CBIZ, Inc. 2021 Form 10-K Summary
Business context and reporting period
CBIZ provides accounting, tax, benefits, insurance, payroll, healthcare consulting and advisory services, primarily to businesses and individuals in the U.S. It reported for the fiscal year ended December 31, 2021, compared with 2020. Its three practice groups are Financial Services, Benefits and Insurance Services, and National Practices. Core tax and accounting work is seasonal, with heavier activity in the first four months of the year.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1,104.9 million | $963.9 million |
| Gross margin | $159.3 million; 14.4% of revenue | $138.5 million; 14.4% of revenue |
| Operating income | $72.7 million | $92.5 million |
| Income from continuing operations | $70.9 million | $78.3 million |
| Diluted EPS from continuing operations | $1.32 | $1.42 |
| Adjusted EBITDA (non-GAAP) | $148.5 million | $132.1 million |
| Cash provided by operating activities | $131.2 million | $146.8 million |
Revenue increased 14.6%; same-unit revenue rose 7.7%, while acquisitions net of divestitures contributed 6.9%. Operating income and continuing-operations income fell 21.4% and 9.5%, respectively. A $30.5 million loss on the UPMC legal settlement was a major factor in the operating-income decline. Adjusted EBITDA excludes the settlement, among other specified adjustments, and is not a GAAP measure.
By practice group, Financial Services revenue increased 16.6% to $734.0 million, Benefits and Insurance Services rose 11.6% to $332.3 million, and National Practices increased to $38.6 million. Financial Services same-unit revenue grew 9.3%; Benefits and Insurance Services same-unit revenue grew 4.6%.
At year-end, bank debt was $155.3 million, up from $108.0 million; stockholders’ equity was $704.5 million. The $400 million unsecured credit facility had approximately $234.5 million available and matures in April 2023. CBIZ reported covenant compliance. Cash and cash equivalents were $2.0 million; restricted cash and funds held for clients are separately reported and should not be treated as unrestricted cash. Days sales outstanding was 71, versus 72 a year earlier. The effective tax rate was 23.8%, compared with 24.3%.
Material changes and capital allocation
- CBIZ completed six business acquisitions and acquired one client list in 2021. Acquisitions contributed $66.7 million of revenue net of divestitures; their estimated annualized aggregate revenue was $74.4 million.
- Operating cash flow declined $15.7 million, primarily reflecting working-capital changes and lower net income. Investing activities used $82.0 million, including $66.7 million for acquisitions and $9.0 million for capital expenditures.
- CBIZ repurchased 3.0 million shares for approximately $96.4 million in 2021, versus 2.3 million shares for $57.6 million in 2020. Financing activities used $69.0 million overall.
- The company sold a Benefits and Insurance business for $9.7 million in proceeds and recorded a net gain of approximately $6.0 million.
Outlook, commentary, risks and unusual items
CBIZ provided no specific revenue or earnings guidance. Management stated that operating cash flow and available credit were expected to cover cash needs for the next 12 months, including acquisitions, seasonal working capital, debt interest, earnouts, repurchases and capital spending. Management identifies strategic acquisitions as its first capital-allocation priority; the company also renewed its share repurchase authorization for up to 5.0 million shares.
After year-end, effective January 1, 2022, CBIZ acquired the non-attest assets of Marks Paneth. Consideration included approximately $81.25 million cash at closing and contingent earnout consideration of up to $75.25 million, subject to specified terms and reductions related to a separate purchase of attest assets by an independent CPA firm.
- Litigation: CBIZ paid $41.5 million to settle the UPMC case and recorded a $30.5 million loss in 2021. In the Zotec litigation, the jury found for CBIZ on the fraud, contract and other claims tried in October 2021; a remaining statutory securities fraud claim and CBIZ counterclaim were left for the judge.
- Business and execution risks: CBIZ cites the ability to recruit and retain professionals, competitive pressure, acquisition integration and valuation, and potential impairment of goodwill and intangible assets. Goodwill was $740.7 million; no impairment was recorded in the 2021 annual test.
- Receivables and systems risks: Collection delays, unbilled-revenue estimates, cyber incidents, data privacy obligations and failures in transaction-processing or information systems could affect results and liquidity. The auditor identified estimation of losses for certain Financial Services billed and unbilled receivables as a critical audit matter; the year-end doubtful-account allowance was $16.2 million.
- Regulatory and concentration risks: Accounting independence rules and the terms of administrative service agreements with independent CPA firms may constrain services. One National Practices client represented about 75% of that group’s revenue, though the largest client was approximately 2.6% of consolidated revenue.
- Debt and rates: Floating-rate debt is partly hedged with swaps; $40.3 million of year-end debt was exposed to rate changes, and a 100-basis-point move was estimated to change annual interest expense by approximately $0.4 million. CBIZ also disclosed LIBOR transition uncertainty.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021.
Important facts for investors to verify
- How much of future growth and profitability comes from same-unit activity versus acquisitions, and whether acquired businesses meet expected performance and integration targets.
- The effects of the UPMC settlement and the final disposition of remaining Zotec claims, including any additional costs or exposure.
- Cash conversion, receivable quality and realization of unbilled revenue, including changes in DSO and the allowance for doubtful accounts.
- Debt availability, covenant headroom, the April 2023 credit-facility maturity, and the transition from LIBOR to a replacement benchmark.
- Marks Paneth’s actual contribution, final purchase accounting and contingent earnout obligations; also assess the pace and funding of repurchases relative to acquisition spending and debt.
- Exposure to professional staffing pressures, cyber and data-security events, the concentrated National Practices client, and the substantial goodwill balance.