CBIZ, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing; quarterly data are noted below. CBIZ provides financial, insurance and advisory services through Financial Services, Benefits and Insurance Services, and National Practices.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $963.9 million | $948.4 million |
| Income from continuing operations | $78.3 million | $71.0 million |
| Net income | $78.3 million | $70.7 million |
| Diluted EPS from continuing operations | $1.42 | $1.27 |
| Adjusted EBITDA (non-GAAP) | $132.1 million | $120.6 million |
| Operating cash flow | $146.8 million | $98.2 million |
| Capital expenditures | $11.6 million | $13.9 million |
| Debt outstanding at year-end | $108.0 million | $105.5 million |
Revenue increased 1.6%. Gross margin was 14.4% of revenue versus 13.2% in 2019; operating margin was 9.6% versus 8.5%. The effective tax rate rose to 24.3% from 23.5%. Operating cash flow included approximately $35.0 million from working-capital movements; the year-over-year cash-flow increase included a $16.3 million benefit from deferred payroll tax deposits and payments. Year-end cash and cash equivalents were $4.7 million, alongside $24.0 million of restricted cash and $167.4 million of funds held for clients; client funds are not equivalent to unrestricted corporate cash.
The $400 million unsecured credit facility matures in 2023. CBIZ reported $286.4 million of available capacity at year-end, was in compliance with its financial covenants, and said operating cash flow and available facility funds should cover cash requirements for the next 12 months. The weighted-average borrowing rate was 2.45%. The company uses interest-rate swaps; $13.0 million of debt was exposed to rate risk, with a 100-basis-point rate move estimated to change annual interest expense by approximately $0.1 million.
Material changes and operating context
- Same-unit revenue declined $3.5 million, or 0.4%; acquisitions net of divestitures added $18.9 million. CBIZ completed seven business acquisitions and purchased four client lists in 2020.
- Financial Services revenue grew 2.1% to $629.8 million, including 0.8% same-unit growth. Benefits and Insurance Services revenue rose 0.5% to $297.8 million, while same-unit revenue fell 3.0%, reflecting COVID-19-related pressure on payroll, property and casualty, and retirement-plan services. National Practices revenue was $36.4 million.
- Lower travel and discretionary spending during the pandemic partly offset higher personnel costs. Operating expenses were 85.6% of revenue, down from 86.8%.
- Operating cash flow increased materially, while investing outflows rose to $46.4 million, mainly reflecting $71.4 million of acquisition spending partly offset by client-fund investment proceeds. Financing outflows were $76.6 million, including share repurchases and acquisition earnout payments.
- CBIZ repurchased 2.3 million shares for $57.6 million under its program in 2020. The balance sheet reported 54.1 million shares outstanding at year-end.
Fourth-quarter context: Revenue was $211.1 million and net loss was $0.1 million, compared with revenue of $203.1 million and net loss of $1.2 million in fourth-quarter 2019. Management notes that tax and accounting services are seasonal and that most annual EPS is generally earned in the first half.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided. Management identified 2021 cash needs including acquisitions, seasonal working capital, interest, earnouts, repurchases and capital expenditures, and expected available resources to be sufficient for the next 12 months.
- COVID-19 created uncertainty around client demand, employment, collections and operating conditions. Management reported maintaining operations with minimal client disruption, but the duration and effects of the pandemic remained uncertain.
- Three disclosed lawsuits had potentially large claimed damages: UPMC sought $124 million to $266 million plus punitive damages, with trial set for June 2021; Zotec sought up to $177 million, with trial set for August 2021; and the remaining Baldino Group claims alleged approximately $16 million in damages. CBIZ said outcomes and possible losses could not be estimated and that it intended to defend the cases. No material loss estimate is provided in the filing excerpt.
- Goodwill was $683.1 million and net goodwill and intangible assets were $756.8 million. No goodwill impairment was recognized in the 2020 annual assessment; a future impairment could materially reduce earnings.
- Contingent acquisition consideration, receivables collectability, cyber and data-security incidents, talent retention, and regulatory or professional-independence requirements are additional risks. The allowance for doubtful accounts was $14.9 million; receivable-loss estimation was identified as a critical audit matter.
- Reported other income included a $15.4 million gain on deferred-compensation-plan investments, offset by corresponding compensation expense; the filing says this plan activity did not affect pretax income or diluted EPS. CBIZ also recorded a $0.5 million net loss on 2020 divestitures.
Key facts for investors to verify
- Whether same-unit revenue and Benefits and Insurance Services performance recover from pandemic-related weakness, apart from acquisition contributions.
- Cash conversion and working-capital sustainability, including the effect of deferred payroll taxes and the distinction between corporate cash and client funds.
- Integration, returns and earnout obligations from 2020 acquisitions; the filing estimated $45.2 million of annualized revenue from the seven acquired businesses.
- Developments and potential financial exposure in the UPMC, Zotec and Baldino Group litigation.
- Receivable collections, goodwill valuation, and the effect of interest-rate and LIBOR-transition risks on borrowing costs.
KPMG issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.