CBIZ, INC. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to "we", "us", "our", "CBIZ" or the "Company" shall meanCBIZ, Inc. , aDelaware corporation, and its operating subsidiaries. The following discussion is intended to assist in the understanding of our financial position atMarch 31, 2021 andDecember 31, 2020 , results of operations for the three months endedMarch 31, 2021 and 2020, and cash flows for the three months endedMarch 31, 2021 and 2020, and should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year endedDecember 31, 2020 . This discussion and analysis contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in "Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q and in "Item 1A. Risk Factors" included in the Annual Report on Form 10-K for the year endedDecember 31, 2020 . OVERVIEW We provide professional business services, products and solutions that help our clients grow and succeed by better managing their finances and employees. These services are provided to businesses of various sizes, as well as individuals, governmental entities and not-for-profit enterprises throughoutthe United States and parts ofCanada . We deliver integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 12. Segment Disclosures, to the accompanying condensed consolidated financial statements for a general description of services provided by each practice group. Refer to the Annual Report on Form 10-K for the year endedDecember 31, 2020 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations. EXECUTIVE SUMMARY Revenue for the three months endedMarch 31, 2021 increased by$23.2 million , or 8.4%, to$300.7 million from$277.5 million for the same period in 2020. Same-unit revenue increased by approximately$10.0 million , or 3.6%. Revenue from newly acquired operations, net of divestitures, contributed$13.3 million , or 4.8%, of incremental revenue for the three months endedMarch 31, 2021 as compared to the same period in 2020. Income from continuing operations was$50.2 million , or$0.92 per diluted share, in the first quarter of 2021, compared to$36.9 million , or$0.66 per diluted share, in the first quarter of 2020. Refer to "Results of Operations - Continuing Operations" for a detailed discussion of the components of income from continuing operations. Strategic Use of Capital Our first priority for use of capital is to make strategic acquisition. We also have the financing flexibility and the capacity to actively repurchase shares of our common stock. We believe that repurchasing shares of our common stock can be a prudent use of our financial resources, and that investing in our stock is an attractive use of capital and an efficient means to provide value to our stockholders. We have completed one acquisition for approximately$3.5 million and repurchased 1.2 million shares of our common stock at a total cost of approximately$34.1 million in the three months endedMarch 31, 2021 . Refer to Note 11. Business Combinations, to the accompanying condensed consolidated financial statements for further discussion on acquisitions. During the first quarter of 2021, the CBIZ Board of Directors authorized the purchase of up to 5.0 million shares of our common stock under our Share Repurchase Program (the "Share Repurchase Program"), which may be suspended or discontinued at any time and expires onApril 1, 2022 . The shares may be purchased in the open market, in privately negotiated transactions, or pursuant to Rule 10b5-1 trading plans, which may include purchases from our employees, officers and directors, in accordance with theSecurities and Exchange Commission (the "SEC") rules. CBIZ management will determine the timing and amount of the transactions based on its evaluation of market conditions and other factors. RESULTS OF OPERATIONS - CONTINUING OPERATIONS Revenue 19 --------------------------------------------------------------------------------
The following tables summarize total revenue for the three months ended
Three Months Ended March 31,
% of % of $ %
2021 Total 2020 Total Change Change
Financial Services $ 204,149 67.9 % $ 188,777 68.0 % $ 15,372 8.1 %
Benefits and Insurance Services 87,239 29.0 % 79,612 28.7 % 7,627 9.6 %
National Practices 9,342 3.1 % 9,066 3.3 % 276 3.0 %
Total CBIZ $ 300,730 100.0 % $ 277,455 100.0 % $ 23,275 8.4 %
A detailed discussion of same-unit revenue by practice group is included under
"Operating Practice Groups."
Non-qualified Deferred Compensation Plan
We sponsor a non-qualified deferred compensation plan, under which a CBIZ
employee's compensation deferral is held in a rabbi trust and invested
accordingly as directed by the employee. Income and expenses related to the
non-qualified deferred compensation plan are included in "Operating expenses",
"Gross margin" and "Corporate general and administrative expenses" and are
directly offset by deferred compensation gains or losses in "Other income,
(expense) net" in the accompanying Condensed Consolidated Statements of
Comprehensive Income. The non-qualified deferred compensation plan has no impact
on "Income from continuing operations before income tax expense" or diluted
earnings per share from continuing operations.
Operating Expenses
Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Operating expenses $ 223,971 $ 199,827 $ 24,144 12.1 %
Operating expenses % of revenue 74.5 % 72.0 %
Operating expenses excluding deferred
compensation $ 219,355 $ 214,627 $ 4,728 2.2 %
Operating expenses excluding deferred
compensation % of revenue 72.9 % 77.4 % Deferred compensation plan increased operating expenses by$4.6 million in the first quarter of 2021, but decreased operating expenses by$14.8 million during the same period in 2020. Excluding the non-qualified deferred compensation expenses, operating expenses would have been$219.4 million and$214.6 million , or 72.9% and 77.4%% of revenue, for the first quarter of 2021 and 2020, respectively. The majority of our operating expenses relate to personnel costs, which includes (i) salaries and benefits, (ii) commissions paid to producers, (iii) incentive compensation, and (iv) stock-based compensation. Excluding the impact of deferred compensation, operating expense increased during the first quarter of 2021 as compared to the same period in 2020, primarily driven by$13.6 million higher personnel costs, offset by lower travel and entertainment costs of approximately$5.5 million , bad debt expense of approximately$2.2 million , as well as$1.2 million lower other discretionary spending. Personnel costs are discussed in further detail under "Operating Practice Groups". Corporate General & Administrative ("G&A") Expenses 20 --------------------------------------------------------------------------------
Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
G&A expenses $ 14,483 $ 10,489 $ 3,994 38.1 %
G&A expenses % of revenue 4.8 % 3.8 %
G&A expenses excluding deferred
compensation $ 13,987 $ 12,293 $ 1,694 13.8 %
G&A expenses excluding deferred
compensation % of revenue 4.7 % 4.4 %
The deferred compensation plan increased G&A expenses by $0.5 million in the
first quarter of 2021, but decreased G&A expenses by $1.8 million during the
same period in 2020. G&A expenses, excluding the impact of the deferred
compensation plan, would have been $14.0 million , or 4.7% of revenue, for the
first quarter of 2021, compared to $12.3 million , or 4.4% of revenue, for the
first quarter of 2020. The increase in our G&A expenses excluding deferred
compensation is primarily due to higher personnel costs of $1.2 million and $0.5
million higher other costs to support business growth.
Other Income (Expense), Net
Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Interest expense $ (877) $ (1,119) $ 242 (21.6) %
Gain on sale of operations, net - 95 (95) (100.0) %
Other income (expense), net (1) 4,789 (15,800)
20,589 (130.3) %
Total other income, net $ 3,912 $ (16,824) $ 20,736 (123.3) %
(1) Other income (expense), net includes a net gain of $5.1 million in the first
quarter of 2021, compared to a net loss of $16.6 million for the same period in
2020, associated with the value of investments held in a rabbi trust related to
the deferred compensation plan. The adjustments to the investments held in a
rabbi trust related to the deferred compensation plan are offset by a
corresponding increase or decrease to compensation expense, which is recorded as
"Operating expenses" and "G&A expenses." The deferred compensation plan has no
impact on "Income from continuing operations before income tax expense" or
diluted earnings per share from continuing operations.
Interest Expense - Our primary financing arrangement is the 2018 credit
facility. Our average debt balance and interest rate was $128.2 million and
2.10% at March 31, 2021 , compared to $145.2 million and 2.50% for the same
period of 2020.
Gain on Sale of Operations, Net - We sold a small book of business in the
Benefits and Insurance practice group during the first quarter of 2021 and 2020,
respectively. Net gain from the sale of the book of business was not material.
Other Income (expense), Net - For the first quarter of 2021, other income
(expense), net includes a net gain of $5.1 million associated with the
non-qualified deferred compensation plan and a $0.7 million net increase to the
fair value of our contingent purchase price liability related to prior
acquisitions. For the same period in 2020, other income (expense), net includes
a net loss of $16.6 million associated with the non-qualified deferred
compensation plan and a $0.7 million net decrease to the fair value of our
contingent purchase price liability related to prior acquisitions.
Income Tax Expense
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Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Income tax expense $ 15,972 $ 13,453 $ 2,519 18.7 %
Effective tax rate 24.1 % 26.7 %
The effective tax rate for the first quarter of 2021 was 24.1%, compared to an effective tax rate of 26.7% for the comparable period in 2020.
Operating Practice Groups
We deliver our integrated services through three practice groups: Financial
Services, Benefits and Insurance Services, and National Practices. A description
of these groups' operating results and factors affecting their businesses is
provided below.
Same-unit revenue represents total revenue adjusted to reflect comparable
periods of activity for acquisitions and divestitures. Divested operations
represent operations that did not meet the criteria for treatment as
discontinued operations.
Financial Services
Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 195,999 $ 187,520 $ 8,479 4.5 %
Acquired businesses 8,150 - 8,150
Divested operations - 1,257 (1,257)
Total revenue $ 204,149 $ 188,777 $ 15,372 8.1 %
Operating expenses 141,746 138,598 3,148 2.3 %
Gross margin $ 62,403 $ 50,179 $ 12,224 24.4 %
Gross margin percent 30.6 % 26.6 %
Three months ended March 31, 2021 compared to March 31, 2020 - The Financial
Services practice group revenue for the three months ended March 31, 2021 grew
by 8.1% to $204.1 million from $188.8 million during the same period in 2020.
Same-unit revenue grew by $8.5 million , or 4.5%, primarily driven by those units
that provide traditional accounting and tax-related services, which increased
$7.9 million , as well as moderate growth of $1.4 million in government
healthcare compliance business, offset by approximately $0.8 million decrease in
project-oriented and other businesses. The impact of acquired businesses, net of
divestitures, contributed $6.9 million , or 3.4% of 2021 revenue.
We provide a range of services to affiliated CPA firms under joint referral and
administrative service agreements ("ASAs"). Fees earned under the ASAs are
recorded as revenue and were approximately $54.9 million and $52.7 million for
the three months ended March 31, 2021 and 2020, respectively.
Operating expenses increased by $3.1 million , or 2.3%, as compared to the same
period last year. The increase in operating expense was primarily attributed to
higher personnel costs of $10.3 million , or 9.2%, with acquisitions contributing
approximately $4.2 million to the increase in personnel costs. The increase in
personnel costs was offset by $4.0 million lower travel and discretionary
spending and $2.3 million lower bad debt expense. In the first quarter of 2020,
due to the COVID-19 pandemic, we recorded bad debt expense of $2.0 million ,
which did not recur in 2021. Operating expense as a percentage of revenue
decreased to 69.4% for the quarter ended March 31, 2021 from 73.4% of revenue
for the prior year quarter.
Benefits and Insurance Services
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Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 80,676 $ 79,433 $ 1,243 1.6 %
Acquired businesses 6,563 - 6,563
Divested operations - 179 (179)
Total revenue $ 87,239 $ 79,612 $ 7,627 9.6 %
Operating expenses 66,933 65,223 1,710 2.6 %
Gross margin $ 20,306 $ 14,389 $ 5,917 41.1 %
Gross margin percent 23.3 % 18.1 %
Three months ended March 31, 2021 compared to March 31, 2020 - The Benefits and
Insurance Services practice group revenue increased by $7.6 million , or 9.6%, to
$87.2 million during the three months ended March 31, 2021 compared to $79.6
million for the same period in 2020, primarily driven by acquired businesses,
net of divestitures, which contributed $6.4 million in incremental revenue for
the three months ended March 31, 2021 . Same-unit revenue increased by $1.2
million , or 1.6% when compared to the same period in 2020.
Operating expenses increased by $1.7 million , or 2.6%, when compared to the same
period last year. The increase in operating expense was mostly attributable to
higher personnel costs of $2.9 million , or 5.8%, primarily related to acquired
businesses. The increase in personnel costs was offset by lower travel and
discretionary spending of approximately $1.4 million . Operating expense as a
percentage of revenue decreased to 76.7% for the quarter ended March 31, 2021
from 81.9% of revenue for the same period in 2020.
National Practices
Three Months Ended March 31,
$ %
2021 2020 Change Change
(In thousands, except percentages)
Same-unit revenue $ 9,342 $ 9,066 $ 276 3.0 %
Operating expenses 8,541 8,283 258 3.1 %
Gross margin $ 801 $ 783 $ 18 2.3 %
Gross margin percent 8.6 % 8.6 %
Three months ended March 31, 2021 compared to March 31, 2020 - The National
Practices group is primarily driven by a cost-plus contract with a single
client, which has existed since 1999. The cost-plus contract is a five-year
contract with the most recent renewal through December 31, 2023 . Revenues from
this single client accounted for approximately 75% of the National Practice
group's revenue.
LIQUIDITY
Our principal sources of liquidity are cash generated from operating activities
and financing activities. Our cash flows from operating activities are driven
primarily by our operating results and changes in our working capital
requirements while our cash flows from financing activities are dependent upon
our ability to access credit or other capital. We historically maintain low cash
levels and apply any available cash to pay down the outstanding debt balance.
We historically experience a use of cash to fund working capital requirements
during the first quarter of each fiscal year. This is primarily due to the
seasonal accounting and tax services period under the Financial Services
practice group. Upon completion of the seasonal accounting and tax services
period, cash provided by operations during the remaining three quarters of the
fiscal year substantially exceeds the use of cash in the first quarter of the
fiscal year.
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Accounts receivable balances increase in response to the first quarter revenue
generated by the Financial Services practice group. A significant amount of this
revenue is billed and collected in subsequent quarters. Days sales outstanding
("DSO") from continuing operations represent accounts receivable and unbilled
revenue (net of realization adjustments) at the end of the period, divided by
trailing twelve months daily revenue. We provide DSO data because such data is
commonly used as a performance measure by analysts and investors and as a
measure of our ability to collect on receivables in a timely manner. DSO was 91
days and 94 days at March 31, 2021 and 2020, respectively. DSO at December 31,
2020 was 72 days.
The following table presents selected cash flow information (in thousands). For
additional details, refer to the accompanying Condensed Consolidated Statements
of Cash Flows.
Three Months Ended March 31,
2021 2020
Net cash used in operating activities $ (14,827) $ (18,647)
Net cash provided by investing activities 229 4,355
Net cash (used in) provided by financing activities (2,960) 207,772
Net (decrease) increase in cash, cash equivalents and
restricted cash $ (17,558) $ 193,480
Operating Activities- Cash used in operating activities was $14.8 million during
the three months ended March 31, 2021 and primarily consisted of working capital
use of $76.1 million , which was offset by net income of $50.2 million and
certain non-cash items, such as depreciation and amortization expense of $6.3
million , deferred income tax of $3.3 million , and stock-based compensation
expense of $2.9 million . Cash used in operating activities was $18.6 million
during the three months ended March 31, 2020 . Changes in assets and liabilities,
net of acquisition and divestitures contributed $64.5 million use of cash,
offset by net income of $36.8 million and certain non-cash items, such as
depreciation and amortization expense of $5.7 million .
Investing Activities - Cash provided by investing activities for the three
months ended March 31, 2021 was $0.2 million and consisted primarily of proceeds
from sales and maturities of client fund investments of $3.1 million , offset by
$2.0 million cash used for business acquisitions and $1.1 million in capital
expenditures. Cash provided by investing activities for the three months ended
March 31, 2020 consisted primarily of proceeds from the sales and maturities of
client fund investments of $17.1 million and a net increase in funds held for
clients of $0.8 million . This was offset by net cash used in investing
activities for business acquisitions of $7.8 million , purchases of client fund
investments of $3.4 million and capital expenditures of $2.6 million .
The balances in funds held for clients and client fund obligations can fluctuate
with the timing of cash receipts and the related cash payments. The nature of
these accounts is further described in Note 1. Organization and Summary of
Significant Accounting Policies, to the consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2020 .
Financing Activities - Cash used in financing activities for the three months
ended March 31, 2021 was $3.0 million and primarily consisted of $33.1 million
in share repurchases, $26.5 million net decrease in client fund obligations, and
$1.7 million in contingent consideration payments related to prior acquisitions.
The use of cash was partially offset by $54.0 million in net proceeds from
additional borrowings under our 2018 credit facility and $4.4 million proceeds
from exercise of stock options during the quarter. Cash provided by financing
activities for the three months ended March 31, 2020 consisted of $277.5 million
in net proceeds from the 2018 credit facility, partially offset by a decrease in
client fund obligations of $38.5 million and $29.5 million in share repurchases.
CAPITAL RESOURCES
Credit Facility - At March 31, 2021 , we had $162.0 million outstanding under the
2018 credit facility as well as letters of credit and performance guarantees
totaling $5.3 million . Available funds under the 2018 credit facility, based on
the terms of the commitment, were approximately $228.7 million at March 31,
2021 . The weighted average interest rate under the 2018 credit facility was
2.10% in the first quarter of 2021, compared to 2.50% for the same period in
2020. The 2018 credit facility allows for the allocation of funds for future
strategic initiatives,
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including acquisitions and the repurchase of our common stock, subject to the
terms and conditions of the 2018 credit facility.
Debt Covenant Compliance - We are required to meet certain financial covenants
with respect to (i) total leverage ratio and (ii) a minimum fixed charge
coverage ratio. We are in compliance with our covenants as of March 31, 2021 .
Our ability to service our debt and to fund future strategic initiatives will
depend upon our ability to generate cash in the future. For further discussion
regarding our 2018 credit facility and debt, refer to Note 4. Debt and Financing
Arrangements, to the accompanying condensed consolidated financial statements.
Use of Capital - Our first priority for use of capital is to make strategic
acquisitions. We also have the financing flexibility and the capacity to
actively repurchase shares of our common stock. We believe that repurchasing
shares of our common stock can be a prudent use of our financial resources, and
that investing in our stock is an attractive use of capital and an efficient
means to provide value to our stockholders. We have completed one acquisition
for approximately $3.5 million and repurchased 1.2 million shares of our common
stock at a total cost of approximately $34.1 million in the three months ended
March 31, 2021 . Refer to Note 11. Business Combinations, to the accompanying
condensed consolidated financial statements for further discussion on
acquisitions.
OFF-BALANCE SHEET ARRANGEMENTS
We maintain administrative service agreements with independent CPA firms (as
described more fully under "Business - Financial Services" and in Note 1. Basis
of Presentation and Significant Accounting Policies, to the consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2020 ), which qualify as variable interest entities. The
accompanying condensed consolidated financial statements do not reflect the
operations or accounts of variable interest entities as the impact is not
material to the financial condition, results of operations, or cash flows of
CBIZ.
We provide letters of credit to landlords (lessors) of our leased premises in
lieu of cash security deposits, which totaled $3.0 million and $1.7 million at
March 31, 2021 and December 31, 2020 , respectively. In addition, we provide
license bonds to various state agencies to meet certain licensing requirements.
The amount of license bonds outstanding was $2.3 million and $2.2 million at
March 31, 2021 and December 31, 2020 , respectively.
We have various agreements under which it may be obligated to indemnify the
other party with respect to certain matters. Generally, these indemnification
clauses are included in contracts arising in the normal course of business under
which we customarily agree to hold the other party harmless against losses
arising from a breach of representations, warranties, covenants or agreements,
related to matters such as title to assets sold and certain tax matters. Payment
by us under such indemnification clauses is generally conditioned upon the other
party making a claim. Such claims are typically subject to challenge by us and
to dispute resolution procedures specified in the particular contract. Further,
our obligations under these agreements may be limited in terms of time and/or
amount and, in some instances, we may have recourse against third parties for
certain payments made by us. It is not possible to predict the maximum potential
amount of future payments under these indemnification agreements due to the
conditional nature of our obligations and the unique facts of each particular
agreement. Historically, we have not made any payments under these agreements
that have been material individually or in the aggregate. As of March 31, 2021 ,
we are not aware of any material obligations arising under indemnification
agreements that would require payment.
CRITICAL ACCOUNTING POLICIES
The SEC defines critical accounting policies as those that are most important to
the portrayal of a company's financial condition and results and that require
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Our discussion and analysis of our results of operations, financial condition
and liquidity are based upon our condensed consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us to make
estimates and judgments that affect the amounts of assets and liabilities,
revenues and expenses and disclosure of contingent assets and liabilities as of
the date of the financial statements. As more information becomes known, these
estimates and assumptions could change, which would have an impact on actual
results that may differ materially from these estimates and judgments under
different assumptions. We have not made any changes in estimates or
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judgments that have had a significant effect on the reported amounts as
previously disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020 .
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 2. New Accounting Pronouncements, to the accompanying condensed
consolidated financial statements for a discussion of recently issued accounting
pronouncements.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this Quarterly Report, including without limitation,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and plans and
objectives for future performance are forward-looking statements. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements are commonly identified
by the use of such terms and phrases as "intends", "believes", "estimates",
"expects", "projects", "anticipates", "foreseeable future", "seeks", and words
or phrases of similar import in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to future actions, future performance or results of current and
anticipated services, sales efforts, expenses, and financial results. From time
to time, we also may provide oral or written forward-looking statements in other
materials we release to the public. Any or all of our forward-looking statements
in this Quarterly Report on Form 10-Q and in any other public statements that we
make, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, but are not limited to, the impact of COVID-19 on the Company's
business and operations and those of our clients; the Company's ability to
adequately manage and sustain its growth; the Company's dependence on the
current trend of outsourcing business services; the Company's dependence on the
services of its CEO and other key employees; competitive pricing pressures;
general business and economic conditions; and changes in governmental regulation
and tax laws affecting the Company's insurance business or its business service
operations. Such forward-looking statements can be affected by inaccurate
assumptions we might make or by known or unknown risks and uncertainties. Should
one or more of these risks or assumptions materialize, or should the underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
Consequently, no forward-looking statement can be guaranteed. A more detailed
description of risk factors may be found in "Item 1A. Risk Factors" of our
Annual Report on Form 10-K for the year ended December 31, 2020 . Except as
required by the federal securities laws, we undertake no obligation to publicly
update forward-looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our filings with the SEC , such as
quarterly, periodic and annual reports.
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