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Text: Many factors could cause future results to differ materially.
A more detailed description of such factors can be found in our filings with the Securities and Exchange Commission.
Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; and Ware Grove, Chief Financial Officer.
Throughout the past year, I emphasized the fundamental characteristics of our business that I believe enable us to continue to perform well in both favorable and less favorable business climates.
As I described on our second quarter call, these characteristics include that approximately 70% of our revenue is generated from essential services, including our tax services, insurance services, payroll services and a host of others that we provide to our clients regardless of economic conditions in the market.
We generally retain approximately 90% of our clients from year-to-year.
We have a broad geographic footprint.
We serve a diverse client base in terms of size and industry.
We enjoy strong and constant cash flow and have a substantial amount of variable expenses in our business.
Our ability to grow throughout the challenging business climate that was 2020 is a testament to those characteristics, the strength of our business model and the agility and resilience of our team.
As expected and reflected in our results, some of our businesses performed better than others in more uncertain and volatile business environments.
Generally, the essential services described earlier tend to continue to perform well even in more challenging business climates while certain more discretionary services are less predictable.
Many of our more discretionary services are in higher demand when our clients are pursuing or making decisions around growth, such as acquisitions or significant expansion plans.
We saw much of this play out during 2020.
Within our Financial Services group, we experienced strong performance from our core tax & accounting business and our litigation support business and continued steady performance from our government healthcare consulting business.
We also experienced a slowdown in the second and third quarters in demand for certain of our more discretionary project-oriented services, such as our valuation business and portions of our private equity advisory practice.
However, demand for many of those services began to rebound in the fourth quarter, particularly for those services that are tied to supporting our clients' pursuit of acquisition opportunities.
One note on our government healthcare consulting practice.
On our last call, we discussed how the rate of growth had temporarily slowed during COVID due to restrictions of access to client facilities and delays in receiving client information.
In the fourth quarter, we were pleased to see the rate of growth for that business resume to more normal levels, and we expect demand for the services provided by that business to remain strong throughout 2021.
Turning to our Benefits and Insurance group.
We had a similar experience to our Financial Services group with strong performance from the essential services that we provide, including our employee benefits business, the commercial and personal lines portion of our property and casualty business, the advisory services we provide for our clients on the retirement plans and demand for our upmarket, more robust payroll platform.
From a consolidated view, the solid results that we experienced for those services were somewhat clouded by the softer results from a relatively small portion of our property and casualty business tied to the hospitality and adventure sports, a decline in the number of payrolls processed for some of our smaller clients, particularly those tied to the restaurant industry and a number of other more project-oriented service lines.
The encouraging note here is that we expect the portions of that business that were negatively impacted by the soft economic conditions to return to more normal growth levels once the economy improves.
One last note as it relates to our Benefits and Insurance business.
We have made substantial investments over the past several years in hiring, training and supporting new producers within this group.
Those investments are essential to drive sustained long-term organic revenue growth.
The early report card on those investments is very encouraging.
And as a group, the new producers that we brought into this program are outperforming our projections.
As a result, we are continuing to invest in our new producer program and to expand this program to other business lines.
Now looking forward, we enter into this year in a position of financial strength with a very strong balance sheet, low debt and ready access to capital.
As we demonstrated in 2020, we also have a significant amount of variable expenses and considerable discretionary spending items that we can manage to preserve liquidity, if economic conditions are worse than currently anticipated.
While much remains uncertain, we expect client demand for our core essential services to remain strong and for client interest in many of our more discretionary services to increase as business conditions continue to improve.
Based on our performance in 2020, the financial strength of the business, the cost control measures that we have at our command and our current view of the business climate for 2021, we have elected to reinstate guidance for this year.
I want to caution that while we are comfortable issuing annual guidance, we do expect more volatility than we ordinarily experience when comparing a given quarter to the same period in the prior year.
So we would caution against doing so.
These assumptions include the first six to nine months of 2021 will be similar to what we experienced in the second half of 2020, and we expect continued recovery in the M&A market, which impacts many of our more project-based and private equity services.
We saw improvement in the fourth quarter and expect this trend to continue throughout 2021.
The total revenue growing by 1.6% for the full year and margin on pre-tax earnings from continuing operations increasing by 90 basis points.
We were pleased to report earnings per share of $1.42 for the full year, up 11.8% over $1.27 reported a year ago.
To recap a few important points.
As the impact of the COVID pandemic unfolded, there was considerable risk and uncertainty everywhere.
We took a number of immediate actions to protect our liquidity, and we took measures to prudently control expenses with a view toward preserving our ability to serve clients in order that we could emerge as a strong and healthy business ready to resume growth.
We have not been completely immune, but with many actions we took, coupled with the dedication of our CBIZ team, we are pleased that our business model has weathered the storm, and we are now a stronger company for the experiences in 2020.
Our primary concern operating under the pandemic environment was to protect our liquidity.
Perhaps the best measure of our success in 2020 is the continuing nature of our strong positive cash flow.
We ended 2020 with $108 million of outstanding debt on our credit facility, increasing only $2.5 million from $105.5 million at year-end a year ago.
After an active first quarter in 2020, repurchasing 1.2 million shares and closing three acquisitions, we paused both acquisitions and share repurchase activity from mid-March through mid-September until we could develop more confidence with the stability of our cash flow trends.
For the full year of '20, we closed seven acquisitions and utilized $89.7 million of capital for acquisition activities.
We also deployed $57.6 million to repurchase approximately 2.3 million shares for the full year, including the repurchase of one million shares in the fourth quarter.
For the full year, with $147.3 million of capital used for these two purposes, our borrowing increased by only $2.5 million.
This results in a leverage ratio of approximately 0.8 times on adjusted EBITDA of $132.1 million, with $286 million of unused capacity.
Going into '21, this offers us great flexibility to continue to deploy capital for acquisitions and for continuing our share repurchase activity.
Through February 16 to date this year, we have repurchased an additional 600,000 shares, and we intend to continue to repurchase shares.
With this recent activity, when combined with shares repurchased in 2020, this has resulted in the repurchase of more than 5% of our shares outstanding.
When you also consider the 1.2 million shares repurchased in the prior year 2019, we have repurchased approximately 4.1 million shares or roughly 7.5% of shares outstanding within the past two years, and we've utilized nearly $100 million of capital for these activities.
Considering our strong balance sheet and cash flow attributes, we can repurchase this level of shares without compromising our capacity for acquisitions.
With the seven acquisitions closed in 2020, plus an eighth transaction we announced effective on January one this year, collectively these newly acquired operations will generate approximately $48 million of annualized revenue.
Strategically, these acquired operations will further strengthen Benefits and Insurance services.
We'll add an important component to our financial advisory services and we'll add capacity in order to accelerate the rollout of our integrated payroll services platform that focuses on upmarket clients.
Acquisition-related payments for earn-outs from previously closed transactions are estimated at $13.6 million in 2021.
In 2022, we estimate a use of approximately $15.4 million, approximately $9.1 million in 2023, $13 million in 2024 and approximately $800,000 in 2025.
For 2020, capital spending for the full year was $11.7 million, of which $2.2 million was in the fourth quarter.
We expect capital spending within a range of $12 million to $15 million, looking ahead into 2021.
Depreciation and amortization expense for the full year of '20 was $23.1 million, $9.6 million of depreciation with $13.5 million of amortization.
In the fourth quarter, depreciation and amortization expense was $5.9 million.
A major concern for us as the pandemic unfolded in 2020 was our clients' ability to pay receivables.
As we transition to remote work conditions at the end of the first quarter in 2020, our team did a great job refining and adopting new processes and digital tools for billing and management of receivables.
These tools are now a more permanent fixture in our workflow processes and in our communication with clients.
Days sales outstanding performance on receivables improved this past year despite the volatile conditions and financial stress throughout the economy.
At the end of the year, days sales outstanding stood at 72 days compared with 75 days a year earlier.
Although not completely immune to financial stress, this is also good evidence that with our diverse client base, there is no significant concentration of clients in the more severely impacted areas of the economy, such as hospitality, travel, restaurant or entertainment businesses.
At the end of the first quarter in 2020, we recorded an additional $2 million of reserve for bad debt.
With continuing uncertainty in the economy, although days sales outstanding performance has improved, we continue to carry that level of reserves for bad debt.
For the full year of '20, bad debt expense was 45 basis points of total revenue compared with 25 basis points of total revenue for 2019.
Total consolidated revenue for the full year was up 1.6%, with same unit revenue declining slightly by 0.4%.
In the fourth quarter, total revenue grew by 3.9% and same unit revenue grew by 1.1%.
Within Financial Services, total revenue for the full year was up 2.1%, with same unit revenue up 0.8%.
In the fourth quarter, total revenue in Financial Services was up 6.6% with same unit revenue up 3.3%.
Turning to Benefits and Insurance.
For the year, total revenue grew by 0.5%, with same unit revenue declining by 3%.
And in the fourth quarter, revenue declined by 0.8% and same unit revenue declined by 3.2%.
As I indicated in our third quarter conference call, revenue growth numbers were impacted by a relatively small number of our operations, where the nature of advisory or transactional services was more severely impacted by economic conditions.
For the full year, these businesses represented 16% of our total revenue, but collectively, these businesses declined by 12.8% in 2020 compared with the prior year.
Adjusting total revenue to exclude the impact of these businesses, the remaining core revenue would reflect growth of 4.9% rather than the 1.6% reported.
Same unit revenue would reflect growth of 2.5% rather than the 0.4% decline reported.
Fourth quarter revenue adjusted to exclude these businesses, grew by 8.3% versus the reported 3.9% and same unit revenue grew by 4.7% versus the reported 1.1%.
With pre-tax income margin improving by 90 basis points to 10.7% from 9.8% the prior year, we saw a favorable impact resulting from the cost control measures we took in deferring discretionary items, plus the favorable impact from the natural reduction in travel, entertainment expense and from the lower cost for our self-funded healthcare benefits.
Among other things, for 2020, T&E costs came in at approximately 30% of the prior year levels, and healthcare costs came in at approximately 85% of expectations as discretionary and elective medical procedures were deferred.
Adjusting the reported operating margin to remove the impact of accounting for gains and losses on assets held in the deferred compensation plan, operating income was 11.2% for the full year, up 70 basis points compared with 10.5% in 2019.
As Jerry outlined, we think business conditions in 2021 will look very much like the environment we experienced during the second half of 2020.
Of course, the timing and impact of a successful COVID vaccination rollout is very unclear, and there is still risk and uncertainty ahead.
Considering the stability and performance of our core businesses in 2020, together with the impact of recent acquisitions, we think revenue will continue to grow in a similar matter, as I just described.
We are projecting total revenue growth in 2021 within a range of 5% to 8%.
As a reminder, we do not provide guidance for quarterly results.
But as you think about the year ahead, bear in mind, the first quarter last year was a relatively strong quarter before we felt a COVID impact in the second half of March.
With the 5% to 8% revenue growth expectation, we are looking to increase earnings per share within a range of 8% to 12% over the $1.42 recorded for 2020.
Consistent with our longer-term goals, we can manage a number of discretionary items, and we expect to improve margin within a range of 20 to 50 basis points.
You will note the effective tax rate was 24.3% in 2020.
Aside from any change in tax law that may arise from the new administration, there are a number of variables that can impact our tax rate, either up or down.
But as we look ahead to 2021, we are projecting a 25% effective tax rate.
Ongoing share repurchase activity will impact the fully diluted weighted average share count.
At this time, we are estimated 54.5 million fully diluted shares for the full year, down from 55.4 million shares in 2020.
As I mentioned, we are continuing to repurchase shares, and we will update this estimate at the end of the first quarter and throughout the year.
Adjusted EBITDA for 2020 came in at $132.1 million or 13.7% of revenue, a 9.6% increase from the prior year, and we expect to further improve that margin in '21.
So in conclusion, we were pleased to see stability in client demand and cash flow as we progress through the year.
We have emerged from the challenge of 2020 as a stronger company with stronger processes.
Going into 2021, we think our business will continue to reflect the stability, evidenced by the performance this past year.
We recognize the uncertainty and risks ahead, and we will plan to update our expectations as conditions dictate throughout the balance of the year.
First, I would like to talk about our unique position in the market and how it allows us to provide solutions to our clients that are unmatched in our industries.
While we have a large number of very capable competitors for many of the services we provide, they are often not aligned and lack the ability to provide the holistic, multidisciplinary solutions that our clients need when analyzing decisions that relate to their most impactful opportunities or greatest challenges.
We witnessed the strength of our business model throughout 2020 as we move quickly to collaborate across businesses, service lines and geographies to bring CBIZ's resources and expertise to bear in coordinated services that were responsive to our clients' most pressing needs.
We are encouraged by the value that our holistic multidisciplinary solutions approach brings to our clients and are excited for the opportunities that it presents for CBIZ to further distinguish us from our competitors.
Next, relating to M&A.
The acquisition of BeyondPay brings additional implementation capacity to support sales of our upmarket payroll solution and follows another similar acquisition earlier in 2020.
We also acquired Borden Perlman Insurance Agency within our property and casualty business.
Based in New Jersey, Borden Perlman is a leading provider of property and casualty insurance with an over 100-year history of serving clients on the East Coast.
Both of these acquisitions provide strategic value, but are also strong cultural fits, which is the most important factor when we consider acquisition opportunities.
As Ware mentioned, overall, we completed seven acquisitions in 2020, all of which bring expertise, capacity, talent and a strong client base to our business.
As I mentioned earlier, in 2021, we've already completed one acquisition with our core accounting and tax practices with the addition of Middle Market Advisory Group in Denver, Colorado.
MMA provides tax complying and consulting services to middle market companies and family groups across a number of attractive industries and complements our rapidly growing Colorado practice.
Acquisitions continue to be an essential component of our growth strategy.
While the M&A market slowed in the second and third quarters of last year, we are seeing activity resume.
We are finding that our performance throughout the pandemic allows us to tell a compelling story when it comes to potential partners.
The challenges faced by many of our smaller competitors throughout COVID shined a light on the value that CBIZ can bring to our team members and our clients as a result of our scale, breadth and depth of services and expertise.
As a result, our pipeline of outstanding acquisition prospects is stronger than it has been in many years, and we have access to capital to be aggressive as we seek to take advantage of many of these opportunities as we can.

user
sees 2021 total revenue up 5% to 8%.
sees 2021 earnings per share from continuing operations up 8% to 12%.

assistant