CBIZ(CBZ) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (Unaudited) This section presents CBIZ, Inc.'s unaudited condensed consolidated financial statements, highlighting year-over-year increases in total assets, net income, and earnings per share Consolidated Balance Sheets The balance sheet as of September 30, 2020, shows total assets increased to $1.425 billion from $1.401 billion, driven by goodwill and intangible assets, with stockholders' equity rising to $718.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,425,116 | $1,400,774 | | Total Current Assets | $425,891 | $456,020 | | Goodwill and other intangible assets, net | $695,562 | $654,671 | | Total Liabilities | $707,112 | $741,536 | | Total Current Liabilities | $298,056 | $365,926 | | Total Long-term Debt | $109,103 | $104,333 | | Total Stockholders' Equity | $718,004 | $659,238 | Consolidated Statements of Comprehensive Income For the nine months ended September 30, 2020, revenue increased by 1.0% to $752.8 million, with net income growing 9.1% to $78.4 million and diluted EPS rising to $1.41 Income Statement Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Revenue | $752,787 | $745,286 | | Gross Margin | $139,184 | $122,496 | | Operating Income | $106,196 | $88,580 | | Net Income | $78,393 | $71,867 | | Diluted EPS (Continuing Operations) | $1.41 | $1.29 | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $718.0 million by September 30, 2020, primarily due to $78.4 million in net income, partially offset by $34.8 million in share repurchases - Key changes in stockholders' equity for the nine months ended September 30, 2020 include: Net income of $78.4 million, share repurchases of $34.8 million, and stock-based compensation of $6.8 million[14] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $81.8 million for the nine months ended September 30, 2020, while $33.8 million was used for acquisitions and $34.1 million for share repurchases Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $81,796 | $49,414 | | Net cash used in investing activities | ($9,491) | ($24,691) | | Net cash used in financing activities | ($94,058) | ($56,473) | | Net decrease in cash | ($21,753) | ($31,750) | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, new standards, acquisitions, and legal contingencies, highlighting the adoption of the CECL model, five acquisitions, and significant ongoing legal proceedings - Effective January 1, 2020, the company adopted Topic 326 (CECL model), which did not have a material impact on the consolidated financial statements[24] - The company recorded bad debt expense of $2.2 million due to the COVID-19 pandemic during the nine months ended September 30, 2020[27] - During the first nine months of 2020, the company completed five acquisitions for an aggregate consideration of approximately $55.3 million, consisting of cash, common stock, and contingent consideration[49][51] - The company faces several significant legal proceedings, including claims by UPMC for damages between $124.0 million and $266.0 million, and by Zotec for damages up to $177.0 million[32] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial resilience in 2020, with nine-month revenue growing 1.0% to $752.8 million driven by acquisitions, while maintaining strong liquidity and strategic capital deployment - The recurring and essential nature of the majority of business services provided stability to financial results, with no material adverse impact from COVID-19 through Q3 2020[74] Nine-Month Revenue Performance by Segment (in thousands) | Segment | 2020 Revenue | 2019 Revenue | % Change | | :--- | :--- | :--- | :--- | | Financial Services | $498,359 | $493,311 | 1.0% | | Benefits and Insurance Services | $227,433 | $225,342 | 0.9% | | National Practices | $26,995 | $26,633 | 1.4% | | Total CBIZ | $752,787 | $745,286 | 1.0% | - For the nine months ended September 30, 2020, the company repurchased 1.4 million shares of common stock for approximately $34.8 million[85] - Days Sales Outstanding (DSO) was 87 days at September 30, 2020, an improvement from 94 days at the same time in 2019[136] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its floating-rate debt, managed through $95.0 million in interest rate swaps, with a 100 basis point rate change impacting annual interest expense by $0.2 million - The company's primary market risk is interest rate risk from its $110.0 million floating-rate debt outstanding under the 2018 credit facility[159] - A 100 basis point change in market interest rates would increase or decrease annual interest expense by approximately $0.2 million[159] - The company utilizes interest rate swaps to mitigate risk. As of September 30, 2020, four swaps were outstanding with a total notional value of $95.0 million[160][161] Item 4. Controls and Procedures Management concluded the company's disclosure controls were effective as of September 30, 2020, following the implementation of a new cloud-based accounting system, with no material COVID-19 impact on internal controls - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[166] - A new cloud-based accounting and financial reporting solution was implemented on July 1, 2020, with ongoing testing of related internal controls[167] - The company has not experienced any material impact to its internal controls over financial reporting due to the COVID-19 pandemic and the shift to remote work[167] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section details significant ongoing legal proceedings, including substantial claims from UPMC seeking up to $266 million and Zotec seeking up to $177 million, which the company intends to vigorously defend - Information regarding legal proceedings is incorporated by reference from Note 5, Commitments and Contingencies[170] - The company is a defendant in several lawsuits, including a case brought by UPMC seeking damages of $124.0 million to $266.0 million, and a case by Zotec seeking damages up to $177.0 million[32] Item 1A. Risk Factors The company identifies public health crises, particularly the COVID-19 pandemic, as a significant risk factor with potential adverse impacts on the global economy, client businesses, service demand, and financial results - The widespread outbreak of a communicable illness like COVID-19 is identified as a significant risk factor that could adversely affect the company's business, results of operations, and financial condition[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued 81,000 unregistered shares for acquisitions and repurchased 165,000 shares in Q3 2020, with 4.765 million shares remaining available under its repurchase program - During the nine months ended September 30, 2020, approximately 81,000 shares of common stock were issued as payment for contingent consideration for previous acquisitions in private transactions[173] Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2020 | — | — | | August 2020 | — | — | | September 2020 | 165,000 | $22.69 | | Total Q3 | 165,000 | $22.69 | - As of September 30, 2020, a maximum of 4.765 million shares may still be purchased under the company's share repurchase plan[177] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[178] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[179] Item 5. Other Information This item is not applicable to the company for the reporting period - Not applicable[179] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including a loan agreement amendment, CEO and CFO certifications, and interactive data files in XBRL format - Filed exhibits include the Second Amendment to the Loan Agreement with The Huntington National Bank[181] - CEO and CFO certifications required under Sarbanes-Oxley Sections 302 and 906 are included as exhibits[181][182] - Interactive Data Files (XBRL documents) are also filed as exhibits[183]