Company Overview and History
CBIZ, Inc. (CBZ) is a leading diversified business services provider, offering an impressive array of professional solutions to small and medium-sized businesses, governmental entities, and non-profit organizations across the United States and parts of Canada. With a history spanning over two decades, CBIZ has evolved into a formidable player in the industry, consistently delivering innovative services and driving sustainable growth.
Established in 1996, CBIZ has undergone a transformative journey, strategically expanding its service offerings and geographic footprint to become a one-stop-shop for a wide range of business needs. The company's three primary practice groups – Financial Services, Benefits and Insurance Services, and National Practices – cater to the diverse requirements of its clients, providing an unparalleled level of expertise and customized solutions.
Growth Strategy and Challenges
In its early years, CBIZ focused on building its presence and service offerings through strategic acquisitions, allowing it to strengthen its position in existing markets and expand into high-growth industries. This inorganic growth strategy helped CBIZ broaden its services and establish itself as a leading provider of integrated professional services. However, the company faced challenges in maintaining the independence and operations of the acquired firms due to independence requirements and conflict of interest rules.
To address these challenges, CBIZ developed policies and procedures to enable it to maintain independence and manage conflicts of interest in accordance with applicable standards. This allowed the company to continue growing its service offerings and client base through strategic acquisitions while also investing in its internal capabilities and expertise. Throughout its history, CBIZ has faced occasional headwinds, such as revenue fluctuations, slower than expected collections, and the loss of key personnel, but has successfully navigated these challenges.
Business Segments Performance
CBIZ's Financial Services division is a powerhouse, offering a comprehensive suite of accounting, tax, advisory, and consulting services. This segment has been a consistent driver of the company's growth, with same-unit revenue increasing by 4.5% in the first nine months of 2024 and 5.2% in the third quarter alone. The strength of CBIZ's traditional accounting and tax-related services, coupled with the robust performance of its advisory services, has been a testament to the company's ability to adapt and capitalize on market opportunities.
In the third quarter of 2024, the Financial Services segment generated $322.3 million in revenue, up 8.0% from the same period in 2023. This increase was driven by growth across traditional accounting and tax services, advisory services, and government healthcare compliance business consulting. Operating expenses for the Financial Services segment increased 4.4% compared to the prior year quarter, primarily due to higher personnel costs and direct costs. The segment maintained a strong gross margin of 19.1% for the quarter.
The Benefits and Insurance Services division has also exhibited impressive results, with same-unit revenue growing by 4.0% in the first nine months of 2024 and 3.7% in the third quarter. The company's expertise in employee benefits, retirement planning, property and casualty insurance, and payroll-related services has enabled it to expand its client base and deepen its relationships with existing customers.
For the third quarter of 2024, the Benefits and Insurance Services segment generated $104.0 million in revenue, an increase of 3.7% from the same period in 2023. The revenue growth was driven by increases in the employee benefit, retirement benefit, and property and casualty service lines, partially offset by a decrease in project-based services. Operating expenses for this segment increased 4.2% compared to the prior year quarter, primarily due to higher personnel costs. The Benefits and Insurance Services segment maintained a strong gross margin of 20.3% for the quarter.
CBIZ's National Practices segment, which includes its government healthcare consulting business, has also contributed to the company's overall success. This division experienced a 14.5% increase in same-unit revenue during the first nine months of 2024, further solidifying CBIZ's position as a trusted partner for a diverse range of clients. The National Practices group is primarily driven by a cost-plus contract with a single client, which accounted for approximately 75% of the segment's revenue. During the three months ended September 30, 2024, revenue for the National Practices segment increased 5.6% compared to the prior year period, while operating expenses increased 4.1%. The National Practices segment had a gross margin of 11.5% for the quarter.
Financial Performance
The company's strong financial performance is evidenced by its robust revenue growth and impressive profitability. In the first nine months of 2024, CBIZ reported a 7.1% increase in total revenue, with same-unit revenue growing by 4.6%. The company's adjusted earnings per share (EPS) during the same period increased by 7.5% year-over-year, showcasing its ability to translate top-line growth into bottom-line results.
For the most recent fiscal year (2023), CBIZ reported revenue of $1.59 billion, net income of $120.97 million, operating cash flow of $153.51 million, and free cash flow of $130.46 million. In the most recent quarter (Q3 2024), the company reported revenue of $438.88 million, net income of $35.08 million, operating cash flow of $43.73 million, and free cash flow of $41.05 million. Year-over-year, revenue grew 6.9%, driven by 5.1% same-unit revenue growth and 1.9% contribution from acquired businesses. The increase in revenue was broad-based across the Financial Services and Benefits and Insurance Services practice groups.
CBIZ's overall gross margin for the third quarter of 2024 was 16.6%, demonstrating the company's ability to maintain profitability while driving growth across its various segments.
Strategic Acquisitions
CBIZ's commitment to strategic acquisitions has also been a key driver of its expansion. In 2024, the company completed three acquisitions, further strengthening its capabilities and expanding its geographic reach. The most significant of these was the acquisition of Marcum LLP, a leading national professional services firm. The successful integration of Marcum has positioned CBIZ as the largest full-service professional services advisor of its kind in the United States, with expected combined annualized revenue of approximately $2.8 billion.
It's worth noting that on June 21, 2023, Marcum agreed to pay $13 million to resolve charges by the SEC and PCAOB related to quality control failures and audit standard violations for SPAC and other clients. While this event occurred prior to CBIZ's acquisition of Marcum, it could potentially impact CBIZ's reputation and the profitability of the acquired attest business.
Liquidity and Financial Position
The company's strong financial position and liquidity have enabled it to pursue growth opportunities effectively. As of September 30, 2024, CBIZ had $337.3 million outstanding under its $600 million credit facility, with available funds of approximately $252 million. The company's cash flow generation capabilities have been robust, with free cash flow reaching $130.5 million in 2023.
CBIZ recently entered into a new $2 billion credit facility, consisting of a $600 million revolver and $1.4 billion term loan, in connection with the Marcum acquisition. This expanded facility provides the company with additional financial flexibility to support its growth initiatives and strategic investments.
The company's financial health is further evidenced by its strong liquidity ratios. As of September 30, 2024, CBIZ reported a debt-to-equity ratio of 0.36x, a current ratio of 1.49x, and a quick ratio of 1.49x. These metrics indicate that CBIZ maintains a healthy balance sheet and has the ability to meet its short-term obligations while pursuing long-term growth opportunities.
Future Outlook
Looking ahead, CBIZ remains well-positioned to capitalize on the evolving needs of its clients. The company's diversified service offerings, strong brand reputation, and experienced management team position it as a trusted partner for businesses navigating the ever-changing landscape. CBIZ's commitment to innovation, coupled with its focus on client satisfaction, has been instrumental in driving its success and positioning it for continued growth.
For the full year 2024, CBIZ expects total revenue to increase within a range of 7% to 9%. The company anticipates GAAP reported earnings per share to be within a range 1% higher or lower than the $2.39 reported for 2023, primarily due to Marcum-related acquisition expenses. Adjusted earnings per share are expected to increase within a range of 10% to 12% over the $2.41 reported for 2023. CBIZ also projects an effective tax rate of approximately 28% for the full year 2024 and a fully diluted weighted average share count within a range of 50 million to 50.5 million shares.
The company plans to provide guidance for 2025, including the impact of the Marcum acquisition, when it announces its Q4 and full year 2024 results. This forward-looking approach demonstrates CBIZ's commitment to transparency and its confidence in its long-term growth prospects.
Conclusion
In conclusion, CBIZ's impressive track record, diverse service portfolio, and strategic acquisitions have established it as a preeminent player in the professional services industry. With its robust financial performance, strong liquidity, and forward-looking initiatives, CBIZ is poised to continue its trajectory of sustainable growth and value creation for its shareholders. The company's ability to navigate challenges, capitalize on market opportunities, and maintain strong margins across its various segments positions it well for continued success in the dynamic and competitive professional services landscape.