CBIZ, Inc. — Q1 2021 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021. CBIZ provides professional business services through Financial Services, Benefits and Insurance Services, and National Practices. Financial figures below are in U.S. dollars; financial-statement amounts are generally in millions unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $300.7 | $277.5 | +8.4% |
| Gross margin | $76.8; 25.5% of revenue | $77.6; 28.0% of revenue | Down $0.9 |
| Operating income | $62.3 | $67.1 | Down $4.9 |
| Income from continuing operations | $50.2 | $36.9 | +36.2% |
| Diluted EPS | $0.92 | $0.66 | +$0.26 |
| Cash used in operating activities | $14.8 | $18.6 | $3.8 less cash used |
Revenue increased $23.3 million: same-unit revenue contributed approximately $10.0 million, or 3.6%, and acquired operations, net of divestitures, contributed $13.3 million, or 4.8%. Financial Services revenue rose 8.1%, Benefits and Insurance Services 9.6%, and National Practices 3.0%.
Gross margin and operating income were affected by the deferred compensation plan’s investment gains and corresponding compensation expenses. Excluding deferred compensation expenses, operating expenses were $219.4 million, or 72.9% of revenue, versus $214.6 million, or 77.4%, a year earlier. Other income included a $5.1 million deferred-compensation-related gain in 2021 versus a $16.6 million loss in 2020; CBIZ said these offsetting plan effects do not affect pretax income or diluted EPS. The effective tax rate was 24.1%, compared with 26.7%.
Cash, debt, and liquidity
- At March 31, cash and cash equivalents were $6.8 million, restricted cash was $27.6 million, and funds held for clients were $140.8 million. These client funds are associated with corresponding client obligations and should not be viewed as freely available corporate cash.
- Accounts receivable, net, was $270.6 million, up from $216.2 million at year-end; unbilled revenue was $106.7 million. Days sales outstanding were 91 days, versus 94 days a year earlier and 72 days at December 31, 2020.
- Bank debt was $162.0 million, up from $108.0 million at December 31. The $400 million credit facility matures in 2023; approximately $228.7 million was available, net of letters of credit. The company reported compliance with debt covenants. The weighted-average borrowing rate was 2.10%.
- Q1 operating cash use was $14.8 million, reflecting seasonal working-capital needs, including increased receivables and accrued personnel costs. Investing activities provided $0.2 million; financing activities used $3.0 million. Cash, cash equivalents, and restricted cash totaled $152.8 million at quarter-end, including cash equivalents held for clients.
- CBIZ repurchased 1.164 million shares for approximately $34.1 million during the quarter. It completed an acquisition for approximately $3.5 million.
Material changes, outlook, and risks
- Management attributed growth to same-unit expansion and acquisitions. Financial Services same-unit revenue grew 4.5%, led by traditional accounting and tax services; Benefits and Insurance Services same-unit revenue grew 1.6%. Lower travel and discretionary spending and lower bad-debt expense partly offset higher personnel costs.
- CBIZ provided no specific full-year revenue or earnings guidance. It cautioned that interim results are not necessarily indicative of full-year results and described first-quarter cash use as typical because of seasonal accounting and tax activity.
- Subsequent events included approximately $9.0 million of share repurchases through April 27; acquisition of Wright Retirement Services effective April 1, with estimated annualized revenue of $1.2 million; and the announced May 1 acquisition of Berntson Porter & Company’s non-attest assets, with estimated annualized revenue of $26.0 million.
- Three significant lawsuits remain pending. The UPMC matter seeks $124 million to $266 million in compensatory damages plus punitive damages, with trial scheduled for June 2021. The Zotec matter seeks up to $177 million, with trial scheduled for October 2021. A separate Arizona matter alleges approximately $16 million in damages. CBIZ said it could not predict outcomes or estimate possible losses and intends to defend the cases.
- Market risks include floating-rate debt: $77.0 million of the $162.0 million balance was exposed to rate risk at quarter-end; a 100-basis-point rate move was estimated to change annual interest expense by approximately $0.8 million. CBIZ also cited COVID-19 impacts, growth execution, competition and pricing, economic conditions, key-person dependence, and regulatory or tax-law changes as risks.
- The company reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue and same-unit growth continue, and how much future growth depends on acquisitions.
- Receivables collection, unbilled revenue, and seasonal working-capital needs as the year progresses.
- Debt levels, available credit, covenant compliance, and sensitivity to interest-rate changes.
- Cash allocation between acquisitions and share repurchases, including the effect of repurchases on leverage and liquidity.
- Developments, potential financial exposure, and any updated loss estimates in the UPMC, Zotec, and Arizona litigation.
- How deferred-compensation investment movements affect reported operating expenses and other income, while noting management’s statement that the plan has no pretax-income or diluted-EPS impact.