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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________ to ________

Commission File Number 1-32961

CBIZ, Inc.

(Exact name of registrant as specified in its charter)

Delaware

22-2769024

(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer

Identification No.)

 

 

6050 Oak Tree Boulevard, South, Suite 500, Cleveland, Ohio

44131

(Address of principal executive offices)

(Zip Code)

(216) 447-9000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

CBZ

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes     No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class of Common Stock

Outstanding at July 30, 2020

Common Stock, par value $0.01 per share

54,681,666

 

 

 


CBIZ, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION:

Page

 

 

 

Item 1.

Condensed Financial Statements (Unaudited)

3

 

 

 

 

 

 

Consolidated Balance Sheets – June 30, 2020 and December 31, 2019

3

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2020 and 2019

4

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2020 and 2019 

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2020 and 2019

7

 

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

 

 

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

PART II.

OTHER INFORMATION:

 

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

 

 

Item 1A.

Risk Factors

35

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

36

 

 

 

 

 

Item 4.

Mine Safety Disclosures

36

 

 

 

 

 

Item 5.

Other Information

36

 

 

 

 

 

Item 6.

Exhibits

37

 

 

 

 

 

Signature

38

 

2


PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,620

 

 

$

567

 

Restricted cash

 

 

42,411

 

 

 

29,595

 

Accounts receivable, net

 

 

267,198

 

 

 

222,031

 

Other current assets

 

 

22,472

 

 

 

24,325

 

Current assets before funds held for clients

 

 

341,701

 

 

 

276,518

 

Funds held for clients

 

 

130,473

 

 

 

179,502

 

Total current assets

 

 

472,174

 

 

 

456,020

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

40,199

 

 

 

39,412

 

Goodwill and other intangible assets, net

 

 

661,180

 

 

 

654,671

 

Assets of deferred compensation plan

 

 

107,709

 

 

 

106,851

 

Operating lease right-of-use asset, net

 

 

143,143

 

 

 

140,831

 

Other non-current assets

 

 

3,203

 

 

 

2,989

 

Total non-current assets

 

 

955,434

 

 

 

944,754

 

Total assets

 

$

1,427,608

 

 

$

1,400,774

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

86,484

 

 

$

68,510

 

Income taxes payable

 

 

17,803

 

 

 

57

 

Accrued personnel costs

 

 

40,185

 

 

 

59,898

 

Contingent purchase price liability

 

 

15,646

 

 

 

16,193

 

Operating lease liability

 

 

28,305

 

 

 

29,030

 

Other current liabilities

 

 

14,934

 

 

 

13,218

 

Current liabilities before client fund obligations

 

 

203,357

 

 

 

186,906

 

Client fund obligations

 

 

129,942

 

 

 

179,020

 

Total current liabilities

 

 

333,299

 

 

 

365,926

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Bank debt

 

 

120,000

 

 

 

105,500

 

Debt issuance costs

 

 

(987

)

 

 

(1,167

)

Total long-term debt

 

 

119,013

 

 

 

104,333

 

Income taxes payable

 

 

3,245

 

 

 

3,053

 

Deferred income taxes, net

 

 

12,332

 

 

 

11,720

 

Deferred compensation plan obligations

 

 

107,709

 

 

 

106,851

 

Contingent purchase price liability

 

 

11,815

 

 

 

15,896

 

Operating lease liability

 

 

135,013

 

 

 

132,018

 

Other non-current liabilities

 

 

9,962

 

 

 

1,739

 

Total non-current liabilities

 

 

399,089

 

 

 

375,610

 

Total liabilities

 

 

732,388

 

 

 

741,536

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Common stock

 

 

1,335

 

 

 

1,331

 

Additional paid in capital

 

 

725,064

 

 

 

714,704

 

Retained earnings

 

 

537,892

 

 

 

479,576

 

Treasury stock

 

 

(566,762

)

 

 

(535,693

)

Accumulated other comprehensive loss

 

 

(2,309

)

 

 

(680

)

Total stockholders’ equity

 

 

695,220

 

 

 

659,238

 

Total liabilities and stockholders’ equity

 

$

1,427,608

 

 

$

1,400,774

 

 

See the accompanying notes to the consolidated financial statements

3


CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

236,943

 

 

$

235,498

 

 

$

514,398

 

 

$

505,496

 

Operating expenses

 

 

209,016

 

 

 

198,148

 

 

 

408,843

 

 

 

413,644

 

Gross margin

 

 

27,927

 

 

 

37,350

 

 

 

105,555

 

 

 

91,852

 

Corporate general and administrative expenses

 

 

11,160

 

 

 

10,566

 

 

 

21,649

 

 

 

22,246

 

Operating income

 

 

16,767

 

 

 

26,784

 

 

 

83,906

 

 

 

69,606

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,074

)

 

 

(1,587

)

 

 

(3,193

)

 

 

(2,988

)

Gain on sale of operations, net

 

 

57

 

 

 

50

 

 

 

152

 

 

 

547

 

Other income (expense), net

 

 

13,336

 

 

 

(3,311

)

 

 

(2,464

)

 

 

5,949

 

Total other income (expense), net

 

 

11,319

 

 

 

(4,848

)

 

 

(5,505

)

 

 

3,508

 

Income from continuing operations before income tax

   expense

 

 

28,086

 

 

 

21,936

 

 

 

78,401

 

 

 

73,114

 

Income tax expense

 

 

6,607

 

 

 

5,322

 

 

 

20,060

 

 

 

18,935

 

Income from continuing operations

 

 

21,479

 

 

 

16,614

 

 

 

58,341

 

 

 

54,179

 

Loss from discontinued operations, net of tax

 

 

(11

)

 

 

(22

)

 

 

(25

)

 

 

(118

)

Net income

 

$

21,468

 

 

$

16,592

 

 

$

58,316

 

 

$

54,061

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.40

 

 

$

0.31

 

 

$

1.07

 

 

$

1.00

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.40

 

 

$

0.31

 

 

$

1.07

 

 

$

1.00

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.39

 

 

$

0.30

 

 

$

1.05

 

 

$

0.97

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.39

 

 

$

0.30

 

 

$

1.05

 

 

$

0.97

 

Basic weighted average shares outstanding

 

 

54,142

 

 

 

54,090

 

 

 

54,356

 

 

 

54,188

 

Diluted weighted average shares outstanding

 

 

55,116

 

 

 

55,495

 

 

 

55,515

 

 

 

55,701

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

21,468

 

 

$

16,592

 

 

$

58,316

 

 

$

54,061

 

Other comprehensive loss, net of tax

 

 

(377

)

 

 

(422

)

 

 

(1,629

)

 

 

(341

)

Comprehensive income

 

$

21,091

 

 

$

16,170

 

 

$

56,687

 

 

$

53,720

 

 

See the accompanying notes to the consolidated financial statements

 

4


CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Issued

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Shares

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Totals

 

March 31, 2020

 

 

133,241

 

 

 

78,811

 

 

 

$

1,332

 

 

$

719,616

 

 

$

516,424

 

 

$

(565,180

)

 

$

(1,932

)

 

$

670,260

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,468

 

 

 

 

 

 

 

 

 

21,468

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(377

)

 

 

(377

)

Share repurchases

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,582

)

 

 

 

 

 

(1,582

)

Restricted stock

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

211

 

 

 

 

 

 

 

2

 

 

 

2,212

 

 

 

 

 

 

 

 

 

 

 

 

2,214

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

2,257

 

 

 

 

 

 

 

 

 

 

 

 

2,257

 

Business acquisitions

 

 

44

 

 

 

 

 

 

 

1

 

 

 

979

 

 

 

 

 

 

 

 

 

 

 

 

980

 

June 30, 2020

 

 

133,536

 

 

 

78,881

 

 

 

$

1,335

 

 

$

725,064

 

 

$

537,892

 

 

$

(566,762

)

 

$

(2,309

)

 

$

695,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Issued

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Shares

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Totals

 

March 31, 2019

 

 

131,813

 

 

 

76,912

 

 

 

$

1,318

 

 

$

696,226

 

 

$

446,331

 

 

$

(520,088

)

 

$

(300

)

 

$

623,487

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,592

 

 

 

 

 

 

 

 

 

16,592

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(422

)

 

 

(422

)

Share repurchases

 

 

 

 

 

516

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,174

)

 

 

 

 

 

(10,174

)

Restricted stock

 

 

55

 

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

189

 

 

 

 

 

 

 

2

 

 

 

1,641

 

 

 

 

 

 

 

 

 

 

 

 

1,643

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

1,917

 

 

 

 

 

 

 

 

 

 

 

 

1,917

 

Business acquisitions

 

 

51

 

 

 

 

 

 

 

 

 

 

1,017

 

 

 

 

 

 

 

 

 

 

 

 

1,017

 

June 30, 2019

 

 

132,108

 

 

 

77,428

 

 

 

$

1,321

 

 

$

700,800

 

 

$

462,923

 

 

$

(530,262

)

 

$

(722

)

 

$

634,060

 

 


5


CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Issued

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Shares

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Stock

 

 

Loss

 

 

Totals

 

December 31, 2019

 

 

133,056

 

 

 

77,637

 

 

 

$

1,331

 

 

$

714,704

 

 

$

479,576

 

 

$

(535,693

)

 

$

(680

)

 

$

659,238

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,316

 

 

 

 

 

 

 

 

 

58,316

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,629

)

 

 

(1,629

)

Share repurchases

 

 

 

 

 

1,244

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,069

)

 

 

 

 

 

(31,069

)

Restricted stock

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

327

 

 

 

 

 

 

 

3

 

 

 

3,224

 

 

 

 

 

 

 

 

 

 

 

 

3,227

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

4,280

 

 

 

 

 

 

 

 

 

 

 

 

4,280

 

Business acquisitions

 

 

113

 

 

 

 

 

 

 

1

 

 

 

2,856

 

 

 

 

 

 

 

 

 

 

 

 

2,857

 

June 30, 2020

 

 

133,536

 

 

 

78,881

 

 

 

$

1,335

 

 

$

725,064

 

 

$

537,892

 

 

$

(566,762

)

 

$

(2,309

)

 

$

695,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Issued

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

 

Common

 

 

Paid-In

 

 

Retained

 

 

Treasury

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Shares

 

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Stock

 

 

(Loss) Gain

 

 

Totals

 

December 31, 2018

 

 

131,404

 

 

 

76,332

 

 

 

$

1,314

 

 

$

692,398

 

 

$

408,963

 

 

$

(508,530

)

 

$

(482

)

 

$

593,663

 

Cumulative-effect of accounting

   changes adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101

)

 

 

 

 

 

101

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54,061

 

 

 

 

 

 

 

 

 

54,061

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(341

)

 

 

(341

)

Share repurchases

 

 

 

 

 

1,096

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,732

)

 

 

 

 

 

(21,732

)

Restricted stock

 

 

228

 

 

 

 

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

378

 

 

 

 

 

 

 

4

 

 

 

3,039

 

 

 

 

 

 

 

 

 

 

 

 

3,043

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

3,399

 

 

 

 

 

 

 

 

 

 

 

 

3,399

 

Business acquisitions

 

 

98

 

 

 

 

 

 

 

1

 

 

 

1,966

 

 

 

 

 

 

 

 

 

 

 

 

1,967

 

June 30, 2019

 

 

132,108

 

 

 

77,428

 

 

 

$

1,321

 

 

$

700,800

 

 

$

462,923

 

 

$

(530,262

)

 

$

(722

)

 

$

634,060

 

 

 

See the accompanying notes to the consolidated financial statements

 

6


CBIZ, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

58,316

 

 

$

54,061

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

11,491

 

 

 

10,976

 

Bad debt expense, net of recoveries

 

 

3,234

 

 

 

1,506

 

Adjustment to contingent earnout liability

 

 

(155

)

 

 

(193

)

Stock-based compensation expense

 

 

4,280

 

 

 

3,399

 

Excess tax benefits from share based payment arrangements

 

 

(1,427

)

 

 

(1,475

)

Deferred income taxes

 

 

1,129

 

 

 

1,797

 

Other, net

 

 

(14

)

 

 

(250

)

Changes in assets and liabilities, net of acquisitions and divestitures:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(47,545

)

 

 

(65,684

)

Other assets

 

 

894

 

 

 

362

 

Accounts payable

 

 

17,810

 

 

 

28,987

 

Income taxes payable

 

 

19,365

 

 

 

8,518

 

Accrued personnel costs

 

 

(19,824

)

 

 

(21,703

)

Other liabilities

 

 

8,014

 

 

 

(602

)

Operating cash flows provided by continuing operations

 

 

55,568

 

 

 

19,699

 

Operating cash flows used in discontinued operations

 

 

(45

)

 

 

(119

)

Net cash provided by operating activities

 

 

55,523

 

 

 

19,580

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Business acquisitions and purchases of client lists, net of cash acquired

 

 

(7,888

)

 

 

(1,293

)

Purchases of client fund investments

 

 

(3,447

)

 

 

(13,920

)

Proceeds from the sales and maturities of client fund investments

 

 

25,316

 

 

 

10,556

 

Increase in funds held for clients

 

 

3,125

 

 

 

369

 

Additions to property and equipment, net

 

 

(5,306

)

 

 

(6,916

)

Other, net

 

 

1,007

 

 

 

325

 

Net cash provided by (used in) investing activities

 

 

12,807

 

 

 

(10,879

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from bank debt

 

 

440,254

 

 

 

265,796

 

Payment of bank debt

 

 

(425,754

)

 

 

(242,296

)

Payment for acquisition of treasury stock

 

 

(31,069

)

 

 

(21,732

)

Decrease in client funds obligations

 

 

(50,793

)

 

 

(34,947

)

Proceeds from exercise of stock options

 

 

3,227

 

 

 

3,043

 

Payment of contingent consideration for acquisitions

 

 

(6,199

)

 

 

(11,718

)

Other, net

 

 

(226

)

 

 

(222

)

Net cash used in financing activities

 

 

(70,560

)

 

 

(42,076

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(2,230

)

 

 

(33,375

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

146,505

 

 

 

130,554

 

Cash, cash equivalents and restricted cash at end of period

 

$

144,275

 

 

$

97,179

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash to the

   Consolidated Balance Sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,620

 

 

$

2,628

 

Restricted cash

 

 

42,411

 

 

 

30,126

 

Cash equivalents included in funds held for clients

 

 

92,244

 

 

 

64,425

 

Total cash, cash equivalents and restricted cash

 

$

144,275

 

 

$

97,179

 

 

See the accompanying notes to the consolidated financial statements

 

 

7


 

CBIZ, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Selected Terms Used in Notes to the Consolidated Financial Statements

ASA – Administrative Service Agreement

ASC – Accounting Standards Codification

ASU – Accounting Standards Update

CPA firm – Certified Public Accounting firm

FASB – The Financial Accounting Standards Board

GAAP – United States Generally Accepted Accounting Principles

LIBOR – London Interbank Offered Rate

SEC – United States Securities and Exchange Commission

Topic 326 – ASU No. 2016-13, Financial Instruments – Credit Losses

CECL – Current expected credit losses

Description of Business: CBIZ, Inc. is a diversified services company which, acting through its subsidiaries, has been providing professional business services since 1996, primarily to small and medium-sized businesses, as well as individuals, governmental entities, and not-for-profit enterprises throughout the United States and parts of Canada. CBIZ, Inc. manages and reports its operations along three practice groups; Financial Services, Benefits and Insurance Services and National Practices. A further description of products and services offered by each of the practice groups is provided in Note 13, Segment Disclosures, to the accompanying consolidated financial statements.

Basis of Consolidation: The accompanying unaudited condensed consolidated financial statements include the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries (“CBIZ”, the “Company”, “we”, “us”, or “our”), after elimination of all intercompany balances and transactions. These 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.

Unaudited Interim Financial Statements: The condensed consolidated financial statements have been prepared in accordance with GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

In the opinion of CBIZ management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2020.

Use of Estimates: The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Changes in circumstances could cause actual results to differ materially from these estimates.

Changes in Accounting Policies: Except for the adoption of Topic 326, which required a change in our accounting policy, we have consistently applied the accounting policies for the periods presented as described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.  Effective January 1, 2020, we changed our accounting policy for the valuation of accounts receivable allowances and available-for-sale securities as a result of adopting Topic 326 as described in Note 2, New Accounting Pronouncements.

 

 

8


 

NOTE 2. New Accounting Pronouncements

The FASB ASC is the sole source of authoritative GAAP other than the SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an accounting standard to communicate changes to the FASB codification. We assess and review the impact of all accounting standards. Any accounting standards not listed below were reviewed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements of the Company.

Accounting Standards Adopted in 2020

Credit Losses: Effective January 1, 2020, we adopted Topic 326, which replaces the incurred loss model with an expected loss model that is referred to as the current expected credit loss model. The CECL model requires the Company to immediately recognize an estimate of credit losses that are expected to occur over the life of financial instruments recorded at amortized cost, including trade receivables.

Topic 326 also amends the other-than-temporary impairment model for available-for-sale securities by requiring the recognition of credit loss impairments as an allowance rather than a write-down on available-for-sale securities. The length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

For financial instruments recorded at amortized cost, we did not recognize a cumulative-effect adjustment to retained earnings as the adoption of Topic 326 did not have a material impact on our consolidated financial statements. For available-for-sale securities, the updated guidance was applied prospectively.

Fair Value Measurement: On January 1, 2020, we adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This standard amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Income Taxes: On January 1, 2020, we adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

Reference Rate Reform: In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022. We are currently evaluating the effect of this new standard on our consolidated financial statements.

 

 

Note 3. Accounts Receivable, Net

Accounts receivable, less the allowance for doubtful accounts, represents the net amount expected to be collected.  Assessing the collectability of the receivables (billed and unbilled) requires management judgment based on a combination of factors, including but not limited to, an evaluation of our historical incurred loss experience, credit-worthiness of our clients, age of the trade receivable balance, current economic conditions that may affect a client’s ability to pay, and reasonable and supportable forecasts. Receivables are charged-off against the allowance when the balance is deemed uncollectible.

We considered the impact of the COVID-19 pandemic, the resulting macroeconomic conditions, client’s location, industry, and financial position in our estimation of the allowance for doubtful accounts.  During the three and six month periods ended June 30, 2020, we recorded bad debt expense due to the COVID-19 pandemic of $0.2 million and $2.2 million, respectively.

9


 

Accounts receivable, net, at June 30, 2020 and December 31, 2019 were as follows (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Trade accounts receivable

 

$

197,725

 

 

$

176,375

 

Unbilled revenue, at net realizable value

 

 

85,845

 

 

 

60,035

 

Total accounts receivable

 

 

283,570

 

 

 

236,410

 

Allowance for doubtful accounts

 

 

(16,372

)

 

 

(14,379

)

Accounts receivable, net

 

$

267,198

 

 

$

222,031

 

 

Changes to the allowance for doubtful accounts for the six months ended June 30, 2020 are as follows (in thousands):

 

 

 

June 30,

 

 

 

2020

 

Balance at beginning of period

 

$

(14,379

)

Provision for losses

 

 

(4,982

)

Charge-offs, net of recoveries

 

 

2,989

 

Allowance for doubtful accounts

 

$

(16,372

)

 

 

Note 4. Debt and Financing Arrangements

2018 Credit Facility - Our primary financing arrangement is the $400 million unsecured credit facility (the “2018 credit facility” or the “credit facility”), which provides us with the capital necessary to meet our working capital needs as well as the flexibility to continue with our strategic initiatives, including business acquisitions and share repurchases. The 2018 credit facility matures in 2023. The balance outstanding under the 2018 credit facility was $120.0 million and $105.5 million at June 30, 2020 and December 31, 2019, respectively. Effective interest rates, including the impact of interest rate swaps associated with the 2018 credit facility, were as follows:

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Weighted average rates

 

2.43%

 

 

3.20%

 

Range of effective rates

 

1.11% - 4.75%

 

 

2.12% - 5.50%

 

 

 

We had approximately $270.4 million of available funds under the credit facility at June 30, 2020, net of outstanding letters of credit of $1.3 million. As of June 30, 2020, we were in compliance with our debt covenants.

Other Line of Credit - We have an unsecured $20.0 million line of credit by and among CBIZ Benefits and Insurance, Inc. and the Huntington National Bank. We utilize this line to support our short-term funding requirements of payroll client fund obligations due to the investment of client funds, rather than liquidating client funds that have already been invested in available-for-sale securities. The line of credit, which terminates August 6, 2020, did not have a balance outstanding at June 30, 2020. Refer to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional details of our debt and financing arrangements.

Interest Expense - Interest expense, including amortization of deferred financing costs, commitment fees, line of credit fees, and other applicable bank charges, was as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

2018 credit facility

 

$

2,056

 

 

$

1,564

 

Other

 

 

18

 

 

 

23

 

Total

 

$

2,074

 

 

$

1,587

 

10


 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

2018 credit facility

 

$

3,157

 

 

$

2,946

 

Other line of credit

 

 

1

 

 

 

 

Other

 

 

35

 

 

 

42

 

Total

 

$

3,193

 

 

$

2,988

 

 

 

Note 5. Commitments and Contingencies

Letters of Credit and Guarantees - We provide letters of credit to landlords (lessors) of our leased premises in lieu of cash security deposits, which totaled $1.3 million at both June 30, 2020 and December 31, 2019. 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 at both June 30, 2020 and December 31, 2019.

Legal Proceedings - In 2010, CBIZ, Inc. and its subsidiary, CBIZ MHM, LLC (fka CBIZ Accounting, Tax & Advisory Services, LLC) (the “CBIZ Parties”), were named as defendants in lawsuits filed in the U.S. District Court for the District of Arizona and the Superior Court for Maricopa County, Arizona. The federal court case is captioned Robert Facciola, et al v. Greenberg Traurig LLP, et al, and the state court cases are captioned Victims Recovery, LLC v. Greenberg Traurig LLP, et al, Roger Ashkenazi, et al v. Greenberg Traurig LLP, et al, Mary Marsh, et al v. Greenberg Traurig LLP, et al; and ML Liquidating Trust v. Mayer Hoffman McCann, P.C. (“Mayer Hoffman”), et al. Prior to these lawsuits CBIZ MHM, LLC was named as a defendant in Jeffrey C. Stone v. Greenberg Traurig LLP, et al.  

These lawsuits arose out of the bankruptcy of Mortgages Ltd., a mortgage lender to developers in the Phoenix, Arizona area. Various other professional firms and individuals not related to the Company were also named defendants in these lawsuits. The lawsuits asserted claims for, among others things, violations of the Arizona Securities Act, common law fraud, and negligent misrepresentation, and sought to hold the CBIZ Parties vicariously liable for Mayer Hoffman’s conduct as Mortgage Ltd.’s auditor, as either a statutory control person under the Arizona Securities Act or a joint venturer under Arizona common law.

With the exception of claims being pursued by two plaintiffs from the Ashkenazi lawsuit (“Baldino Group”), all other related matters have been dismissed or settled without payment by the CBIZ Parties. The Baldino Group’s claims, which allege damages of approximately $16.0 million, are currently pending, though no trial date has been set.

On September 16, 2016, CBIZ, Inc. and its subsidiary CBIZ Benefits & Insurance Services, Inc. (“CBIZ Benefits”) were named as defendants in a lawsuit filed in the U.S. District Court for the Western District of Pennsylvania. The federal court case is brought by UPMC, d/b/a University of Pittsburgh Medical Center, and a health system it acquired, UPMC Altoona (formerly, Altoona Regional Health System).  The lawsuit asserts professional negligence, breach of contract, and negligent misrepresentation claims against CBIZ, CBIZ Benefits and a former employee of CBIZ Benefits in connection with actuarial services provided by CBIZ Benefits to Altoona Regional Health System. The plaintiff now seeks compensatory damages of between $124.0 million and $266.0 million, plus punitive damages. The Court recently denied CBIZ Benefits’ motion for a summary judgment and trial is set for March 2021.  

We cannot predict the outcome of the above matters or estimate the possible loss or range of possible loss, if any. Although the proceedings are subject to uncertainties inherent in the litigation process and the ultimate disposition of these proceedings is not presently determinable, we intend to vigorously defend these cases. In addition to those items disclosed above, we are, from time to time, subject to claims and lawsuits arising in the ordinary course of business.

 

 

11


 

Note 6. Financial Instruments

Available-For-Sale Debt Securities - In connection with certain services provided by our payroll operations, we collect funds from our clients’ accounts in advance of paying client obligations. These funds held for clients are segregated and invested in accordance with our investment policy, which requires all investments carry an investment grade rating at the time of initial investment. These investments, primarily consisting of corporate and municipal bonds and US treasury bills, are classified as available-for-sale and are included in the “Funds held for clients” line item in the accompanying Consolidated Balance Sheets. The par value of these investments totaled $37.1 million and $58.9 million at June 30, 2020 and December 31, 2019, respectively, and had maturity or callable dates ranging from July 2020 through November 2024.

At June 30, 2020, unrealized losses on the securities totaling $0.1 million have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value. The bond issuers continue to make timely principal and interest payments.

The following table summarizes activities related to these investments for the six months ended June 30, 2020 and the twelve months ended December 31, 2019 (in thousands):

 

 

 

Six Months Ended

 

 

Twelve Months Ended

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Fair value at beginning of period

 

$

60,659

 

 

$

56,556

 

Purchases

 

 

3,447

 

 

 

27,216

 

Redemptions

 

 

(19,048

)

 

 

(1,686

)

Maturities

 

 

(6,268

)

 

 

(22,272

)

Decrease in bond premium

 

 

(625

)

 

 

(460

)

Fair market value adjustment

 

 

64

 

 

 

1,305

 

Fair value at end of period

 

$

38,229

 

 

$

60,659

 

 

In addition to the available-for-sale securities discussed above, we also hold certificates of deposit and other    depository assets in the amount of $2.5 million at December 31, 2019. We did not have any depository items at June 30, 2020.    

Interest Rate Swaps - We utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the 2018 credit facility, or the forecasted acquisition of such liability. We do not purchase or hold any derivative instruments for trading or speculative purposes. In March 2020, we entered into a new interest rate swap with a notional amount of $50 million and a fixed interest rate of 0.885%. Effective June 26, 2020, we terminated an existing interest rate swap with the notional value of $25 million, fixed interest rate of 1.30% and an expiration date of October 2020. Refer to the Annual Report on Form 10-K for the year ended December 31, 2019 for further discussion on our interest rate swaps.

As of June 30, 2020, we have four interest rate swaps outstanding. Under the terms of the interest rate swaps, we pay interest at a fixed rate of interest plus applicable margin as stated in the agreement, and receive interest that varies with the one-month LIBOR. The notional value, fixed rate of interest and expiration date of each interest rate swap as of June 30, 2020 was (i) $10 million – 1.120% - February 2021, (ii) $20 million – 1.770% - May 2022, (iii) $15 million – 2.640% - June 2023 and (iv) $50 million - 0.885% - April 2025. Refer to Note 7. Fair Value Measurements, for additional disclosures regarding fair value measurements.

 

The following table summarizes our outstanding interest rate swaps and their classification in the accompanying Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

June 30, 2020

 

 

Notional

 

 

Fair

 

 

 

 

 

Amount

 

 

Value

 

 

Balance Sheet Location

Interest rate swap

 

$

10,000

 

 

$

(60

)

 

Other current liability

Interest rate swaps

 

$

85,000

 

 

$

(2,669

)

 

Other non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

Notional

 

 

Fair

 

 

 

 

 

Amount

 

 

Value

 

 

Balance Sheet Location

Interest rate swap

 

$

25,000

 

 

$

66

 

 

Other current assets

Interest rate swaps

 

$

45,000

 

 

$

(591

)

 

Other non-current liabilities

12


 

 

 

The following table summarizes the effects of the interest rate swaps on the accompanying Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (in thousands):

 

 

 

Loss Recognized

in AOCL, net of tax

 

 

(Loss) Gain Reclassified

from AOCL into Expense

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest rate swaps

 

$

(1,007

)

 

$

(730

)

 

$

(350

)

 

$

134

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Interest rate swaps

 

$

(1,660

)

 

$

(1,157

)

 

$

(383

)

 

$

273

 

 

 

Note 7. Fair Value Measurements

The following table summarizes our assets and (liabilities) at June 30, 2020 and December 31, 2019, respectively, that are measured at fair value on a recurring basis subsequent to initial recognition and indicates the fair value hierarchy of the valuation techniques utilized by us to determine such fair value (in thousands):

 

 

 

Level

 

June 30, 2020

 

 

December 31, 2019

 

Deferred compensation plan assets

 

1

 

$

107,709

 

 

$

106,851

 

Available-for-sale debt securities

 

1

 

 

38,229

 

 

 

60,659

 

Deferred compensation plan liabilities

 

1

 

 

(107,709

)

 

 

(106,851

)

Interest rate swaps

 

2

 

 

(2,729

)

 

 

(525

)

Contingent purchase price liabilities

 

3

 

 

(27,461

)

 

 

(32,089

)

 

During the six months ended June 30, 2020 and 2019, there were no transfers between the valuation hierarchy Levels 1, 2 and 3. The following table summarizes the change in Level 3 fair values of our contingent purchase price liabilities for the six months ended June 30, 2020 and 2019 (pre-tax basis) (in thousands):

 

 

 

2020

 

 

2019

 

Beginning balance – January 1

 

$

(32,089

)

 

$

(39,708

)

Additions from business acquisitions

 

 

(3,385

)

 

 

(1,806

)

Settlement of contingent purchase price liabilities

 

 

7,859

 

 

 

13,316

 

Change in fair value of contingencies

 

 

497

 

 

 

561

 

Change in net present value of contingencies

 

 

(343

)

 

 

(368

)

Ending balance – June 30

 

$

(27,461

)

 

$

(28,005

)

 

Contingent purchase price liabilities result from our business acquisitions and are recorded at fair value at the time of acquisition and are presented as “Contingent purchase price liability — current” and “Contingent purchase price liability — non-current” in the accompanying Consolidated Balance Sheets. We estimate the fair value of our contingent purchase price liabilities using a probability-weighted discounted cash flow model. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

We probability weight risk-adjusted estimates of future performance of acquired businesses, then calculate the contingent purchase price based on the estimates and discount them to present value representing management’s best estimate of fair value. The fair value of the contingent purchase price liabilities are reassessed quarterly based on assumptions provided by practice group leaders and business unit controllers together with our corporate finance department. Any change in the fair value estimate is recorded in the earnings of that period. Refer to Note 11, Business Combinations, for further discussion of our acquisitions and contingent purchase price liabilities.

The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments, and the carrying value of bank debt approximates fair value as the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of our bank debt is considered to be Level 2.

 

13


 

 

Note 8. Other Comprehensive Income

The following table is a summary of other comprehensive income and discloses the tax impact of each component of other comprehensive income for the three and six months ended June 30, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net unrealized gain on available-for-sale

   securities, net of income taxes (1)

 

$

632

 

 

$

312

 

 

$

45

 

 

$

822

 

Net unrealized loss on interest rate swaps, net

   of income taxes (2)

 

 

(1,007

)

 

 

(730

)

 

 

(1,660

)

 

 

(1,157

)

Foreign currency translation

 

 

(2

)

 

 

(4

)

 

 

(14

)

 

 

(6

)

Total other comprehensive loss

 

$

(377

)

 

$

(422

)

 

$

(1,629

)

 

$

(341

)

 

 

(1)

Net of income tax expense of $228 and $116 for the three months ended June 30, 2020 and 2019, respectively, and net of income tax expense of $19 and $304 for the six months ended June 30, 2020 and 2019, respectively.

 

(2)

Net of income tax benefit of $324 and $225 for the three months ended June 30, 2020 and 2019, respectively, and net of income tax benefit of $534 and $358 for the six months ended June 30, 2020 and 2019, respectively.

 

 

Note 9. Employee STOCK Plans

The 2019 Stock Omnibus Incentive Plan (the “2019 Plan”), which expires in 2029, permits the grant of various forms of stock-based awards. The terms and vesting schedules for the stock-based awards vary by type and date of grant. A maximum of 3.1 million stock options, restricted stock or other stock-based compensation awards may be granted. Shares subject to award under the 2019 Plan may be either authorized but unissued shares of our common stock or treasury shares. Refer to the Annual Report on Form 10-K for the year ended December 31, 2019 for further discussion on the 2019 Plan.

Compensation expense for stock-based awards recognized during the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Stock options

 

$

367

 

 

$

479

 

 

$

788

 

 

$

998

 

Restricted stock units and awards

 

 

1,324

 

 

 

1,153

 

 

 

2,495

 

 

 

2,082

 

Performance share units

 

 

566

 

 

 

285

 

 

 

997

 

 

 

319

 

Total stock-based compensation expense

 

$

2,257

 

 

$

1,917

 

 

$

4,280

 

 

$

3,399

 

 

Stock Options and Restricted Stock Units and Awards – The following table presents our stock options and restricted stock award activity during the six months ended June 30, 2020 (in thousands, except per share data):

 

 

 

Stock Options

 

 

Restricted Stock Units and

Awards

 

 

 

Number of

Options

 

 

Weighted Average

Exercise Price

Per Share

 

 

Number of

Shares

 

 

Weighted Average

Grant-Date

Fair Value (1)

 

Outstanding at beginning of year

 

 

2,412

 

 

$

13.58

 

 

 

577

 

 

$

17.87

 

Granted

 

 

 

 

$

 

 

 

178

 

 

$

24.48

 

Exercised or released

 

 

(327

)

 

$

9.88

 

 

 

(276

)

 

$

16.74

 

Expired or canceled

 

 

(8

)

 

$

18.15

 

 

 

(9

)

 

$

20.96

 

Outstanding at June 30, 2020

 

 

2,077

 

 

$

14.14

 

 

 

470

 

 

$

20.97

 

Exercisable at June 30, 2020

 

 

1,605

 

 

$

12.96

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents weighted average market value of the shares; awards are granted at no cost to the recipients.

 

14


 

Performance Share Units (“PSUs”) – PSUs are earned based on our financial performance over a contractual term of three years and the associated expense is recognized over that period based on the fair value of the award. A three-year cliff vesting schedule of the PSUs is dependent upon the Company’s performance relative to pre-established goals based on achievement of an earnings per share target (weighted 70%) and achievement of total growth in revenue (weighted 30%). The fair value of PSUs is calculated using the market value of a share of our common stock on the date of grant. For performance achieved above specified levels, the recipient may earn additional shares of stock, not to exceed 200% of the number of PSUs initially granted.

The following table presents our PSU award activity during the six months ended June 30, 2020 (in thousands, except per share data):

 

 

 

Performance

Share Units

 

 

Weighted

Average

Grant-Date

Fair Value

Per Unit

 

Outstanding at beginning of year

 

 

200

 

 

$

19.82

 

Granted

 

 

132

 

 

$

25.75

 

Vested

 

 

 

 

$

 

Adjustments for performance results

 

 

 

 

$

 

Expired or canceled

 

 

(8

)

 

$

22.14

 

Outstanding at June 30, 2020

 

 

324

 

 

$

22.17

 

 

 

Note 10. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share from continuing operations for the three and six months ended June 30, 2020 and 2019 (in thousands, except per share data).

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

21,479

 

 

$

16,614

 

 

$

58,341

 

 

$

54,179

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

54,142

 

 

 

54,090

 

 

 

54,356

 

 

 

54,188

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options (1)

 

 

760

 

 

 

1,188

 

 

 

869

 

 

 

1,247

 

Restricted stock units and awards (1)

 

 

146

 

 

 

176

 

 

 

222

 

 

 

225

 

Contingent shares (2)

 

 

68

 

 

 

41

 

 

 

68

 

 

 

41

 

Diluted weighted average common shares outstanding (3)

 

 

55,116

 

 

 

55,495

 

 

 

55,515

 

 

 

55,701

 

Basic earnings per share from continuing operations

 

$

0.40

 

 

$

0.31

 

 

$

1.07

 

 

$

1.00

 

Diluted earnings per share from continuing operations

 

$

0.39

 

 

$

0.30

 

 

$

1.05

 

 

$

0.97

 

 

 

(1)

A total of 0.4 million and 0.4 million share based awards were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2020, respectively, and a total of 0.5 million and 0.5 million share based awards were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2019, respectively, as their effect would be anti-dilutive.

 

(2)

Contingent shares represent additional shares to be issued for purchase price earned by former owners of businesses acquired by us once future considerations have been met. Refer to Note 11, Business Combinations, for further details.

15


 

 

(3)

The denominator used in calculating diluted earnings per share did not include 0.3 million performance share units for both the three and six months ended June 30, 2020, and the denominator used in calculating diluted earnings per share did not include 0.2 million performance share units for both the three and six months ended June 30, 2019. The performance conditions associated with these performance share units were not met and consequently none of these performance share units were considered as issuable for the three and six months ended June 30, 2020 and 2019.  

 

 

Note 11. BUSINESS COMBINATIONS

Our acquisition strategy focuses on businesses with a leadership team that is committed to best in class culture, extraordinary client service and cross-serving potential. CBIZ has a long history of acquiring businesses that share common cultural values with us and provide value-added services to the small and midsize business market. The valuation of any business is a subjective process and includes industry, geography, profit margins, expected cash flows, client retention, nature of recurring or non-recurring project-based work, growth rate assumptions and competitive market conditions.    

During the six months ended June 30, 2020, we completed the following acquisitions:

 

Effective February 1, 2020, we acquired substantially all the assets of Alliance Insurance Services, Inc. (“Alliance”), a provider of insurance and advisory services based in Washington, DC. Operating results will be reported in the Benefits and Insurance Services practice group.  

 

Effective February 1, 2020, we acquired substantially all the assets of Pension Dynamics Company, LLC (“PD”), a full-service retirement and benefits plan advisor based in Pleasant Hill, California. Operating results will be reported in the Benefits and Insurance Services practice group.  

 

Effective February 1, 2020, we acquired substantially all the assets of Sunshine Systems (“Sunshine”), a payroll solutions provider based in Massachusetts. Operating results will be reported in the Benefits and Insurance Services practice group.  

Aggregate consideration for these acquisitions consisted of approximately $9.4 million in cash, $0.9 million in our common stock and $4.8 million in contingent consideration. Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the business acquired. The maximum potential undiscounted amount of all future payments that we could be required to make under the contingent arrangements is $6.2 million.  As of June 30, 2020, the aggregated fair value of contingent consideration related to these acquisitions was $4.7 million, of which $2.0 million was recorded in “Contingent purchase price liability – current” and $2.7 million was recorded in “Contingent purchase price liability – non-current” in the accompanying Consolidated Balance Sheets at June 30, 2020. Refer to Note 7, Fair Value Measurements, for additional information regarding contingent purchase price liability fair value and fair value adjustments.

Annualized revenue from the acquired businesses is estimated to be approximately $6.1 million. Pro forma results of operations for these acquisitions have not been presented because the effects of the acquisitions were not significant to our “Income from continuing operations before income taxes.”

During the first six months of 2019, we completed one acquisition, acquiring substantially all of the assets of Wenner Group, LLC (“Wenner”), located in Denver, Colorado effective January 1, 2019. Wenner is a full service accounting, tax, compliance and financial consulting firm. Operating results are reported in the Financial Services practice group.

Consideration for this acquisition consisted of approximately $1.3 million in cash consideration and $1.8 million in contingent consideration. Under the terms of the acquisition agreement, a portion of the purchase price is contingent on future performance of the business acquired. The maximum potential undiscounted amount of all future payments that we could be required to make under the contingent arrangements is $1.8 million, of which $0.6 million was recorded in “Contingent purchase price liability – current” and $1.2 million was recorded in “Contingent purchase price liability – non-current” in the accompanying Consolidated Balance Sheets at June 30, 2019.

Annualized revenue attributable to Wenner is estimated to be approximately $2.4 million. Pro forma results of operations for this acquisition has not been presented because the effects of the acquisition was not significant to our “Income from continuing operations before income taxes.”

16


 

The following table summarizes the amounts of identifiable assets acquired, liabilities assumed and aggregate purchase price for the acquisitions for the six months ended June 30, 2020 and 2019 (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash and cash equivalents

 

$

125

 

 

$

 

Accounts receivable, net

 

 

871

 

 

 

550

 

Client funds

 

 

1,716

 

 

 

 

Operating lease right of use asset, net

 

 

224

 

 

 

 

Identifiable intangible assets

 

 

3,629

 

 

 

654

 

Other assets

 

 

53

 

 

 

5

 

Operating lease liability - current

 

 

(66

)

 

 

 

Other current liabilities

 

 

(779

)

 

 

(288

)

Client fund obligations

 

 

(1,716

)

 

 

 

Operating lease liability - noncurrent

 

 

(158

)

 

 

 

Total identifiable net assets

 

$

3,899

 

 

$

921

 

Goodwill

 

 

11,158

 

 

 

2,165

 

Aggregate purchase price

 

$

15,057

 

 

$

3,086

 

 

 

The goodwill of $11.2 million and $2.2 million arising from the acquisitions in the first half of 2020 and 2019, respectively, primarily results from expected future earnings and cash flows from the existing management team, as well as the synergies created by the integration of the new business within our organization, including cross-selling opportunities expected with our Financial Services practice group and the Benefits and Insurance Services practice group, to help strengthen our existing service offerings and expand our market position. All of the goodwill is deductible for income tax purposes.

Acquisitions of client lists - During the six months ended June 30, 2020, we purchased two client lists in the Benefits and Insurance Services practice group and one client list in the Financial Services practice group for total consideration of $0.6 million, of which $0.3 million is contingent. During the six months ended June 30, 2019, we did not purchase any client lists. 

Change in Contingent Purchase Price Liability for Previous Acquisitions - During the first half of 2020 and 2019, the fair value of the contingent purchase price liability related to prior acquisitions decreased by $0.2 million and by $0.2 million, respectively. These changes in fair value are attributable to subsequent measurement adjustments based on projected future results of the acquired businesses, net present value adjustments and changes in stock price. These adjustments are included in “Other income (expense), net” in the accompanying Consolidated Statements of Comprehensive Income.

Contingent Payments for Previous Business Acquisitions and Client Lists - We paid $5.9 million in cash and issued approximately 0.1 million shares of our common stock during the six months ended June 30, 2020 for previous acquisitions. For the same period in 2019, we paid $11.3 million in cash and issued approximately 0.1 million shares of our common stock for previous acquisitions. For both the first half of 2020 and 2019, we paid approximately $0.3 million in cash for previous client list purchases.

 

 

Note 12. Divestitures

 

Divested operations and assets that do not qualify for treatment as discontinued operations are recorded as “Gain on sale of operations, net” in the accompanying Consolidated Statements of Comprehensive Income. We recorded a gain of $0.2 million in the first half of 2020 related to a small book of business in the Benefits and Insurance practice group. We recorded a gain of $0.6 million in the first half of 2019 related to a small accounting firm in the Financial Services practice group.

 

 

17


 

Note 13. Segment Disclosures

Our business units have been aggregated into three practice groups: Financial Services, Benefits and Insurance Services and National Practices. The business units have been aggregated based on the following factors: similarity of the products and services provided to clients; similarity of the regulatory environment in which they operate; and similarity of economic conditions affecting long-term performance. The business units are managed along these segment lines. A general description of services provided by each practice group is provided in the table below.

 

Financial Services

Benefits and Insurance Services

National Practices

        Accounting and Tax

        Government Healthcare Consulting

        Financial Advisory

        Valuation

        Risk & Advisory Services

        Group Health Benefits Consulting

        Payroll

        Property & Casualty

        Retirement Plan Services

 

        Managed Networking and Hardware Services

        Healthcare Consulting

 

Corporate and Other. Included in “Corporate and Other” are operating expenses that are not directly allocated to the individual business units. These expenses are primarily comprised of certain health care costs, gains or losses attributable to assets held in our non-qualified deferred compensation plan, stock-based compensation, consolidation and integration charges, certain professional fees, certain advertising costs and other various expenses.

Accounting policies of the practice groups are the same as those described in Note 1, Basis of Presentation and Significant Accounting Policies, to the Annual Report on Form 10-K for the year ended December 31, 2019. Upon consolidation, intercompany accounts and transactions are eliminated, thus inter-segment revenue is not included in the measure of profit or loss for the practice groups. Performance of the practice groups is evaluated on operating income excluding those costs listed above, which are reported in the “Corporate and Other” segment.

Segment information for the three and six months ended June 30, 2020 and 2019 is presented below. We do not manage our assets on a segment basis, therefore segment assets are not presented below.

The following table disaggregates our revenue by source (in thousands):

 

 

 

Three Months Ended June 30, 2020

 

 

 

Financial

 

 

Benefits &

 

 

National

 

 

 

 

 

 

 

Services

 

 

Insurance

 

 

Practices

 

 

Consolidated

 

Accounting, tax, advisory and consulting

 

$

154,083

 

 

$

 

 

$

 

 

$

154,083

 

Core Benefits and Insurance Services

 

 

 

 

 

71,393

 

 

 

 

 

 

71,393

 

Non-core Benefits and Insurance Services

 

 

 

 

 

2,547

 

 

 

 

 

 

2,547

 

Managed networking, hardware services

 

 

 

 

 

 

 

 

6,581

 

 

 

6,581

 

National Practices consulting

 

 

 

 

 

 

 

 

2,339

 

 

 

2,339

 

Total revenue

 

$

154,083

 

 

$

73,940

 

 

$

8,920

 

 

$

236,943

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

Financial

 

 

Benefits &

 

 

National

 

 

 

 

 

 

 

Services

 

 

Insurance

 

 

Practices

 

 

Consolidated

 

Accounting, tax, advisory and consulting

 

$

154,373

 

 

$

 

 

$

 

 

$

154,373

 

Core Benefits and Insurance

 

 

 

 

 

69,447

 

 

 

 

 

 

69,447

 

Non-core Benefits and Insurance

 

 

 

 

 

2,680

 

 

 

 

 

 

2,680

 

Managed networking, hardware services

 

 

 

 

 

 

 

 

6,522

 

 

 

6,522

 

National Practices consulting

 

 

 

 

 

 

 

 

2,476

 

 

 

2,476

 

Total revenue

 

$

154,373

 

 

$

72,127

 

 

$

8,998

 

 

$

235,498

 

 

 

 

Six Months Ended June 30, 2020

 

 

 

Financial

 

 

Benefits &

 

 

National

 

 

 

 

 

 

 

Services

 

 

Insurance

 

 

Practices

 

 

Consolidated

 

Accounting, tax, advisory and consulting

 

$

342,860

 

 

$

 

 

$

 

 

$

342,860

 

Core Benefits and Insurance Services

 

 

 

 

 

147,865

 

 

 

 

 

 

147,865

 

Non-core Benefits and Insurance Services

 

 

 

 

 

5,687

 

 

 

 

 

 

5,687

 

Managed networking, hardware services

 

 

 

 

 

 

 

 

13,156

 

 

 

13,156

 

National Practices consulting

 

 

 

 

 

 

 

 

4,830

 

 

 

4,830

 

Total revenue

 

$

342,860

 

 

$

153,552

 

 

$

17,986

 

 

$

514,398

 

18


 

 

 

 

Six Months Ended June 30, 2019

 

 

 

Financial

 

 

Benefits &

 

 

National

 

 

 

 

 

 

 

Services

 

 

Insurance

 

 

Practices

 

 

Consolidated

 

Accounting, tax, advisory and consulting

 

$

339,517

 

 

$

 

 

$

 

 

$

339,517

 

Core Benefits and Insurance Services

 

 

 

 

 

142,985

 

 

 

 

 

 

142,985

 

Non-core Benefits and Insurance Services

 

 

 

 

 

5,397

 

 

 

 

 

 

5,397

 

Managed networking, hardware services

 

 

 

 

 

 

 

 

12,946

 

 

 

12,946

 

National Practices consulting

 

 

 

 

 

 

 

 

4,651

 

 

 

4,651

 

Total revenue

 

$

339,517

 

 

$

148,382

 

 

$

17,597

 

 

$

505,496

 

 

Segment information for the three months ended June 30, 2020 and 2019 was as follows (in thousands):

 

 

 

Three Months Ended June 30, 2020

 

 

 

Financial

Services

 

 

Benefits

and

Insurance

Services

 

 

National

Practices

 

 

Corporate

and

Other

 

 

Total

 

Revenue

 

$

154,083

 

 

$

73,940

 

 

$

8,920

 

 

$

 

 

$

236,943

 

Operating expenses

 

 

127,417

 

 

 

61,283

 

 

 

7,990

 

 

 

12,326

 

 

 

209,016

 

Gross margin

 

 

26,666

 

 

 

12,657

 

 

 

930

 

 

 

(12,326

)

 

 

27,927

 

Corporate general & admin

 

 

 

 

 

 

 

 

 

 

 

11,160

 

 

 

11,160

 

Operating income (loss)

 

 

26,666

 

 

 

12,657

 

 

 

930

 

 

 

(23,486

)

 

 

16,767

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(9

)

 

 

 

 

 

(2,065

)

 

 

(2,074

)

Gain on sale of operations, net

 

 

11

 

 

 

46

 

 

 

 

 

 

 

 

 

57

 

Other income, net

 

 

27

 

 

 

130

 

 

 

 

 

 

13,179

 

 

 

13,336

 

Total other income

 

 

38

 

 

 

167

 

 

 

 

 

 

11,114

 

 

 

11,319

 

Income (loss) from continuing operations before

   income tax expense

 

$

26,704

 

 

$

12,824

 

 

$

930

 

 

$

(12,372

)

 

$

28,086

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

 

Financial

Services

 

 

Benefits

and

Insurance

Services

 

 

National

Practices

 

 

Corporate

and

Other

 

 

Total

 

Revenue

 

$

154,373

 

 

$

72,127

 

 

$

8,998

 

 

$

 

 

$

235,498

 

Operating expenses

 

 

128,158

 

 

 

61,075

 

 

 

8,204

 

 

 

711

 

 

 

198,148

 

Gross margin

 

 

26,215

 

 

 

11,052

 

 

 

794

 

 

 

(711

)

 

 

37,350

 

Corporate general & admin

 

 

 

 

 

 

 

 

 

 

 

10,566

 

 

 

10,566

 

Operating income (loss)

 

 

26,215

 

 

 

11,052

 

 

 

794

 

 

 

(11,277

)

 

 

26,784

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(14

)

 

 

 

 

 

(1,573

)

 

 

(1,587

)

Gain on sale of operations, net

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

50

 

Other (expense) income, net

 

 

(66

)

 

 

174

 

 

 

1

 

 

 

(3,420

)

 

 

(3,311

)

Total other (expense) income

 

 

(16

)

 

 

160

 

 

 

1

 

 

 

(4,993

)

 

 

(4,848

)

Income (loss) from continuing operations before

   income tax expense

 

$

26,199

 

 

$

11,212

 

 

$

795

 

 

$

(16,270

)

 

$

21,936

 

19


 

 

Segment information for the six months ended June 30, 2020 and 2019 was as follows (in thousands):

 

 

 

Six Months Ended June 30, 2020

 

 

 

Financial

Services

 

 

Benefits

and

Insurance

Services

 

 

National

Practices

 

 

Corporate

and

Other

 

 

Total

 

Revenue

 

$

342,860

 

 

$

153,552

 

 

$

17,986

 

 

$

 

 

$

514,398

 

Operating expenses

 

 

266,015

 

 

 

126,506

 

 

 

16,273

 

 

 

49

 

 

 

408,843

 

Gross margin

 

 

76,845

 

 

 

27,046

 

 

 

1,713

 

 

 

(49

)

 

 

105,555

 

Corporate general & admin

 

 

 

 

 

 

 

 

 

 

 

21,649

 

 

 

21,649

 

Operating income (loss)

 

 

76,845

 

 

 

27,046

 

 

 

1,713

 

 

 

(21,698

)

 

 

83,906

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(20

)

 

 

 

 

 

(3,173

)

 

 

(3,193

)

Gain on sale of operations, net

 

 

51

 

 

 

101

 

 

 

 

 

 

 

 

 

152

 

Other (expense) income, net

 

 

46

 

 

 

226

 

 

 

1

 

 

 

(2,737

)

 

 

(2,464

)

Total other (expense) income

 

 

97

 

 

 

307

 

 

 

1

 

 

 

(5,910

)

 

 

(5,505

)

Income (loss) from continuing operations before

   income tax expense

 

$

76,942

 

 

$

27,353

 

 

$

1,714

 

 

$

(27,608

)

 

$

78,401

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

Financial

Services

 

 

Benefits

and

Insurance

Services

 

 

National

Practices

 

 

Corporate

and

Other

 

 

Total

 

Revenue

 

$

339,517

 

 

$

148,382

 

 

$

17,597

 

 

$

 

 

$

505,496

 

Operating expenses

 

 

262,616

 

 

 

122,446

 

 

 

16,204

 

 

 

12,378

 

 

 

413,644

 

Gross margin

 

 

76,901

 

 

 

25,936

 

 

 

1,393

 

 

 

(12,378

)

 

 

91,852

 

Corporate general & admin

 

 

 

 

 

 

 

 

 

 

 

22,246

 

 

 

22,246

 

Operating income (loss)

 

 

76,901

 

 

 

25,936

 

 

 

1,393

 

 

 

(34,624

)

 

 

69,606

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(24

)

 

 

 

 

 

(2,964

)

 

 

(2,988

)

Gain on sale of operations, net

 

 

547

 

 

 

 

 

 

 

 

 

 

 

 

547

 

Other income (expense), net

 

 

(202

)

 

 

195

 

 

 

1

 

 

 

5,955

 

 

 

5,949

 

Total other income

 

 

345

 

 

 

171

 

 

 

1

 

 

 

2,991

 

 

 

3,508

 

Income (loss) from continuing operations before

   income tax expense

 

$

77,246

 

 

$

26,107

 

 

$

1,394

 

 

$

(31,633

)

 

$

73,114

 

 

 

NOTE 14. LEASES

 

We determine if a contract is a lease at inception. We have leases for office space and facilities, automobiles, and certain information technology equipment. All of our leases are classified as operating leases and the majority of which are for office space and facilities.

 

Supplemental balance sheet information related to the Company’s operating leases as of June 30, 2020 and December 31, 2019 was as follows (in thousands):

 

 

 

June 30, 2020

 

December 31, 2019

Weighted-average remaining lease term

 

6.7 years

 

6.9 years

Weighted-average discount rate

 

3.9%

 

3.6%

 

The components of lease expense and other lease information as of and during the three-month period ended June 30, 2020 and 2019 are as follows (in thousands):

 

 

 

June 30, 2020

 

 

June 30, 2019

 

Operating lease cost

 

$

8,855

 

 

$

9,216

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

9,539

 

 

$

9,199

 

20


 

 

The components of lease expense and other lease information as of and during the six-month period ended June 30, 2020 and 2019 are as follows (in thousands):

 

 

 

June 30, 2020

 

 

June 30, 2019

 

Operating lease cost

 

$

17,677

 

 

$

18,458

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

18,802

 

 

$

18,459

 

 

Our leases have remaining lease terms of 1 year to 11 years. These leases generally contain renewal options for periods ranging from two to five years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and associated potential option payments are excluded from lease payments.

 

A number of leased properties are owned indirectly by and leased from persons employed by the Company, none of whom are members of our senior management. In the aggregate, for the three and six month periods ending June 30, 2020 and 2019, we made lease payments to those related parties of approximately $0.5 million and $0.5 million, respectively, and $1.1 million and $1.2 million, respectively.  

 

The following table summarizes the maturity of our operating lease liabilities as of June 30, 2020 (in thousands):

 

 

 

June 30, 2020

 

2020

 

$

16,696

 

2021

 

 

32,817

 

2022

 

 

26,792

 

2023

 

 

25,066

 

2024

 

 

22,506

 

Thereafter

 

 

68,936

 

Total undiscounted lease payments

 

 

192,813

 

Less: imputed interest

 

 

(29,495

)

Total lease liabilities

 

$

163,318

 

 

The following table summarizes the maturity of our operating lease commitments as of December 31, 2019 (in thousands):

 

 

 

December 31, 2019

 

2020

 

$

34,775

 

2021

 

 

32,371

 

2022

 

 

26,112

 

2023

 

 

24,273

 

2024

 

 

21,578

 

Thereafter

 

 

67,025

 

Total undiscounted lease payments

 

 

206,134

 

Less: imputed interest

 

 

(45,086

)

Total lease liabilities

 

$

161,048

 

 

 

Note 15. Subsequent Events

Effective July 1, 2020, we acquired substantially all the assets of Prince-Wood Insurance, L.L.C. (“PWI”), a provider of financial, insurance and advisory services based in Woodbridge, Virginia. Operating results will be reported in the Benefits and Insurance Services practice group. Annualized revenue is estimated to be $1.2 million.

 

 

21


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we”, “us”, “our”, "CBIZ" or the "Company" shall mean CBIZ, Inc., a Delaware corporation, and its operating subsidiaries.

The following discussion is intended to assist in the understanding of our financial position at June 30, 2020 and December 31, 2019, results of operations for the three months and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019, and should be read in conjunction with the 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 ended December 31, 2019. 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 this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the year ended December 31, 2019.

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 throughout the United States and parts of Canada. We deliver integrated services through three practice groups: Financial Services, Benefits and Insurance Services, and National Practices. Refer to Note 13, Segment Disclosures, to the accompanying 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 ended December 31, 2019 for further discussion of our business and strategies, as well as the external relationships and regulatory factors that currently impact our operations.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic as the disease spread throughout the world. As a provider of essential services, our primary concern is protecting the health and safety of our employees and the communities in which we operate while assuring the continuity of our business operations to serve our clients’ needs.  

We announced a variety of measures to ensure the ongoing performance of our services to our clients while taking the necessary health and safety actions consistent with CDC guidelines starting in late February. As the COVID-19 situation evolved, these actions ultimately included bans on business travel, a migration to remote work conditions and multi-stage plans to bring our employees safely back to our offices. Our workforce is accustomed to remote work conditions and is equipped to continue to serve client needs throughout this period of time.

The widespread nature of these health related actions and the impact of these measures on the economy will create financial distress within our small and medium-size business client base and could cause a slowdown, write-down or write-off in client payments to us as a result. On March 25, 2020, we borrowed $210.0 million of the available capacity on our 2018 credit facility as a precautionary measure to preserve flexibility during this period of disruption and uncertainty. On May 21, 2020, we repaid $210.0 million that was borrowed during the first quarter and as a result, at June 30, 2020, we have unrestricted cash and cash equivalents of $9.6 million, a balance outstanding under our credit facility of $120.0 million and available funds under credit facility of approximately $270.4 million. We have taken a number of measures to control costs and expenditures including suspension of share repurchase activity. The high degree of uncertainty, coupled with the challenges of remote work conditions, has caused a slowdown in acquisition activity as we work with potential acquisition candidates to assess next steps. We believe that we have ample liquidity, and we believe we are in strong financial condition at June 30, 2020; however, depending upon the severity and duration, the COVID-19 pandemic presents potential new risks to our business, which could have a material adverse effect on our results of operation and financial condition.

The recurring and essential nature of the majority of our business services provides stability to our financial results, and through the second quarter of 2020, there has been no material adverse impact on our financial results. The deferral of tax-related filing deadlines as a result of the enactment of Coronavirus Aid, Relief, and Economic Security (“CARES”) Act will cause some tax compliance work to be delayed into third quarter. The sharp increase in unemployment within our client base will impact volumes and demand for certain of our services.

22


 

The conditions surrounding the COVID-19 pandemic remain highly uncertain. The longer the pandemic and the governmental response remains impactful to economic activities in the United States and globally, the higher the possibility for a material adverse effect on our company. For this reason, we cannot reasonably estimate with any degree of certainty the future impact the COVID-19 pandemic may have on our results of operations, financial position, and liquidity.

Executive Summary

Revenue for the three months ended June 30, 2020 increased $1.4 million, or 0.6%, to $236.9 million from $235.5 million for the same period in 2019. The increase was driven primarily by revenue from newly acquired operations, net of divestitures, of $4.6 million, or 2.0%, which was offset by lower same-unit revenue of $3.2 million, or 1.4%.  

Revenue for the six months ended June 30, 2020 increased $8.9 million, or 1.8%, to $514.4 million from $505.5 million for the same period in 2019. The increase was driven primarily by revenue from newly acquired operations, net of divestitures, of $9.8 million, or 1.9%, which was offset by lower same-unit revenue of $0.9 million, or 0.1%. A detailed discussion of revenue by practice group is included under “Operating Practice Groups.”

Income from continuing operations was $21.5 million, or $0.39 per diluted share, in the second quarter of 2020, compared to $16.6 million, or $0.30 per diluted share, in the second quarter of 2019. For the first half of 2020, income from continuing operations was $58.3 million, or $1.05 per diluted share, compared to $54.2 million, or $0.97 per diluted share, for the same period in 2019. Refer to “Results of Operations – Continuing Operations” for a detailed discussion of the components of income from continuing operations.

Strategic Use of Capital

We completed three acquisitions during the first half of 2020. Refer to Note 11, Business Combinations, to the accompanying consolidated financial statements for further discussion of 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 repurchased 1.2 million shares of our common stock at a total cost of approximately $31.1 million in the first half of 2020, but suspended further repurchase activity in mid-March as the COVID-19 pandemic began to have a severe impact on macroeconomic conditions.

During the first quarter of 2020, 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 on April 1, 2021. The shares may be purchased in open market, privately negotiated or Rule 10b5-1 trading plan purchases, which may include purchases from our employees, officers and directors, in accordance with the Securities 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

The following tables summarize total revenue for the three and six months ended June 30, 2020 and 2019 (in thousands except percentages).

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

% of

Total

 

 

2019

 

 

% of

Total

 

 

$

Change

 

 

%

Change

 

Financial Services

 

$

154,083

 

 

 

65.0

%

 

$

154,373

 

 

 

65.6

%

 

$

(290

)

 

 

(0.2

)%

Benefits and Insurance Services

 

 

73,940

 

 

 

31.2

%

 

 

72,127

 

 

 

30.6

%

 

 

1,813

 

 

 

2.5

%

National Practices

 

 

8,920

 

 

 

3.8

%

 

 

8,998

 

 

 

3.8

%

 

 

(78

)

 

 

(0.9

)%

Total CBIZ

 

$

236,943

 

 

 

100.0

%

 

$

235,498

 

 

 

100.0

%

 

$

1,445

 

 

 

0.6

%

23


 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

% of

Total

 

 

2019

 

 

% of

Total

 

 

$

Change

 

 

%

Change

 

Financial Services

 

$

342,860

 

 

 

66.6

%

 

$

339,517

 

 

 

67.1

%

 

$

3,343

 

 

 

1.0

%

Benefits and Insurance Services

 

 

153,552

 

 

 

29.9

%

 

 

148,382

 

 

 

29.4

%

 

 

5,170

 

 

 

3.5

%

National Practices

 

 

17,986

 

 

 

3.5

%

 

 

17,597

 

 

 

3.5

%

 

 

389

 

 

 

2.2

%

Total CBIZ

 

$

514,398

 

 

 

100.0

%

 

$

505,496

 

 

 

100.0

%

 

$

8,902

 

 

 

1.8

%

 

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 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 June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Operating expenses

 

$

209,016

 

 

$

198,149

 

 

$

10,867

 

 

 

5.5

%

Operating expenses % of revenue

 

 

88.2

%

 

 

84.1

%

 

 

 

 

 

 

 

 

Operating expenses excluding deferred compensation

 

$

196,784

 

 

$

201,156

 

 

$

(4,372

)

 

 

(2.2

)%

Operating expenses excluding deferred compensation % of revenue

 

 

83.1

%

 

 

85.4

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Operating expenses

 

$

408,843

 

 

$

413,644

 

 

$

(4,801

)

 

 

(1.2

)%

Operating expenses % of revenue

 

 

79.5

%

 

 

81.8

%

 

 

 

 

 

 

 

 

Operating expenses excluding deferred compensation

 

$

411,411

 

 

$

408,434

 

 

$

2,977

 

 

 

0.7

%

Operating expenses excluding deferred compensation % of revenue

 

 

80.0

%

 

 

80.8

%

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2020 compared to June 30, 2019. Total operating expenses for the second quarter of 2020 increased by $10.9 million, or 5.5%, to $209.0 million as compared to $198.1 million in the second quarter of 2019. The non-qualified deferred compensation increased operating expense by $12.2 million in the second quarter of 2020 compared to a reduction of $3.0 million of expense during the same period in 2019.

 

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 expenses decreased as compared to the same period in 2019 due to lower travel and discretionary spending of $6.8 million and other professional fees of $1.0 million, offset by approximately $3.4 million increase in personnel costs. Employee benefits, a component of personnel costs, decreased by approximately $4.3 million primarily due to lower healthcare related costs. Personnel costs are discussed in further detail under “Operating Practice Groups.”

24


 

Six months ended June 30, 2020 compared to June 30, 2019. Total operating expenses for the first half of 2020 decreased by $4.8 million, or 1.2%, to $408.8 million as compared to $413.6 million in the same period of 2019. The non-qualified deferred compensation decreased operating expenses $2.6 million for the first half of 2020 and increased operating expenses $5.2 million during the same period in 2019.

Personnel costs increased $8.1 million, primarily due to the impact of acquisitions. Employee benefits, a component of personnel costs, decreased by approximately $3.2 million primarily due to lower healthcare related costs. The increase in personnel cost was offset by lower travel and discretionary spending of $7.6 million. In addition, bad debt expense increased by $1.7 million primarily attributable to $2.2 million COVID-19 related adjustments for the first half of 2020.

Corporate General & Administrative (“G&A”) Expenses

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

G&A expenses

 

$

11,161

 

 

$

10,566

 

 

$

595

 

 

 

5.6

%

G&A expenses % of revenue

 

 

4.7

%

 

 

4.5

%

 

 

 

 

 

 

 

 

G&A expenses excluding deferred compensation

 

$

9,687

 

 

$

10,909

 

 

$

(1,222

)

 

 

(11.2

)%

G&A expenses excluding deferred compensation % of revenue

 

 

4.1

%

 

 

4.6

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

G&A expenses

 

$

21,649

 

 

$

22,246

 

 

$

(597

)

 

 

(2.7

)%

G&A expenses % of revenue

 

 

4.2

%

 

 

4.4

%

 

 

 

 

 

 

 

 

G&A expenses excluding deferred compensation

 

$

21,979

 

 

$

21,712

 

 

$

267

 

 

 

1.2

%

G&A expenses excluding deferred compensation % of revenue

 

 

4.3

%

 

 

4.3

%

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2020 compared to June 30, 2019. The decrease in our G&A expenses excluding deferred compensation is primarily due to lower personnel costs of $0.9 million

Six months ended June 30, 2020 compared to June 30, 2019. Our G&A expenses excluding deferred compensation increased due to higher professional service fees of $0.5 million while personnel costs decreased by $0.3 million.

Other Income (Expense), Net

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Interest expense

 

$

(2,074

)

 

$

(1,587

)

 

$

(487

)

 

 

30.7

%

Gain on sale of operations, net

 

 

57

 

 

 

50

 

 

 

7

 

 

 

14.0

%

Other income (expense), net (1)

 

 

13,336

 

 

 

(3,311

)

 

 

16,647

 

 

NM

 

Total other income (expense), net

 

$

11,319

 

 

$

(4,848

)

 

$

16,167

 

 

NM

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Interest expense

 

$

(3,193

)

 

$

(2,988

)

 

$

(205

)

 

 

6.9

%

Gain on sale of operations, net

 

 

152

 

 

 

547

 

 

 

(395

)

 

 

(72.2

)%

Other (expense) income, net (2)

 

 

(2,464

)

 

 

5,949

 

 

 

(8,413

)

 

NM

 

Total other (expense) income, net

 

$

(5,505

)

 

$

3,508

 

 

$

(9,013

)

 

NM

 

 

25


 

 

(1)

Other income (expense), net includes a net gain of $13.7 million in the second quarter of 2020, compared to a net loss of $3.4 million for the same period in 2019, 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” in the accompanying Consolidated Statements of Comprehensive Income. The deferred compensation plan has no impact on “Income from continuing operations before income tax expense” or diluted earnings per share from continuing operations.

 

(2)

Other (expense) income, net includes a net loss of $2.9 million during the six months ended June 30, 2020, compared to a net gain of $5.7 million for the same period in 2019, 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” in the accompanying Consolidated Statements of Comprehensive Income. 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

Three and six months ended June 30, 2020 compared with June 30, 2019. Our primary financing arrangement is the 2018 credit facility. For the second quarter of 2020, our average debt balance and interest rate was $260.8 million and 2.39%, compared to $171.7 million and 3.21% for the second quarter of 2019. For the first half of 2020, our average debt balance and interest rate was $203.0 million and 2.43%, compared to $161.5 million and 3.20% for the first half of 2019. The increase in interest expense for the quarter and six months ended June 30, 2020 as compared to the same periods in 2019 was primarily driven by higher average debt balances. Our indebtedness is further discussed in Note 4, Debt and Financing Arrangements, to the accompanying consolidated financial statements.

Gain on Sale of Operations, Net

Three and six months ended June 30, 2020 compared with June 30, 2019. We sold a small book of business in the Benefits and Insurance practice group during the first half of 2020 for a net gain of $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively. We sold a small accounting firm in the Financial Services practice group during the first half of 2019 for a net gain of $0.1 million and $0.5 million for the three and six months ended June 30, 2019, respectively.  

Other Income (Expense), Net

Three and six months ended June 30, 2020 compared with June 30, 2019. For the second quarter of 2020, other income (expense), net, includes a net gain of $13.7 million associated with the non-qualified deferred compensation plan as well as a $0.5 million net increase to the fair value of our contingent purchase price liability related to prior acquisitions. For the same period in 2019, other income (expense), net, includes a net loss of $3.4 million associated with the non-qualified deferred compensation plan as well as a $0.1 million net increase to the fair value of our contingent purchase price liability related to prior acquisitions.

For the first half of 2020, other income (expense), net, includes a net loss of $2.9 million associated with the non-qualified deferred compensation plan as well as a $0.2 million net decrease to the fair value of our contingent purchase price liability related to prior acquisitions. For the same period in 2019, other income (expense), net, includes a net gain of $5.7 million associated with the non-qualified deferred compensation plan as well as a $0.2 million net decrease to the fair value of our contingent purchase price liability related to prior acquisitions.

Income Tax Expense

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Income tax expense

 

$

6,607

 

 

$

5,322

 

 

$

1,285

 

 

 

24.1

%

Effective tax rate

 

 

23.5

%

 

 

24.3

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Income tax expense

 

$

20,060

 

 

$

18,935

 

 

$

1,125

 

 

 

5.9

%

Effective tax rate

 

 

25.6

%

 

 

25.9

%

 

 

 

 

 

 

 

 

 

26


 

Three and six months ended June 30, 2020 compared with June 30, 2019. Income tax expense for the second quarter of 2020 was $6.6 million, which resulted in an effective tax rate of 23.5%, compared to income tax expense of $5.3 million, which resulted in an effective tax rate of 24.3%, for the second quarter of 2019.

 

Income tax expense for the first half of 2020 was $20.1 million, which resulted in an effective tax rate of 25.6%, compared to income tax expense of $18.9 million, which resulted in an effective tax rate of 25.9%, for the first half of 2019.

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 June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-unit

 

$

152,836

 

 

$

154,373

 

 

$

(1,537

)

 

 

(1.0

)%

Acquired businesses

 

 

1,247

 

 

 

 

 

 

1,247

 

 

 

 

 

Total revenue

 

$

154,083

 

 

$

154,373

 

 

$

(290

)

 

 

(0.2

)%

Operating expenses

 

 

127,417

 

 

 

128,158

 

 

 

(741

)

 

 

(0.6

)%

Gross margin

 

$

26,666

 

 

$

26,215

 

 

$

451

 

 

 

1.7

%

Gross margin percent

 

 

17.3

%

 

 

17.0

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-unit

 

$

340,221

 

 

$

339,517

 

 

$

704

 

 

 

0.2

%

Acquired businesses

 

 

2,639

 

 

 

 

 

 

2,639

 

 

 

 

 

Total revenue

 

$

342,860

 

 

$

339,517

 

 

$

3,343

 

 

 

1.0

%

Operating expenses

 

 

266,015

 

 

 

262,616

 

 

 

3,399

 

 

 

1.3

%

Gross margin

 

$

76,845

 

 

$

76,901

 

 

$

(56

)

 

 

(0.1

)%

Gross margin percent

 

 

22.4

%

 

 

22.7

%

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2020 compared to June 30, 2019

Revenue

The Financial Services practice group revenue during the second quarter of 2020 decreased by 0.2% to $154.1 million from $154.4 million in the second quarter of 2019, primarily reflecting lower same-unit revenue of $1.5 million, or 1.0%. Same-unit revenue decreased $4.0 million in those units that provide project work and consulting services while those units providing traditional accounting and tax related services increased by $2.5 million. Acquired businesses contributed approximately $1.2 million of incremental 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 in the accompanying Consolidated Statements of Comprehensive Income and were approximately $39.7 million and $41.8 million for the three months ended June 30, 2020 and 2019, respectively.

27


 

Operating Expenses

Operating expenses decreased by $0.7 million, or 0.6%, during the second quarter of 2020. Operating expense as a percentage of revenue decreased to 82.7% from 83.0% for the prior year period, primarily due to approximately $4.5 million lower travel and discretionary spending, offset by $3.6 million higher personnel cost driven by an increase in traditional accounting and tax related services, of which $0.9 million was contributed by acquired businesses.

Six months ended June 30, 2020 compared to June 30, 2019

Revenue

Revenue for the first half of 2020 grew by 1.0% to $342.9 million from $339.5 million in 2019. Same-unit growth of $0.7 million, or 0.2%, was driven by units providing traditional accounting and tax related services which increased by $2.2 million. Same-unit revenue decreased $1.5 million in those units that provide project work and consulting services. Acquired businesses contributed approximately $2.6 million incremental revenue.

Fees earned under the ASAs, as described above, were $92.4 million and $92.0 million for the six months ended June 30, 2020 and 2019, respectively.

Operating Expenses

Operating expenses increased by $3.4 million, or 1.3%, for the six months ended June 30, 2020. Operating expense as a percentage of revenue increased to 77.6% from 77.3% for the prior year period, primarily due to higher personnel costs of $4.8 million.  The increase in personnel costs was attributable to an increase in traditional accounting and tax related services, of which $1.9 million was contributed by acquired businesses. Operating expenses also included higher bad debt expense of $2.2 million as a result of COVID-19 which was offset by lower professional services, travel and discretionary spending of $3.6 million.

Benefits and Insurance Services

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-unit

 

$

70,320

 

 

$

71,876

 

 

$

(1,556

)

 

 

(2.2

)%

Acquired businesses

 

 

3,577

 

 

 

 

 

 

3,577

 

 

 

 

 

Divested operations

 

 

43

 

 

 

251

 

 

 

(208

)

 

 

 

 

Total revenue

 

$

73,940

 

 

$

72,127

 

 

$

1,813

 

 

 

2.5

%

Operating expenses

 

 

61,283

 

 

 

61,075

 

 

 

208

 

 

 

0.3

%

Gross margin

 

$

12,657

 

 

$

11,052

 

 

$

1,605

 

 

 

14.5

%

Gross margin percent

 

 

17.1

%

 

 

15.3

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-unit

 

$

146,104

 

 

$

148,131

 

 

$

(2,027

)

 

 

(1.4

)%

Acquired businesses

 

 

7,405

 

 

 

 

 

 

7,405

 

 

 

 

 

Divested operations

 

 

43

 

 

 

251

 

 

 

(208

)

 

 

 

 

Total revenue

 

$

153,552

 

 

$

148,382

 

 

$

5,170

 

 

 

3.5

%

Operating expenses

 

 

126,506

 

 

 

122,446

 

 

 

4,060

 

 

 

3.3

%

Gross margin

 

$

27,046

 

 

$

25,936

 

 

$

1,110

 

 

 

4.3

%

Gross margin percent

 

 

17.6

%

 

 

17.5

%

 

 

 

 

 

 

 

 

 

28


 

Three months ended June 30, 2020 compared to June 30, 2019

Revenue

The Benefits and Insurance Services practice group revenue during the second quarter of 2020 increased by $1.8 million, or 2.5%, to $73.9 million compared to $72.1 million for the same period in 2019. Acquired businesses, net of divestures, contributed $3.4 million in incremental revenue with same-unit revenue decreasing $1.6 million due to lower non-recurring transactional revenue for the second quarter of 2020.

Operating Expenses

Operating expenses increased by $0.2 million, or 0.3%, during the second quarter of 2020. Operating expense as a percentage of revenue decreased to 82.9% from 84.7% of revenue for the same period in 2019, primarily due to higher revenue. Personnel costs increased by $2.2 million which was attributed to acquired businesses. The increase in personnel cost was offset by a decrease of $2.0 million in other professional services, travel and discretionary spending.

Six months ended June 30, 2020 compared to June 30, 2019

Revenue

Revenue for the first half of 2020 increased by $5.2 million, or 3.5%, to $153.6 million compared to $148.4 million for the same period in 2019.  The increase is primarily due to acquired businesses, net of divestitures, contributing $7.2 million in incremental revenue for the first half of 2020, offset by a decrease in same-unit revenue of $2.0 million, or 1.4%, caused by a decrease in non-recurring transactional revenue as well as decrease from our core benefit and insurance services.

Operating Expenses

Operating expenses increased by $4.1 million, or 3.3%, for the six months ended June 30, 2020. Operating expense as a percentage of revenue decreased to 82.4% from 82.5% of revenue for the prior year due to the same factors as discussed above in the quarterly section. Personnel costs increased by $5.8 million with acquisitions contributing $4.1 million to personnel costs. The increase in personnel costs was offset by a decrease of $1.7 million in other professional services, travel and discretionary expenses.

National Practices

 

 

 

Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Same-unit revenue

 

$

8,920

 

 

$

8,998

 

 

$

(78

)

 

 

(0.9

)%

Operating expenses

 

 

7,990

 

 

 

8,204

 

 

 

(214

)

 

 

(2.6

)%

Gross margin

 

$

930

 

 

$

794

 

 

$

136

 

 

 

17.1

%

Gross margin percent

 

 

10.4

%

 

 

8.8

%

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

$

Change

 

 

%

Change

 

 

 

(In thousands, except percentages)

 

Same-unit revenue

 

$

17,986

 

 

$

17,597

 

 

$

389

 

 

 

2.2

%

Operating expenses

 

 

16,273

 

 

 

16,204

 

 

 

69

 

 

 

0.4

%

Gross margin

 

$

1,713

 

 

$

1,393

 

 

$

320

 

 

 

23.0

%

Gross margin percent

 

 

9.5

%

 

 

7.9

%

 

 

 

 

 

 

 

 

 

Three and six months ended June 30, 2020 compared to June 30, 2019

Revenue and Operating Expenses

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. For the second quarter and first half of 2020, revenue decreased by $0.1 million, or 0.9%, and increased $0.4 million, or 2.2%, respectively, while operating expenses decreased $0.2 million, or 2.6%, and increased $0.1 million, or 0.4%.

29


 

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. During the first quarter 2020, we drew $210.0 million on our existing line of credit in response to the evolving COVID-19 pandemic and the uncertainty related to macroeconomic conditions and financial markets. We repaid the $210.0 million in the second quarter as we were generating sufficient cash flow to support our working capital, ongoing operating needs and other general corporate purposes.

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.

Accounts receivable balances increase in response to the increase in first quarter revenue generated by the Financial Services practice group. A significant amount of this revenue is billed and collected in subsequent quarters. During the three and six months ended June 30, 2020, we recorded $0.2 million and $2.2 million, respectively, of additional bad debt expense due to the impact caused by the COVID-19 pandemic. 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 87 days and 90 days at June 30, 2020 and 2019, respectively. DSO at December 31, 2019 was 75 days.

The following table presents selected cash flow information (in thousands). For additional details, refer to the accompanying Consolidated Statements of Cash Flows:

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Net cash provided by operating activities

 

$

55,523

 

 

$

19,580

 

Net cash provided by (used in) investing activities

 

 

12,807

 

 

 

(10,879

)

Net cash used in financing activities

 

 

(70,560

)

 

 

(42,076

)

Net decrease in cash, cash equivalents and restricted cash

 

$

(2,230

)

 

$

(33,375

)

 

Operating Activities

 

Cash provided by operating activities was $55.5 million during the six months ended June 30, 2020 primarily due to $58.3 million of net income and certain non-cash items, such as depreciation and amortization expense, totaling $18.5 million. This cash inflow was offset by $21.3 million cash used to fund working capital needs. Cash provided by operating activities was $19.6 million during the six months ended June 30, 2019 primarily due to $54.1 million of net income and certain non-cash items, such as depreciation and amortization expense, totaling approximately $15.8 million.  This cash inflow was offset by $50.1 million cash used to fund working capital needs.

Investing Activities

Cash provided by investing activities for the first half of 2020 consisted primarily of proceeds from the sales and maturities of client fund investments of $25.3 million and a net increase in funds held for clients of 3.1 million. This was offset by net cash used in investing activities for business acquisitions of $7.9 million, purchases of client fund investments of $3.4 million and capital expenditures of $5.3 million. Cash used in investing activities for the first half of 2019 consisted primarily of $6.9 million capital expenditures, $3.0 million net activity related to funds held for clients and $1.3 million used for business acquisitions.

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, 2019.

30


 

Financing Activities

Cash used in financing activities for the first half of 2020 primarily consisted of $50.8 million net decrease in client fund obligations, $31.1 million used to repurchase our common stock, as well as $6.2 million in contingent consideration payments related to prior acquisitions, partially offset by $14.5 million in net proceeds from additional borrowings under our 2018 credit facility.

Cash used in financing activities for the first half of 2019 primarily consisted of $34.9 million net decrease in client fund obligations, $21.7 million used to repurchase our common stock, as well as $11.7 million in contingent consideration payments related to prior acquisitions, partially offset by $23.5 million in net proceeds from additional borrowings under our 2018 credit facility.

Capital Resources

2018 Credit Facility

At June 30, 2020, we had $120.0 million outstanding under the 2018 credit facility as well as letters of credit and performance guarantees totaling $3.6 million. Available funds under the 2018 credit facility, based on the terms of the commitment, were approximately $270.4 million at June 30, 2020. The weighted average interest rate under the 2018 credit facility was 2.43% in the first half of 2020, compared to 3.20% for the same period in 2019. The 2018 credit facility allows for the allocation of funds for future strategic initiatives, 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 June 30, 2020. 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 credit facility and debt, refer to Note 4. Debt and Financing Arrangements, to the accompanying consolidated financial statements.

Use of Capital

During the first half of 2020, we completed three acquisitions. Refer to Note 11, Business Combinations, to the accompanying consolidated financial statements for further discussion on 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 is 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. During the first half of 2020, we repurchased 1.2 million shares of our common stock at a total cost of approximately $31.1 million, but suspended further repurchase activities in mid-March as the COVID-19 pandemic began to have a severe impact on macroeconomic conditions.

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, 2019), which qualify as variable interest entities. The accompanying 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 $1.3 million at both June 30, 2020 and December 31, 2019. In addition, we provide license bonds to various state agencies to meet certain licensing requirements. The amount of license bonds outstanding at both June 30, 2020 and December 31, 2019 totaled $2.3 million.

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

31


 

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 June 30, 2020, 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 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 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, 2019.

New Accounting Pronouncements

Refer to Note 2. New Accounting Pronouncements, to the accompanying 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 this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019. 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.

32


 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our floating rate debt under our 2018 credit facility exposes us to interest rate risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. A change in the Federal Funds Rate, or the reference rate set by Bank of America, N.A., would affect the rate at which we could borrow funds under the credit facility. Balance outstanding under our credit facility at June 30, 2020 was $120.0 million, of which $25.0 million is subject to rate risk. If market rates were to increase or decrease 100 basis points from the levels at June 30, 2020, interest expense would increase or decrease approximately $0.3 million annually.

We do not engage in trading market risk sensitive instruments. We periodically use interest rate swaps to manage interest rate risk exposure. The interest rate swaps effectively modify our exposure to interest rate risk, primarily through converting portions of its floating rate debt under the credit facility to a fixed rate basis. These agreements involve the receipt or payment of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amounts.

At June 30, 2020, we had four interest rate swaps with notional values, fixed rates of interest and expiration dates of (i) $10.0 million – 1.120% - February 2021, (ii) $20.0 million – 1.770% - May 2022, (iii) $15.0 million – 2.640% - June 2023 and (iv) $50.0 million – 0.885% - April 2025, respectively. Management will continue to evaluate the potential use of interest rate swaps as we deem appropriate under certain operating and market conditions. We do not enter into derivative instruments for trading or speculative purposes.

In connection with the services provided by our payroll operations, funds collected from our clients’ accounts in advance are segregated and may be invested in short-term investments, such as corporate and municipal bonds. In accordance with our investment policy, all investments carry an investment grade rating at the time of the initial acquisition, and are classified as available-for-sale securities. At each respective balance sheet date, these investments are adjusted to fair value with fair value adjustments being recorded to other comprehensive income or loss and reflected in the accompanying Consolidated Statements of Comprehensive Income for the respective period. If an investment is deemed to be impaired due to credit loss, then the adjustment is recorded to “Other income (expense), net” in the accompanying Consolidated Statements of Comprehensive Income. Refer to Note 6. Financial Instruments, and Note 7. Fair Value Measurements, to the accompanying consolidated financial statements for further discussion regarding these investments and the related fair value assessments.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management has evaluated the effectiveness of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report. This evaluation (“Controls Evaluation”) was done with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Disclosure Controls are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

33


 

Limitations on the Effectiveness of Controls

Management, including our CEO and CFO, does not expect that our Disclosure Controls or our internal control over financial reporting (“Internal Controls”) will prevent all error and all fraud. Although our Disclosure Controls are designed to provide reasonable assurance of achieving their objective, a control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within CBIZ have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of a control. A design of a control system is also based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Conclusions

Our Disclosure Controls are designed to provide reasonable assurance of achieving their objectives and, based upon the Controls Evaluation, our CEO and CFO have concluded that as of the end of the period covered by this report, CBIZ’s Disclosure Controls were effective at that reasonable assurance level.

(b) Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our current expected credit losses on financial assets measured at amortized cost and properly assessed the impact of the new accounting standard that was adopted on January 1, 2020. There were no significant changes to our internal control over financial reporting due to the adoption of the standard. Refer to Note 2, New Accounting Pronouncements, for further information. We have not experienced any material impact to our internal controls over financial reporting despite the fact that a portion of our employees are working remotely due to the COVID-19 pandemic.

Starting July 1, 2020, we are launching a new cloud-based accounting and financial reporting solution which includes general ledger, accounts payable, and fixed assets applications. As of June 30, 2020, we have successfully performed various end-user acceptance testing, including but not limited to, data validation, security, and employee training. However, the implementation of a new accounting and financial reporting solution could potentially affect the processes that constitute our internal controls over financial reporting and will require testing of such controls for effectiveness in the third quarter 2020.  

 

34


 

PART II – OTHER INFORMATION

Information regarding certain legal proceedings in which we are involved is incorporated by reference from Note 5, Commitments and Contingencies, to the accompanying consolidated financial statements.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the SEC. These risks could materially and adversely affect the business, financial condition and results of operations of CBIZ.

The widespread outbreak of a communicable illness or any other public health crisis could adversely affect our business, results of operations and financial condition.

We may face risks related to public health threats or widespread outbreak of a communicable illness. A widespread outbreak of a communicable disease or a public health crisis could adversely affect the global and domestic economy and our business partners’ ability to conduct business in the United States for an indefinite period of time. For example, in March 2020, the World Health Organization declared a new strain of coronavirus (“COVID-19”) a pandemic. The global spread of COVID-19 has negatively impacted the global economy and disrupted both financial markets and international trade. The COVID-19 pandemic resulted in increased unemployment levels and significantly impacted global supply chain. In addition, federal, state, and local governments have implemented various mitigation measures, including travel restrictions, restrictions on public gatherings, shelter-in-place restrictions, and limitations on business activities.  Although we are considered an essential business, some of these actions have adversely impacted the ability of our employees, contractors, suppliers, customers, and other business partners to conduct business activities, and could ultimately do so for an indefinite period of time. This could have a material adverse effect on our results of operations, financial condition, and liquidity, and will depend on numerous factors that we may not be able to predict, including:

 

the duration and severity of the pandemic;

 

governmental actions in response to the pandemic;

 

the impact of business and economic disruptions on our clients and their demand for our services; and

 

our clients’ ability to pay for our services.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Recent sales of unregistered securities – During the first half of 2020, approximately 81 thousand shares of our common stock were issued as payment for contingent consideration for previous acquisitions. The above referenced shares were issued in transactions not involving a public offering in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act. The persons to whom the shares were issued had access to full information about the Company and represented that they acquired the shares for their own account and not for the purpose of distribution. The certificates for the shares contain a restrictive legend advising that the shares may not be offered for sale, sold, or otherwise transferred without having first been registered under the Securities Act or pursuant to an exemption from the Securities Act.

(c) Issuer purchases of equity securities - On February 6, 2020, our Board of Directors authorized the continuation of the Share Repurchase Program, which has been renewed annually for the past sixteen years. It is effective beginning April 1, 2020, to which the amount of shares to be purchased will be reset to 5 million, and expires one year from the effective date. The Share Repurchase Program allows us to purchase shares of our common stock (i) in the open market, (ii) in privately negotiated transactions, and (iii) under Rule 10b5-1 trading plans. Privately negotiated transactions may include purchases from our employees, Officers and Directors, in accordance with SEC rules. Rule 10b5-1 trading plans allow for repurchases during periods when we would not normally be active in the trading market due to regulatory restrictions. The Share Repurchase Program does not obligate us to acquire any specific number of shares and may be suspended at any time.

35


 

Shares repurchased during the three months ended June 30, 2020 (reported on a trade-date basis) are summarized in the table below (in thousands, except per share data). During the second quarter of 2020, approximately 70 thousand shares were purchased from stock plan recipients in lieu of cash to satisfy certain tax obligations under the 2019 Plan. Average price paid per share includes fees and commissions.

 

 

 

Issuer Purchases of Equity Securities

 

Second Quarter Purchases

 

Total

Number of

Shares

Purchased

 

 

Average

Price Paid

Per

Share

 

 

Total Number of

Shares

Purchased as

Part of Publicly

Announced Plan

 

 

Maximum

Number of

Shares That

May Yet Be

Purchased

Under the Plan

 

April 1 – April 30, 2020

 

 

 

 

$

 

 

 

 

 

 

5,000

 

May 1 – May 31, 2020

 

 

70

 

 

$

22.45

 

 

 

70

 

 

 

4,930

 

June 1 – June 30, 2020

 

 

 

 

$

 

 

 

 

 

 

4,930

 

Second quarter purchases

 

 

70

 

 

$

22.45

 

 

 

70

 

 

 

 

 

 

According to the terms of our 2018 credit facility, we are not permitted to declare or make any dividend payments, other than dividend payments made by one of our wholly owned subsidiaries to the parent company. Refer to Note 9. Debt and Financing Arrangements, to the consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2019 for a description of working capital restrictions and limitations on the payment of dividends.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

36


 

Item 6. Exhibits

 

 

 

 

31.1 *

 

Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

 

31.2 *

 

 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1 **

 

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2 **

 

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document*

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document*

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document*

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document*

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

 

*

Indicates documents filed herewith.

**

Indicates document furnished herewith.

 

 

37


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

CBIZ, Inc.

 

 

 

 

(Registrant)

 

 

 

 

 

Date:

August 3, 2020

 

 

By:

/s/ Ware H. Grove

 

 

 

 

Ware H. Grove

 

 

 

 

Chief Financial Officer

 

 

 

 

Duly Authorized Officer and Principal Financial Officer

 

38

cbz-ex311_9.htm

 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CBIZ, INC.

I, Jerome P. Grisko, Jr., President and Chief Executive Officer, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of CBIZ, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 3, 2020

 

 

/s/ JEROME P. GRISKO, JR.

 

 

 

Jerome P. Grisko, Jr.

 

 

 

President and Chief Executive Officer

 

 

cbz-ex312_6.htm

 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CBIZ, INC.

I, Ware H. Grove, Chief Financial Officer, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of CBIZ, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 3, 2020

 

 

/s/ WARE H. GROVE

 

 

 

Ware H. Grove

 

 

 

Chief Financial Officer

 

 

cbz-ex321_8.htm

 

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CBIZ, INC.

This certification is provided pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and accompanies the Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) of CBIZ, Inc. (the “Issuer”) filed with the Securities and Exchange Commission on the date hereof.

I, Jerome P. Grisko, Jr., the President and Chief Executive Officer of the Issuer, certify that to the best of my knowledge:

 

(i)

the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(ii)

the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

Date: August 3, 2020

 

 

/s/ JEROME P. GRISKO, JR.

 

 

 

Jerome P. Grisko, Jr.

 

 

 

President and Chief Executive Officer

 

Subscribed and sworn to before me this 3rd day of August, 2020.

 

/s/ MICHAEL W. GLEESPEN

Name:

Michael W. Gleespen

Title:

Notary Public & Attorney-At-Law

Registered in Franklin County, Ohio

No Expiration Date

 

 

cbz-ex322_7.htm

 

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CBIZ, INC.

This certification is provided pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and accompanies the Quarterly Report on Form 10-Q for the period ended June 30, 2020 (the “Form 10-Q”) of CBIZ, Inc. (the “Issuer”) filed with the Securities and Exchange Commission on the date hereof.

I, Ware H. Grove, the Chief Financial Officer of the Issuer, certify that to the best of my knowledge:

 

(i)

the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(ii)

the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

Date: August 3, 2020

 

 

/s/ WARE H. GROVE

 

 

 

Ware H. Grove

 

 

 

Chief Financial Officer

 

Subscribed and sworn to before me this 3rd day of August, 2020.

 

/s/ MICHAEL W. GLEESPEN

Name:

Michael W. Gleespen

Title:

Notary Public & Attorney-At-Law

Registered in Franklin County, Ohio

No Expiration Date