CBIZ, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet amounts are as of March 31, 2024, unless otherwise noted. CBIZ provides financial, benefits and insurance, and national professional services primarily to small and midsized businesses. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $494.3 | $454.6 | +8.7% |
| Operating income | $99.1 | $98.0 | +1.1% |
| Net income | $76.9 | $73.2 | +5.1% |
| Diluted EPS | $1.53 | $1.44 | +$0.09 |
| Operating cash flow | $(63.7) | $(44.5) | Greater use of cash |
Revenue increased $39.7 million: same-unit revenue contributed approximately $26.9 million (up 5.9%), and acquired operations net of divestitures contributed $12.8 million. Revenue by practice group was $372.6 million in Financial Services (+8.6%), $108.4 million in Benefits and Insurance Services (+8.3%), and $13.3 million in National Practices (+15.6%).
Reported gross margin was $117.8 million, or 23.8% of revenue, versus $113.6 million, or 25.0%, a year earlier. Operating expenses rose 10.4% to $376.5 million; excluding deferred-compensation-plan expenses, they were 74.4% of revenue versus 74.0%. Reported operating income margin was 20.0% versus 21.6%. The deferred compensation plan creates offsetting expense and investment-income effects and does not affect pretax income or diluted EPS; excluding those effects, operating income was $108.7 million (22.0% of revenue) versus $103.4 million (22.7%). Interest expense increased to $4.5 million from $3.6 million. The effective tax rate was 26.1%, compared with 26.5%.
Cash, debt and liquidity
- Operating cash use was $63.7 million, reflecting seasonal working-capital needs, including higher receivables and payment of employee incentives. Accounts receivable increased to $504.1 million from $380.2 million at year-end; unbilled revenue rose to $198.1 million from $96.1 million.
- Days sales outstanding was 101 days, versus 94 days a year earlier and 78 days at December 31, 2023.
- Investing cash use was $28.7 million, including $21.3 million for acquisitions and $5.1 million in capital expenditures. Financing provided $71.2 million, including $125.4 million of net credit-facility borrowings.
- Cash and cash equivalents were $1.4 million; restricted cash was $27.7 million. Total cash, cash equivalents and restricted cash, including amounts in client funds, was $135.9 million. Client funds are not equivalent to unrestricted corporate cash.
- Bank debt was $437.8 million, up from $312.4 million at December 31, 2023. The $600 million credit facility had approximately $147.9 million available, net of letters of credit. The weighted-average effective rate was 5.23%, versus 4.54% in Q1 2023. CBIZ reported compliance with its debt covenants.
Material changes, outlook and risks
- CBIZ acquired Erickson, Brown & Kloster and CompuData for an aggregate purchase price of $37.3 million, including $13.5 million of contingent consideration. The acquired businesses contributed $4.6 million of Q1 revenue. The company also paid $31.1 million of contingent consideration related to prior acquisitions.
- The board authorized repurchases of up to 5.0 million shares under a program effective March 31, 2024 and expiring March 31, 2025. Q1 purchases included 170,000 shares at an average $66.00 per share; the company also reported approximately $11.2 million of shares withheld for employee tax obligations.
- Management gave no specific financial guidance in the provided filing. It expects operating cash flow and available credit-facility funds to be sufficient for cash requirements for the remainder of 2024 and beyond, while noting seasonal working-capital needs and expected requirements for acquisitions, debt interest, contingent payments, repurchases, taxes and capital expenditures.
- Management described first-quarter cash use as seasonal and noted that receivables are commonly collected in subsequent quarters. Results are not necessarily indicative of full-year performance.
- CBIZ faces interest-rate exposure: $287.8 million of facility debt was subject to rate risk at quarter-end; a 100-basis-point rate move was estimated to change annual interest expense by approximately $2.9 million. The company uses swaps to hedge portions of floating-rate debt.
- Two putative class actions arising from the May 2023 MOVEit cyberattack are in multidistrict litigation. CBIZ said the cases were at an early stage and it could not estimate potential losses. Separately, a court awarded CBIZ $3.1 million on its counterclaim in the Zotec litigation on March 12, 2024; Zotec filed an appeal on April 10, 2024.
- National Practices revenue depends substantially on a single client: approximately 75% of that practice group’s revenue. Its cost-plus contract was renewed through December 31, 2028.
Important facts for investors to verify
- Whether elevated DSO and unbilled receivables convert to cash as expected after the seasonal tax-services period.
- How acquisition spending, contingent purchase-price payments and increased debt affect leverage, interest expense and remaining credit availability.
- Developments and any eventual loss exposure in the MOVEit litigation, and the status and collectability of the Zotec award during appeal.
- Whether same-unit growth and segment margins persist as personnel, professional-services and other operating costs rise.
- The distinction between unrestricted corporate liquidity and cash held for clients, and the terms and availability of the credit facility.