CBIZ Reports Second-Quarter And First-Half 2018 Results

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

THREE MONTHS ENDED JUNE 30, 2018 AND 2017

(In thousands, except percentages and per share data)

THREE MONTHS ENDED

JUNE 30,

2018

%

2017

%

Revenue

$

232,641

100.0

%

$

211,016

100.0

%

Operating expenses (1)

205,102

88.2

%

188,120

89.1

%

Gross margin

27,539

11.8

%

22,896

10.9

%

Corporate general and administrative expenses (1)

9,993

4.3

%

9,232

4.4

%

Operating income

17,546

7.5

%

13,664

6.5

%

Other (expense) income:

Interest expense

(1,817)

-0.8

%

(1,692)

-0.8

%

Gain on sale of operations, net

-

0.0

%

23

0.0

%

Other income, net (1) (2)

630

0.3

%

3,764

1.8

%

Total other (expense) income, net

(1,187)

-0.5

%

2,095

1.0

%

Income from continuing operations before income tax expense

16,359

7.0

%

15,759

7.5

%

Income tax expense

3,238

4,343

Income from continuing operations

13,121

5.6

%

11,416

5.4

%

Loss from operations of discontinued businesses, net of tax

(15)

(418)

Net income

$

13,106

5.6

%

$

10,998

5.2

%

Diluted earnings (loss) per share:

Continuing operations

$

0.23

$

0.20

Discontinued operations

-

(0.01)

Net income

$

0.23

$

0.19

Diluted weighted average common shares outstanding

56,437

55,831

Other data from continuing operations:

Adjusted EBITDA (3)

$

24,077

$

23,066

(1)

CBIZ sponsors a 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 deferred compensation plan are included in "Operating expenses" ($1.8 million expense in 2018 and $2 million expense in 2017, or (0.8%) and (0.9%) of revenue, respectively) and "Corporate general and administrative expenses" ($0.2 million expense in 2018 and 2017, respectively, or (0.1%) and (0.1%) of revenue, respectively) and are directly offset by deferred compensation gains or losses in "Other income, net" ($2 million income in 2018 and $2.2 million income in 2017, or 0.9% and 1.0% of revenue, respectively). The deferred compensation plan has no impact on "Income from continuing operations before income tax expense".    

(2)

Included in "Other income, net" for the three months ended June 30, 2018 and 2017, is expense of $1.4 million and income of $1.4 million, respectively, related to net changes in the fair value of contingent consideration related to CBIZ's prior acquisitions.

(3)

Refer to the financial highlights tables for a reconciliation of Non-GAAP financial measures to the nearest generally accepted accounting principles ("GAAP") financial measure, and for additional information as to the usefulness of the Non-GAAP financial measures to shareholders and investors. 

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(In thousands, except percentages and per share data)

SIX MONTHS ENDED

JUNE 30,

2018

%

2017

%

Revenue

$

498,731

100.0

%

$

452,475

100.0

%

Operating expenses (1)

409,852

82.2

%

380,886

84.2

%

Gross margin

88,879

17.8

%

71,589

15.8

%

Corporate general and administrative expenses (1)

20,021

4.0

%

18,000

4.0

%

Operating income

68,858

13.8

%

53,589

11.8

%

Other (expense) income:

Interest expense

(3,597)

-0.7

%

(3,209)

-0.7

%

Gain on sale of operations, net

663

0.1

%

45

0.0

%

Other (expense) income, net (1) (2)

(599)

-0.1

%

6,501

1.5

%

Total other (expense) income, net

(3,533)

-0.7

%

3,337

0.8

%

Income from continuing operations before income tax expense

65,325

13.1

%

56,926

12.6

%

Income tax expense

16,394

20,484

Income from continuing operations

48,931

9.8

%

36,442

8.1

%

Gain (loss) from operations of discontinued businesses, net of tax

26

(570)

Net income

$

48,957

9.8

%

$

35,872

7.9

%

Diluted earnings (loss) per share:

Continuing operations

$

0.87

$

0.66

Discontinued operations

-

(0.01)

Net income

$

0.87

$

0.65

Diluted weighted average common shares outstanding

56,166

55,530

Other data from continuing operations:

Adjusted EBITDA (3)

$

79,935

$

71,369

(1)

CBIZ sponsors a 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 deferred compensation plan are included in "Operating expenses" ($1.7 million expense in 2018 and $4.9 million expense in 2017, or (0.3%) and (1.1%) of revenue, respectively) and "Corporate general and administrative expenses" ($0.2 million expense in 2018 and $0.5 million expense in 2017, or (0.0%) and (0.1%) of revenue for both 2018 and 2017) and are directly offset by deferred compensation gains or losses in "Other (expense) income, net" ($1.9 million income in 2018 and $5.4 million income in 2017, or 0.4% and 1.2% of revenue, respectively). The deferred compensation plan has no impact on "Income from continuing operations before income tax expense". 

(2)

Included in "Other (expense) income, net" for the six months ended June 30, 2018 and 2017, is expense of $3.1 million and income $0.8 million, respectively, related to net changes in the fair value of contingent consideration related to CBIZ's prior acquisitions.

(3)

Refer to the financial highlights tables for a reconciliation of Non-GAAP financial measures to the nearest GAAP financial measure, and for additional information as to the usefulness of the Non-GAAP financial measures to shareholders and investors.

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

(In thousands)

SELECT SEGMENT DATA

THREE MONTHS ENDED

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2018

2017

2018

2017

Revenue

Financial Services

$

151,737

$

132,591

$

332,340

$

291,224

Benefits and Insurance Services

72,753

70,559

150,083

145,723

National Practices

8,151

7,866

16,308

15,528

Total

$

232,641

$

211,016

$

498,731

$

452,475

Gross Margin

Financial Services

$

22,667

$

16,740

$

70,237

$

55,984

Benefits and Insurance Services

11,588

10,682

27,785

25,704

National Practices

584

631

1,466

1,286

Operating expenses - unallocated (1):

Other

(5,461)

(3,167)

(8,884)

(6,441)

Deferred compensation

(1,839)

(1,990)

(1,725)

(4,944)

Total

$

27,539

$

22,896

$

88,879

$

71,589

(1)

Represents operating expenses not directly allocated to individual businesses, including stock-based compensation, consolidation and integration charges, and certain advertising expenses. "Operating expenses - unallocated" also include gains or losses attributable to the assets held in the Company's deferred compensation plan. These gains or losses do not impact "Income from continuing operations before income tax expense" as they are directly offset by the same adjustment to "Other income (expense), net" in the Consolidated Statements of Comprehensive Income. Net gains/losses recognized from adjustments to the fair value of the assets held in the deferred compensation plan are recorded as compensation expense in "Operating expenses" and as income in "Other income (expense), net".

CBIZ, INC.

SELECT CASH FLOW DATA

(In thousands)

SIX MONTHS ENDED

JUNE 30,

2018

2017

Net income

$

48,957

$

35,872

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

Depreciation and amortization expense

11,676

11,279

Bad debt expense, net of recoveries

3,172

2,439

Adjustments to contingent earnout liability

3,050

(756)

Stock-based compensation expense

3,850

2,790

Other noncash adjustments

(2,840)

(1,115)

Net income, after adjustments to reconcile net income to net cash provided by operating activities

67,865

50,509

Changes in assets and liabilities, net of acquisitions and divestitures

(26,607)

(25,731)

Operating cash flows provided by continuing operations

41,258

24,778

Operating cash used in discontinued operations

(152)

(540)

Net cash provided by operating activities

41,106

24,238

Net cash provided by investing activities

42,471

31,757

Net cash used in financing activities

(75,530)

(51,284)

Net increase in cash and cash equivalents

$

8,047

$

4,711

CBIZ, INC.

SELECT FINANCIAL DATA AND RATIOS

(In thousands)

JUNE 30,

DECEMBER 31,

2018

2017

Cash and cash equivalents

$

1,921

$

424

Restricted cash

39,535

32,985

Accounts receivable, net

245,639

188,300

Current assets before funds held for clients

314,968

245,061

Funds held for clients - current and non-current

131,304

203,112

Goodwill and other intangible assets, net

640,312

613,206

Total assets

$

1,210,124

$

1,176,231

Notes payable - current

$

1,632

$

1,861

Current liabilities before client fund obligations

$

173,123

$

130,664

Client fund obligations

132,289

203,582

Notes payable - long-term

1,653

2,164

Bank debt

178,493

177,672

Total liabilities

$

621,298

$

645,352

Treasury stock

$

(495,455)

$

(491,046)

Total stockholders' equity

$

588,826

$

530,879

Debt to equity

30.9

%

34.2

%

Days sales outstanding (DSO) - continuing operations (1)

82

75

Shares outstanding

55,429

54,592

Basic weighted average common shares outstanding

54,334

53,862

Diluted weighted average common shares outstanding

56,166

55,689

(1)

DSO is provided for continuing operations and represents accounts receivable, net, at the end of the period, divided by trailing twelve month daily revenue. The Company has included DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of the Company's ability to collect on receivables in a timely manner. DSO should not be regarded as an alternative or replacement to any measurement of performance under GAAP. DSO at June 30, 2017 was 83.

CBIZ, INC.

GAAP RECONCILIATION

Income from Continuing Operations to Non-GAAP Financial Measures (1)

(In thousands)

THREE MONTHS ENDED

SIX MONTHS ENDED

JUNE 30,

JUNE 30,

2018

2017

2018

2017

Income from continuing operations

$

13,121

$

11,416

$

48,931

$

36,442

Interest expense

1,817

1,692

3,597

3,209

Income tax expense

3,238

4,343

16,394

20,484

Gain on sale of operations, net

-

(23)

(663)

(45)

Depreciation

1,514

1,215

2,918

2,462

Amortization

4,387

4,423

8,758

8,817

Adjusted EBITDA

$

24,077

$

23,066

$

79,935

$

71,369

(1)

CBIZ reports its financial results in accordance with GAAP. This table reconciles Non-GAAP financial measures to the nearest GAAP financial measure, "Income from continuing operations". Adjusted EBITDA is not defined by GAAP and should not be regarded as an alternative or replacement to any measurement of performance or cash flow under GAAP. Adjusted EBITDA is commonly used by the Company, its shareholders and debt holders to evaluate, assess and benchmark the Company's operational results and to provide an additional measure with respect to the Company's ability to meet future debt obligations.

Guidance on 2018 Earnings Per Diluted Share from Continuing Operations

Low

High

2018 outlook growth in earnings per share

13%

17%

2018 outlook earnings per share

$

1.04

$

1.08

2018 outlook growth in earnings per diluted share, excluding impact of Tax Reform Act

20%

24%