CBIZ, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. This 10-K reports annual results; it does not provide a clear standalone fourth-quarter income statement or cash flow summary.
Business context
CBIZ provides accounting, tax, benefits, insurance, payroll, technology, healthcare consulting and advisory services. It reported through Financial Services, Benefits and Insurance Services, and National Practices. The company had more than 6,700 professionals and over 120 offices in 33 states and the District of Columbia. Its growth strategy combines organic growth, cross-selling and acquisitions.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1,591.2 million | $1,412.0 million |
| Net income | $121.0 million | $105.4 million |
| Diluted EPS | $2.39 | $2.01 |
| Operating income | $165.2 million | $168.3 million |
| Net cash from operating activities | $153.5 million | $126.1 million |
| Capital expenditures | $23.1 million | $8.6 million |
| Bank debt at year-end | $312.4 million | $265.7 million |
| Stockholders’ equity at year-end | $791.6 million | $713.5 million |
Revenue increased 12.7%; management attributed $104.0 million, or 7.4%, to same-unit growth and $75.2 million, or 5.3%, to acquisitions net of divestitures. Net income rose 14.8%, while diluted EPS increased from $2.01 to $2.39. GAAP operating margin was approximately 10.4%, down from 11.9%; net margin was approximately 7.6%, versus 7.5%. The company’s presentation excluding non-qualified deferred compensation plan effects showed adjusted operating income of $184.7 million versus $148.7 million and adjusted operating margin of 11.6% versus 10.5%; these are company-adjusted, non-GAAP figures.
Financial Services revenue grew 14.9% to $1,160.7 million, including 7.6% same-unit growth. Benefits and Insurance Services grew 6.9% to $382.6 million, including 6.5% same-unit growth. National Practices grew 9.1% to $47.9 million; roughly 75% of that group’s revenue came from one client.
Liquidity, debt and capital allocation
Cash, cash equivalents and restricted cash totaled $38.5 million at year-end; this excludes cash equivalents reported within funds held for clients. The company reported $159.2 million of funds held for clients and $159.9 million of related client fund obligations. Its $600 million unsecured credit facility matures in 2027; $312.4 million was outstanding and approximately $272.0 million was available at December 31, 2023. CBIZ reported compliance with its financial covenants. Interest expense rose to $20.1 million from $8.0 million as average debt and borrowing rates increased. A 100-basis-point rate change was estimated to affect annual interest expense by approximately $1.6 million.
Operating cash flow increased to $153.5 million. Cash used in investing was $79.4 million, principally for acquisitions and capital expenditures; cash used in financing was $77.1 million, including share repurchases and contingent acquisition payments. Year-end DSO increased to 78 days from 74 days. CBIZ repurchased 1.3 million shares for approximately $65.1 million in 2023 and announced a new authorization for up to 5.0 million shares in February 2024.
Changes, outlook and notable items
- CBIZ completed five acquisitions in 2023, which contributed approximately $64.9 million of incremental revenue. It paid $53.1 million in acquisition cash and recorded $32.1 million of contingent consideration for 2023 acquisitions; cash payments for contingent consideration on prior acquisitions were approximately $45.0 million.
- Operating expenses excluding deferred compensation effects were 84.9% of revenue, compared with 85.4% in 2022. Higher personnel, travel, technology and other growth-related costs were partly offset by lower corporate G&A excluding deferred compensation effects.
- Interest expense more than doubled, and the effective tax rate rose to 27.3% from 25.5%. The filing attributes the tax-rate increase primarily to higher nondeductible expense and the tax effects of stock-based compensation.
- Deferred compensation investments and matching compensation costs created substantial year-over-year swings in reported operating expenses and other income, but CBIZ states these effects do not change income before tax or diluted EPS.
- No specific quantitative FY2024 revenue, earnings or cash-flow guidance is provided. Management said operating cash flows and available credit were expected to cover cash requirements for the next 12 months and beyond. A February 2024 acquisition, Erickson, Brown & Kloster, was estimated to have $8.9 million of annualized revenue.
- Seasonality is significant: tax and accounting activity is heavier in the first four months, and the company says most annual EPS is earned in the first half. Key risks include talent retention, acquisition integration and financing, receivable collection, interest rates, goodwill impairment, regulatory change, and cyber and data-security incidents.
- CBIZ disclosed two putative class actions related to the May 2023 MOVEit Transfer cyber incident. The cases were consolidated in multidistrict litigation; given the early stage, the company could not estimate the outcome or potential losses. A separate Zotec matter included a hearing on CBIZ’s contractual indemnification counterclaim; the filing does not state a final damages amount.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded internal control over financial reporting was effective, while excluding the five 2023 acquisitions from its assessment.
Important facts for investors to verify
- Whether same-unit growth and acquisition contributions persist, and how acquired businesses perform after integration.
- Whether higher DSO and the $25.6 million allowance for doubtful accounts signal any deterioration in collections or credit quality.
- How debt levels, interest rates and credit-facility covenants may affect acquisition capacity, repurchases and future cash generation.
- The potential costs or business effects of the MOVEit litigation and any further cybersecurity incidents.
- How much reported profitability is affected by deferred compensation plan fluctuations, acquisition costs and contingent consideration remeasurement.
- Whether the National Practices group’s concentration in one client creates material revenue risk.