paneth’s non-attest assets effective January 1, 2022. The acquisition’s recorded purchase price was $137.1 million, including $72.5 million cash and $64.6 million contingent consideration. Management expected approximately $138 million of 2022 revenue contribution; $8.1 million of related transaction, retention, and integration costs were recorded in the first half.
- The 2022 credit facility, entered into May 4, increased capacity from $400 million to $600 million, extended maturity from 2023 to 2027, and replaced LIBOR with Term SOFR. Pricing was unchanged; the company also amended related swaps.
- Q2 2021 included a $30.5 million UPMC legal settlement loss, while first-half 2021 also benefited from a $6.4 million gain on sale of operations. These items make reported year-over-year earnings comparisons less directly comparable.
- Reported other expense included losses on deferred-compensation-plan investments—$15.1 million in Q2 and $21.6 million year to date—offset by corresponding compensation-expense reductions. CBIZ stated these entries do not affect pretax income or diluted EPS.
- CBIZ repurchased approximately 1.1 million shares during the first half for about $42.8 million, including shares withheld for taxes. The board authorized up to 5 million shares under a program expiring April 1, 2023.
Outlook, risks, and contingencies
- The filing provides no formal revenue or earnings guidance. Management said operating cash flow and available credit were expected to be sufficient for remaining-2022 cash needs, including acquisitions, debt interest, seasonal working capital, contingent acquisition payments, repurchases, and capital spending.
- Management cited risks including economic and client conditions, COVID-19 effects, sustaining growth, dependence on outsourcing trends and key personnel, competitive pricing, and changes in regulation or tax law. CBIZ also noted floating-rate exposure: $171 million of June 30 debt was subject to rate risk; a 100-basis-point rate change was estimated to affect annual interest expense by approximately $1.7 million.
- In the Zotec litigation, the jury found for CBIZ on fraud, contract, and other claims; a remaining Indiana statutory securities-fraud claim and CBIZ counterclaim were still before the trial judge. Zotec seeks damages of up to $177 million. The filing says the ultimate outcome and any possible loss cannot be estimated.
- Subsequent events: CBIZ repurchased approximately 0.2 million shares for $8.1 million through July 27, 2022, and acquired Stinnett & Associates effective July 1, with estimated annualized revenue of $16.4 million.
Investor verification priorities
- Assess the durability of same-unit growth separately from acquisition-driven growth, particularly the Marks Paneth contribution and integration costs.
- Review receivables collection and working-capital conversion, including the rise in DSO and the substantial first-half operating cash-flow decline.
- Track debt, floating-rate exposure, hedge coverage, covenant headroom, and availability under the credit facility.
- Monitor contingent purchase consideration, acquisition valuation and integration, and the unresolved Zotec litigation.
- Separate deferred-compensation mark-to-market effects and prior-year settlement/divestiture items from underlying operating trends.