CBIZ, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. CBIZ provides business, financial, benefits and insurance services, primarily to small and medium-sized organizations in the U.S. and parts of Canada.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $278.6m | $236.9m | $579.4m | $514.4m |
| Gross margin | $41.7m | $27.9m | $118.5m | $105.6m |
| Operating income (loss) | ($2.6m) | $16.8m | $59.7m | $83.9m |
| Income from continuing operations | $8.6m | $21.5m | $58.8m | $58.3m |
| Diluted EPS from continuing operations | $0.16 | $0.39 | $1.09 | $1.05 |
| Cash provided by operating activities | Not stated by quarter | $66.3m | $55.5m |
Q2 revenue rose 17.6%; same-unit revenue increased 10.5%, with acquisitions net of divestitures contributing $16.9m. First-half revenue rose 12.6%; same-unit revenue increased 6.8%, and acquisitions net of divestitures contributed $30.2m. Q2 gross margin was approximately 15.0% of revenue versus 11.8% a year earlier. The operating loss principally reflects a $30.5m legal settlement charge.
For the first half, Financial Services revenue increased 14.0% and Benefits and Insurance Services revenue increased 10.6%; National Practices revenue increased 4.4%. First-half operating cash flow benefited from earnings and non-cash expenses, partly offset by working-capital use. Investing activities used $40.1m, primarily for acquisitions; financing activities used $42.6m, including share repurchases.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $4.7m, restricted cash was $39.3m, and funds held for clients were $139.4m, generally associated with client obligations rather than freely available corporate liquidity.
- Accounts receivable, net, was $292.5m, up from $216.2m at year-end 2020. Days sales outstanding was 84 days, versus 87 days at June 30, 2020 and 72 days at December 31, 2020.
- Credit-facility debt was $163.3m, compared with $108.0m at year-end. The $400m facility matures in 2023; approximately $233.4m was available at June 30, net of letters of credit. CBIZ reported compliance with debt covenants. The first-half weighted-average rate was 1.95%.
- Operating cash flows and access to the credit facility are the company’s principal liquidity sources. The company said it historically uses cash to fund first-quarter working capital needs, with cash generation typically stronger in later quarters.
Material changes, outlook and risks
- Settlement: CBIZ agreed to pay UPMC $41.5m to settle litigation and recorded a $30.5m loss, stating that errors-and-omissions insurance proceeds mitigate the impact. The filing does not specify the proceeds amount.
- Acquisitions and capital allocation: Four 2021 acquisitions were completed, for $43.1m cash and $4.1m in stock; estimated aggregate annualized acquired revenue was $41.9m. CBIZ repurchased 2.1m shares for approximately $66.5m in the first half. Its repurchase authorization permits up to 5m shares through April 1, 2022, subject to suspension or discontinuation.
- Other unusual items: A Benefits and Insurance business sale generated $9.8m in proceeds and a $6.4m gain. Deferred-compensation investment gains and losses affect reported expenses and other income but, according to the filing, do not affect pretax continuing income or diluted EPS.
- Legal contingencies: Claims remain pending in the Baldino Group matter, with alleged damages of approximately $16m, and the Zotec matter, in which the plaintiff seeks up to $177m. CBIZ said it cannot predict outcomes or estimate possible losses and intends to defend the cases.
- Guidance and risks: The filing provides no specific full-year financial guidance. Management cautions that interim results are not necessarily indicative of full-year results. Risks cited include COVID-19 impacts, ability to manage growth, reliance on outsourcing trends and key employees, pricing competition, economic conditions, and regulatory or tax-law changes.
Investor facts to verify
- Whether insurance recoveries reduce the UPMC settlement’s ultimate cash cost, and when payments are due.
- Developments, trial outcomes and potential financial exposure in the Baldino Group and Zotec litigation.
- Receivable collections and seasonal working-capital needs, including the increase in receivables and DSO since year-end.
- Acquisition performance, purchase-price adjustments and contingent consideration obligations.
- Debt availability, covenant compliance and the pace of further share repurchases relative to acquisition and liquidity needs.