CBIZ Reports Third-Quarter And Nine-Month 2015 Results

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In thousands, except percentages and per share data)

 THREE MONTHS ENDED

 SEPTEMBER 30,

2015

%

2014 (1)

%

Revenue

$

187,102

100.0%

$

180,269

100.0%

Operating expenses (2)

159,175

85.1%

155,233

86.1%

Gross margin

27,927

14.9%

25,036

13.9%

Corporate general and administrative expenses (3)

8,043

4.3%

8,889

4.9%

Operating income

19,884

10.6%

16,147

9.0%

Other (expense) income:

Interest expense

(1,840)

-1.0%

(3,123)

-1.7%

Gain on sale of operations, net

5

0.0%

17

0.0%

Other expense, net (4) (5)

(1,673)

-0.9%

(1,368)

-0.8%

     Total other expense, net

(3,508)

-1.9%

(4,474)

-2.5%

Income from continuing operations before income tax expense

16,376

8.7%

11,673

6.5%

Income tax expense

6,787

4,353

Income from continuing operations

9,589

5.1%

7,320

4.1%

Loss from operations of discontinued businesses, net of tax

(561)

(239)

Gain on disposal of discontinued businesses, net of tax

1,172

607

Net income

$

10,200

5.5%

$

7,688

4.3%

Diluted earnings per share:

Continuing operations

$

0.18

$

0.14

Discontinued operations

0.01

0.01

Net income

$

0.19

$

0.15

Diluted weighted average common shares outstanding

54,445

51,209

Other data from continuing operations:

Adjusted EBIT (6)

$

18,211

$

14,779

Adjusted EBITDA (6)

$

23,328

$

21,350

(1)

Certain amounts in the 2014 financial data have been reclassified to conform to the current year presentation and revised to reflect the impact of discontinued operations.

(2)

Includes benefits of $3,480 and $639 for the three months ended September 30, 2015 and 2014, respectively, in compensation associated with net losses from the Company's deferred compensation plan (see note 4). Excluding this item, "Operating expenses" would be $162,655 and $155,872, or 86.9% and 86.5% of revenue, for the three months ended September 30, 2015 and 2014, respectively.

(3)

Includes benefits of $416 and $68 for the three months ended September 30, 2015 and 2014, respectively, in compensation associated with net losses from the Company's deferred compensation plan (see note 4). Excluding this item, "Corporate general and administrative expenses" would be $8,459 and $8,957, or 4.5% and 5.0% of revenue, for the three months ended September 30, 2015 and 2014, respectively.

(4)

Includes net losses of $3,896 and $707 for the three months ended September 30, 2015 and 2014, respectively, attributable to assets held in the Company's deferred compensation plan. These net losses do not impact "Income from continuing operations before income tax expense" as they are directly offset by compensation adjustments included in "Operating expenses" and "Corporate general and administrative expenses."

(5)

During the three months ended September 30, 2014, CBIZ recorded a non-operating charge of $1,529 from the early retirement of $32.4 million face value of its 4.875% Convertible Senior Notes ("2010 Notes") that mature on October 1, 2015. Also included in "Other expense, net" for the three months ended September 30, 2015 and 2014, is income of $1,550 and $608, respectively, related to net decreases in the fair value of contingent consideration related to CBIZ's prior acquisitions.

(6)

Adjusted EBIT represents income from continuing operations before income taxes, interest expense, and gain on sale of operations, net. Adjusted EBITDA represents Adjusted EBIT before depreciation and amortization expense of $5,117 and $5,042 and a loss of $0 and $1,529 from the early retirement of its 2010 Notes for the three months ended September 30, 2015 and 2014, respectively. The Company has included Adjusted EBIT and Adjusted EBITDA 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 service debt. Adjusted EBIT and Adjusted EBITDA should not be regarded as an alternative or replacement to any measurement of performance or cash flow under generally accepted accounting principles ("GAAP").

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(In thousands, except percentages and per share data)

 NINE MONTHS ENDED

 SEPTEMBER 30,

2015

%

2014 (1)

%

Revenue

$

586,010

100.0%

$

562,461

100.0%

Operating expenses (2)

493,156

84.2%

475,488

84.5%

Gross margin

92,854

15.8%

86,973

15.5%

Corporate general and administrative expenses (3)

24,523

4.2%

27,393

4.9%

Operating income

68,331

11.6%

59,580

10.6%

Other (expense) income:

Interest expense

(7,665)

-1.3%

(10,133)

-1.8%

Gain on sale of operations, net

106

0.0%

93

0.0%

Other income, net (4) (5)

60

0.0%

4,543

0.8%

     Total other expense, net

(7,499)

-1.3%

(5,497)

-1.0%

Income from continuing operations before income tax expense

60,832

10.3%

54,083

9.6%

Income tax expense

25,055

22,291

Income from continuing operations

35,777

6.1%

31,792

5.7%

Loss from operations of discontinued businesses, net of tax

(1,226)

(814)

Gain on disposal of discontinued businesses, net of tax

1,462

106

Net income

$

36,013

6.1%

$

31,084

5.5%

Diluted earnings (loss) per share:

Continuing operations

$

0.68

$

0.62

Discontinued operations

0.01

(0.02)

Net income

$

0.69

$

0.60

Diluted weighted average common shares outstanding

52,285

51,469

Other data from continuing operations:

Adjusted EBIT (6)

$

68,391

$

64,123

Adjusted EBITDA (6)

$

84,392

$

80,212

(1)

Certain amounts in the 2014 financial data have been reclassified to conform to the current year presentation and revised to reflect the impact of discontinued operations.

(2)

Includes a benefit of $2,594 and an expense of $1,654 for the nine months ended September 30, 2015 and 2014, respectively, in compensation associated with net losses/gains from the Company's deferred compensation plan (see note 4). Excluding this item, "Operating expenses" would be $495,750 and $473,834, or 84.6% and 84.2% of revenue, for the nine months ended September 30, 2015 and 2014, respectively.

(3)

Includes a benefit of $363 and and an expense of $278 for the nine months ended September 30, 2015 and 2014, respectively, in compensation associated with net losses/gains from the Company's deferred compensation plan (see note 4).  Excluding this item, "Corporate general and administrative expenses" would be $24,886 and $27,115, or 4.2% and 4.8% of revenue, for the nine months ended September 30, 2015 and 2014, respectively.

(4)

Includes a net loss of $2,957 and a net gain of $1,932 for the nine months ended September 30, 2015 and 2014, respectively, attributable to assets held in the Company's deferred compensation plan. The net loss/gain does not impact "Income from continuing operations before income tax expense" as they are directly offset by compensation adjustments included in "Operating expenses" and "Corporate general and administrative expenses."

(5)

During the nine months ended September 30, 2015 and 2014, CBIZ recorded non-operating charges of $833 and $1,529 from the early retirement of $49.3 million and $32.4 million of its 2010 Notes that mature on October 1, 2015. Also included in "Other expense, net" for the nine months ended September 30, 2015 and 2014 is income of $3,075 and $3,592, respectively, related to net decreases in the fair value of contingent consideration related to CBIZ's prior acquisitions.

(6)

Adjusted EBIT represents income from continuing operations before income taxes, interest expense, and gain on sale of operations, net. Adjusted EBITDA represents Adjusted EBIT before depreciation and amortization expense of $15,168 and $14,560 and losses of $833 and $1,529 from the early retirement of its 2010 Notes for the nine months ended September 30, 2015 and 2014, respectively. The Company has included Adjusted EBIT and Adjusted EBITDA 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 service debt. Adjusted EBIT and Adjusted EBITDA should not be regarded as an alternative or replacement to any measurement of performance or cash flow under GAAP.

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

(In thousands, except per share data)

SELECT SEGMENT DATA

 THREE MONTHS ENDED

 NINE MONTHS ENDED

 SEPTEMBER 30,

 SEPTEMBER 30,

2015

2014 (1)

2015

2014 (1)

Revenue

Financial Services

$     118,354

$     115,931

$     378,857

$       372,832

Employee Services

61,293

56,891

184,968

167,479

National Practices

7,455

7,447

22,185

22,150

Total

$     187,102

$     180,269

$     586,010

$       562,461

Gross Margin

Financial Services

$       16,375

$       16,944

$       65,915

$         67,499

Employee Services

10,250

9,697

31,155

28,614

National Practices

811

862

2,291

2,248

Operating expenses - unallocated (2):

Other

(2,989)

(3,106)

(9,101)

(9,734)

Deferred compensation

3,480

639

2,594

(1,654)

Total

$       27,927

$       25,036

$       92,854

$         86,973

(1)

Certain amounts in the 2014 financial data have been reclassified to conform to the current year presentation and revised to reflect the impact of discontinued operations.

(2)

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 expense, net" in the Consolidated Statements of Comprehensive Income. Net losses/gains recognized from adjustments to the fair value of the assets held in the deferred compensation plan are recorded as compensation benefit/expense in "Operating expenses" and as a net loss/gain in "Other expense, net."

NON-GAAP EARNINGS AND PER SHARE DATA

Reconciliation of Income from Continuing Operations to Non-GAAP Earnings from Continuing Operations (3)

THREE MONTHS ENDED SEPTEMBER 30,

2015

 Per Share

2014 (1)

 Per Share

Income from continuing operations

$         9,589

$           0.18

$         7,320

$            0.14

Selected non-cash items:

Amortization

3,741

0.07

3,666

0.07

Depreciation (4)

1,376

0.02

1,376

0.03

Non-cash interest on convertible notes

306

0.00

633

0.01

Stock-based compensation

1,408

0.03

1,825

0.04

Adjustment to contingent earnouts

(1,550)

(0.03)

(608)

(0.01)

Non-cash items

5,281

0.09

6,892

0.14

Non-GAAP earnings - Continuing operations

$       14,870

$           0.27

$       14,212

$            0.28

NINE MONTHS ENDED SEPTEMBER 30,

2015

 Per Share

2014 (1)

 Per Share

Income from continuing operations

$       35,777

$           0.68

$       31,792

$            0.62

Selected non-cash items:

Amortization

10,882

0.21

10,679

0.21

Depreciation (4)

4,286

0.08

3,881

0.08

Non-cash interest on convertible notes

1,434

0.03

2,133

0.04

Stock-based compensation

4,319

0.09

4,812

0.09

Adjustment to contingent earnouts

(3,075)

(0.06)

(3,592)

(0.07)

Non-cash items

17,846

0.35

17,913

Non-GAAP earnings - Continuing operations

$       53,623

$           1.03

$       49,705

$            0.97

(3)

The Company believes Non-GAAP earnings and Non-GAAP earnings per diluted share more clearly illustrate the impact of certain non-cash charges and credits to "Income from continuing operations" and are a useful measure for the Company and its analysts. Non-GAAP earnings is defined as income from continuing operations excluding: depreciation and amortization, non-cash interest expense, non-cash stock-based compensation expense, and adjustments to the fair value of contingent consideration related to prior acquisitions. Non-GAAP earnings per diluted share is calculated by dividing Non-GAAP earnings by the number of weighted average diluted common shares outstanding for the period indicated. Non-GAAP earnings and Non-GAAP earnings per diluted share should not be regarded as a replacement or alternative to any measurement of performance under generally accepted accounting principles.

(4)

Capital spending was $0.9 million and $1.4 million for the three months ended September 30, 2015 and 2014, and $6.3 million and $4.0 million for the nine months ended September 30, 2015 and 2014, respectively.

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

(In thousands, except percentages and ratios)

SELECT BALANCE SHEET DATA AND RATIOS

 SEPTEMBER 30,

 DECEMBER 31,

2015

2014

Cash and cash equivalents

$              1,840

$             979

Restricted cash

$            25,606

$        28,293

Accounts receivable, net

$          175,755

$      143,048

Current assets before funds held for clients

$          226,209

$      196,479

Funds held for clients - current and non-current

$          110,023

$      182,847

Goodwill and other intangible assets, net

$          528,173

$      526,462

Total assets

$          952,007

$      991,244

Notes payable - current

$                      -

$             760

Current liabilities before client fund obligations

$          109,796

$      111,232

Client fund obligations

$          109,536

$      183,936

Bank debt

$          151,000

$      107,400

Convertible notes - non-current (1)

$            49,123

$        96,569

Total liabilities

$          506,450

$      591,399

Treasury stock

$         (462,167)

$    (425,685)

Total stockholders' equity

$          445,557

$      399,845

Debt to equity (2)

44.9%

51.2%

Days sales outstanding (DSO) - continuing operations (3)

85

70

Shares outstanding

52,170

49,487

Basic weighted average common shares outstanding

49,812

48,343

Diluted weighted average common shares outstanding

52,285

51,487

(1)

The 2010 Notes and 2006 Convertible Senior Subordinated Notes ("2006 Notes") are classified as a non-current liability due to Management's intention to retire the 2010 Notes and 2006 Notes during the year ended December 31, 2015 with the amounts available under the credit facility. 

(2)

Ratio is convertible notes, bank debt and notes payable divided by total stockholders' equity.

DSO is provided for continuing operations and represents accounts receivable, net and unbilled revenue (net of realization adjustments) 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 September 30, 2014 was 86.