CBIZ, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. CBIZ provides professional services through Financial Services, Benefits and Insurance Services, and National Practices.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $282.7 | $238.4 | $862.1 | $752.8 |
| Gross margin | $44.4 | $33.6 | $162.9 | $139.2 |
| Operating income | $31.4 | $22.3 | $91.1 | $106.2 |
| Income from continuing operations | $21.7 | $20.1 | $80.5 | $78.4 |
| Net income | $21.7 | $20.1 | $80.5 | $78.4 |
| Diluted EPS | $0.41 | $0.36 | $1.50 | $1.41 |
| Gross margin as % of revenue | 15.7% | 14.1% | 18.9% | 18.5% |
- Q3 revenue increased 18.6%; same-unit revenue grew 8.3%, with acquired operations net of divestitures contributing $24.6 million of incremental revenue.
- Nine-month revenue grew 14.5%; same-unit revenue rose 7.3%, and acquired operations net of divestitures added $54.8 million.
- Nine-month operating income declined 14.3%, primarily reflecting a $30.5 million legal settlement loss. Pretax income was $106.6 million versus $105.6 million, while net income increased 2.7%.
- Reported results also include gains and losses on deferred-compensation-plan investments, which CBIZ says are offset by related compensation expense and do not affect pretax income or diluted EPS.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $80.9 million, compared with $81.8 million. Working capital used $26.3 million, including a $66.0 million increase in accounts receivable.
- Investing cash outflow was $70.7 million, including $66.2 million for acquisitions and $6.5 million in capital expenditures; $9.8 million of divestiture proceeds partly offset outflows.
- Financing cash flow was $1.7 million, including net borrowings of $82.2 million and approximately $88.0 million of share repurchases.
- At September 30, cash and cash equivalents were $2.7 million, restricted cash was $37.3 million, and bank debt was $190.2 million. Funds held for clients and related obligations are not equivalent to unrestricted corporate liquidity.
- The $400 million credit facility matures in 2023; approximately $201.6 million was available after letters of credit. CBIZ reported compliance with its financial covenants. The weighted-average borrowing rate for the first nine months was 1.89%.
Material changes and management commentary
- All three practice groups grew revenue in Q3 and year to date. Q3 same-unit growth was 9.2% in Financial Services, 6.6% in Benefits and Insurance Services, and 7.6% in National Practices.
- CBIZ completed five acquisitions during the first nine months, with estimated annualized revenue of approximately $71.9 million. It repurchased 2.8 million shares for approximately $87.9 million during the period; after quarter-end it repurchased about 0.3 million additional shares for approximately $9.0 million.
- Management identifies strategic acquisitions as its first capital-use priority and also views share repurchases as a use of capital. No specific financial guidance or quantified outlook is provided in the filing.
- Days sales outstanding was 88 days, compared with 87 days at September 30, 2020 and 72 days at December 31, 2020; management describes receivables as seasonally affected by billing and collection patterns.
Risks, contingencies and unusual items
- CBIZ paid $41.5 million to settle the UPMC matter and recorded a $30.5 million loss in the nine-month period.
- In the Zotec litigation, a jury found for CBIZ on the fraud, contract and other claims tried in October 2021. A statutory securities-fraud claim and CBIZ’s counterclaim remained for the judge; Zotec sought up to $177.0 million. CBIZ stated it could not estimate any possible loss or range.
- Arizona litigation related to Mortgages Ltd. was dismissed or settled without payment by CBIZ, following dismissal of the remaining claims in September 2021.
- Other cited risks include COVID-19 effects on CBIZ and clients, sustaining growth, reliance on outsourcing trends and key employees, competitive pricing, economic conditions, and regulatory or tax-law changes. Floating-rate debt creates rate exposure; management estimated a 100-basis-point rate move would change annual interest expense by about $1.1 million.
Important facts for investors to verify
- How much future revenue and earnings growth is organic versus acquisition-driven, and whether recent same-unit growth persists.
- Cash collection, receivables and DSO trends, given the increase in receivables and working-capital use.
- The effect of the UPMC settlement and any remaining Zotec litigation developments, including the outstanding claim and counterclaim.
- Debt levels, covenant headroom, borrowing rates and the balance between acquisitions and share repurchases.
- Acquisition integration, contingent purchase-price liabilities, and the sustainability of margins excluding unusual items.