CBIZ(CBZ) - 2022 Q4 - Annual Report

Part I Item 1. Business CBIZ provides financial, insurance, and advisory services through three practice groups, focusing on organic growth, cross-serving, and acquisitions - CBIZ operates through three main practice groups: Financial Services, Benefits and Insurance Services, and National Practices[18] Revenue by Practice Group (in thousands) | Practice Group | 2022 Revenue | % of Total | 2021 Revenue | % of Total | 2020 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Financial Services | $1,010,068 | 71.5% | $734,026 | 66.4% | $629,778 | 65.3% | | Benefits and Insurance Services | $358,007 | 25.4% | $332,323 | 30.1% | $297,758 | 30.9% | | National Practices | $43,904 | 3.1% | $38,576 | 3.5% | $36,361 | 3.8% | | Total CBIZ Revenue | $1,411,979 | 100.0% | $1,104,925 | 100.0% | $963,897 | 100.0% | - The company's growth model is based on three key components: internal organic growth, cross-serving additional services to existing clients, and strategic acquisitions[32][33][37][38] - CBIZ maintains Administrative Service Agreements (ASAs) with independent CPA firms, such as Mayer Hoffman McCann, P.C., to provide administrative support for attest services[27][28] - The company serves a diverse base of over 100,000 clients, including 60,000 business clients and 40,000 individual clients[39] - The company is subject to extensive regulation, including rules from the SEC, Sarbanes-Oxley Act, HIPAA, and various state accountancy and insurance laws[520][521][522][523] Item 1A. Risk Factors The company faces risks from dependence on key personnel, potential goodwill impairment, acquisition integration, cybersecurity, and regulatory changes - The company is dependent on its executive officers and key employees, and the inability to retain them could materially harm the business[542] - Goodwill and other intangible assets totaled $819.9 million and $131.8 million, respectively, at year-end 2022[545] - The success of the company's acquisition strategy depends on its ability to successfully integrate acquired businesses[552] - Cyber-attacks or security breaches could adversely affect the business, with potential for loss of business, litigation, and regulatory penalties[553] - Changes in healthcare legislation could adversely affect revenue and margins in the employee benefits business[552] - The company faces competition from a variety of national, regional, and local professional services firms[555] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[567] Item 2. Properties The company's corporate headquarters and over 120 offices are located in leased premises across 33 states and the District of Columbia - The company's corporate headquarters and over 120 offices are in leased premises[568] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 11 of the consolidated financial statements - Details on legal proceedings are provided in Note 11 to the consolidated financial statements[569] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[570] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, with no history of cash dividends, and the company actively repurchased shares in Q4 2022 - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "CBZ"[50] - CBIZ has historically not paid cash dividends on its common stock, and its credit facility contains restrictions on dividend payments[51] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Total Shares Purchased as Part of Plan (thousands) | Max Shares Remaining Under Plan (thousands) | | :--- | :--- | :--- | :--- | :--- | | Oct 1 – Oct 31, 2022 | 451 | $45.91 | 451 | 3,046 | | Nov 1 – Nov 30, 2022 | 434 | $48.40 | 434 | 2,612 | | Dec 1 – Dec 31, 2022 | 265 | $49.31 | 265 | 2,347 | | Total Q4 2022 | 1,150 | $47.63 | 1,150 | 2,347 | Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2022 saw significant growth in revenue and income, driven by acquisitions and organic performance, with strong operating cash flow Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from its floating-rate debt, which it mitigates using interest rate swap agreements - A 100 basis point (1%) change in interest rates would increase or decrease annual interest expense by approximately $1.5 million[156] - The company uses interest rate swaps to manage exposure, with four swaps outstanding with a total notional value of $115.0 million[126][155] Item 8. Financial Statements and Supplementary Data This section incorporates by reference the Financial Statements, notes, auditor's report, and Supplementary Data included under Item 15(a) - The financial statements and supplementary data are included in Item 15(a) of the report[128] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[130] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective, excluding two recent acquisitions - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[132] - Management concluded that internal control over financial reporting was effective as of December 31, 2022[160] - The assessment of internal controls excluded the 2022 acquisitions of Marks Paneth LLP and Stinnett & Associates, LLC[81][133] Item 9B. Other Information The company reports no other information for this item - None reported[162] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[183] Part III Item 10. Directors, Executive Officers and Corporate Governance This section provides information on the company's leadership and governance, with further details incorporated from the 2023 Proxy Statement - Jerome P. Grisko, Jr. serves as President & Chief Executive Officer and a Director[166][185] - Ware H. Grove serves as Senior Vice President and Chief Financial Officer[185][191] - Rick L. Burdick serves as the independent Chairman of the Board[185] - The company has adopted a Code of Professional Conduct and Ethics Guide applicable to its principal officers[164] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[227][236] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[228] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[231] Item 14. Principal Accounting Fees and Services Information on fees for the independent auditor, KPMG LLP, is incorporated by reference from the company's 2023 Definitive Proxy Statement - The company's independent auditor is KPMG LLP, with further information incorporated by reference from the 2023 Proxy Statement[232] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the report, including required CEO and CFO certifications - This section contains the Index to Financial Statements and a list of all exhibits filed with the Form 10-K[195][234] Financial Statements and Supplementary Data The audited consolidated financial statements for the three years ended December 31, 2022, show significant growth in assets, liabilities, and net income Report of Independent Registered Public Accounting Firm KPMG LLP issued unqualified opinions on the financial statements and the effectiveness of internal controls over financial reporting - KPMG LLP provided an unqualified audit opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[182] - The audit of internal control over financial reporting excluded an evaluation of the internal controls of the recently acquired Marks Paneth LLP and Stinnett & Associates, LLC[81] Consolidated Financial Statements The financial statements show significant year-over-year growth in revenue and net income, with corresponding increases in assets and liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $568,426 | $451,674 | | Goodwill and other intangible assets, net | $951,702 | $840,783 | | Total assets | $1,879,124 | $1,627,934 | | Total current liabilities | $512,407 | $423,289 | | Total long-term debt | $263,654 | $154,851 | | Total liabilities | $1,165,672 | $923,386 | | Total stockholders' equity | $713,452 | $704,548 | Consolidated Statement of Comprehensive Income Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $1,411,979 | $1,104,925 | $963,897 | | Operating income | $168,344 | $72,672 | $92,480 | | Income from continuing operations | $105,372 | $70,911 | $78,347 | | Net income | $105,354 | $70,887 | $78,299 | | Diluted EPS (Net income) | $2.01 | $1.32 | $1.41 | Notes to Consolidated Financial Statements The notes detail accounting policies, acquisitions, debt facilities, segment performance, and the company's share repurchase programs - Fees earned under Administrative Service Agreements (ASAs) with CPA firms were approximately $235.4 million in 2022, $174.8 million in 2021, and $159.4 million in 2020[296] - Goodwill is tested for impairment annually at the reporting unit level, and no impairment was recognized in 2022[216][357] - In May 2022, the company entered into a new $600 million credit facility maturing in 2027, replacing its previous $400 million facility[377] - The company repurchased 2.8 million shares for $122.8 million in 2022 and 3.0 million shares for $96.4 million in 2021[447] 2022 Acquisitions Summary (in thousands) | Metric | Amount | | :--- | :--- | | Cash paid | $79,141 | | Recorded contingent consideration | $74,199 | | Total recorded purchase price | $155,008 | | Identifiable intangible assets acquired | $53,400 | | Goodwill | $79,147 | Segment Income Before Tax (in thousands) | Segment | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Financial Services | $160,712 | $125,762 | $104,219 | | Benefits and Insurance Services | $70,006 | $67,784 | $49,666 | | National Practices | $4,713 | $4,085 | $3,725 | | Corporate and Other | $(93,938) | $(104,591) | $(54,122) | | Total | $141,493 | $93,040 | $103,488 |