Yahoo Finance CBIZ, Inc. (NYSE:CBZ) Q1 2024 Earnings Call Transcript
CBIZ, Inc. (NYSE:CBZ) Q1 2024 Earnings Call Transcript April 25, 2024
CBIZ, Inc. misses on earnings expectations. Reported EPS is $1.54 EPS, expectations were $1.57. CBIZ, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the CBIZ First Quarter 2024 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lori Novickis, Director of Corporate Relations. Please go ahead.
Lori Novickis: Good morning everyone, and thank you for joining us for the CBIZ first quarter 2024 results conference call. In connection with this call, today's press release and investor presentation have been posted to the Investor Relations page of our website cbiz.com. As a reminder, this call is being webcast and a link to the live webcast can be found on our Investor Relations website. An archive replay and transcript will also be made available after the call. Before we begin, we would like to remind you that during the call management may discuss certain non-GAAP financial measures. Reconciliations of these measures can be found in the financial tables of today's press release and investor presentation. Today's call may also include forward-looking statements, regarding our business, financial condition, results of operations, cash flows, strategies and prospects.
Forward-looking statements represent only estimates on the date of this call and are not intended to give any assurance of future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause future results to differ materially and see this assumes no obligation to update these statements. 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. I will now turn the call over to Jerry Grisko. Jerry?
Jerry Grisko : Thank you, Lori, and good morning everyone. We are pleased to report that we're off to a strong start to the year. For the first quarter, total revenue was up 8.7% with growth coming from every major service line across our two business divisions. Our performance for the quarter came in as expected. And reflects continued strong demand for our services and the optimism and resilience of the clients that we serve. Now turning to the performance of our two major divisions. Our Financial Services division demonstrated growth across each of its three major service groups, accounting and tax, advisory and government health care consulting. For our Tax & Accounting business, client demand for these essential and recurring services remains high and our results include our continued success in capturing increased pricing to reflect the value of the services that we provide to our clients.
Likewise, our Advisory Services also enjoyed a strong start to the year, including for those services that are more closely tied to M&A activity. After the start of the year with cautious optimism, we are already seeing the impact of improved deal flow in Q1 with especially strong demand for our private equity-related Advisory Services. Encouragingly, we're also beginning to see increased demand for new projects within our technical accounting prefer IPO service line. Our Government Health Care Consulting business was able to build on progress made in the second half of 2023 as this group was successful in securing new business and launching new projects. During the first quarter, the continued increased volume of work translated to strong growth at the start of the year.
Now turning to our Benefits and Insurance division where we maintained our record of achieving growth across each of our four major service lines. For our Employee Benefits business, the growth came primarily from strong client retention and market rates. Also our producer pool is often compared to the same period last year. For our Property and Casualty business increased service revenue and market rates contributed to continued strong results. Our P&C business remains encouraged by a healthy pipeline of new business opportunities, despite a slight decline in the number of producers as a result of planned retirements. Growth in our Retirement Investment Services business was largely driven by market trends and special projects in our actuarial business.
This group also continues to add producers. For our Payroll business, strong interest in centrally HR, which is our upmarket payroll platform that serves larger and more sophisticated businesses, continue to fuel strong growth. The growth in revenue we experienced in the first quarter was in line with our expectations and affirms the overall health of our business and the consistent demand for our services. With that by way of background, we are affirming our previously issued guidance for the year. I will now turn it over to Ware Grove, our Chief Financial Officer to provide more specific details on our financial performance for the first quarter and to remind those on the call today of our guidance for 2024. Ware?
Ware Grove: Well, thank you, Jerry, and good morning, everyone. Let me take a few minutes to talk about key highlights of the first quarter numbers, we released this morning. Total revenue in the first quarter increased by $39.7 million or up 8.7% over first quarter a year ago. Same unit revenue was up $26.9 million or up by 5.9% with acquisitions contributing $12.8 million or 2.8% to growth, compared with last year. Within Financial Services, for the first quarter total revenue grew 8.6% and same-unit revenue for the first quarter was up 5.1% with strong revenue growth spread among core Accounting, our Advisory Services and Government Health Care Consulting Services. Within Benefits & Insurance for the first quarter total revenue grew by 8.3%.
Same-unit revenue was up 7.6%. Every major line of service within our Benefits & Insurance group reported revenue growth. The investments we have made to hire new business producers in recent years have gained traction. And we are continuing to make investments in hiring additional producers in order to further enhance growth potentials within this group. Costs in the first quarter included several non-operating items recorded within general and administrative costs that impacted pre-tax margin. We have previously commented that legal costs are somewhat episodic, and can be unpredictable throughout the year. In the first quarter, we recorded higher legal expense impacting margin by approximately 50 basis points. There is no one significant issue driving this, rather this is higher cost is associated with small settlements and legal costs related to a variety of issues.
So I wanted to highlight this for you. Another item is the self-funded health care plan costs. We have also previously commented that this non-operating items and potentially cause short-term volatility in reported results. Higher costs in the first quarter this year impacted margin by 40 basis points. And lastly, you are likely aware of the increase in CBIZ share price over the past 12 months. With a closing price of $78.50 at March 31st this year, this is up from $49.49 a year ago and is up from $62.59 at year-end 2023. This of course is good news. The GAAP accounting however, causes an increase in reported costs, with our Phantom share plan in place as an element of our compensation approach that is designed to more closely align employee interest with shareholders, reporting this compensation-related obligation at a higher fair value impacted margin by 20 basis points.
These three items impacted adjusted earnings per share in the first quarter, by approximately $0.08 a share. The nature of these non-operating items is somewhat unpredictable. So it is unclear how the balance of the year will unfold for these items. But incurring these higher first quarter costs does not change our positive full year outlook for 2024. So as you look at first quarter results, I think the takeaway is that the health of the business is very strong. Performance is in line with our expectations. An additional consideration incurring in first quarter results this year to last year, is that with first quarter adjusted earnings per share up near 24% a year ago this year we are comparing against a very strong first quarter a year ago.
During the first quarter of this year, we completed two acquisitions EBK and CompuData. We are extremely pleased to have both of these teams on board this year. Initial results are good. And they are performing in line with our expectations. With a view towards presenting meaningful comparable information, eliminating the impact of onetime acquisition-related expenses, and other non-operating related gains and losses, earnings per share for the first quarter this year on an adjusted basis was $1.54 up 5.5% compared with adjusted earnings per share last year of $1.46. Adjusted EBITDA considering the same adjustments was $118.8 million for the three months this year. A table reconciling reported GAAP numbers to these adjusted earnings per share and adjusted EBITDA numbers is included in the earnings release issued this morning.
For the quarter we reported an increase in interest expense of $870,000 with an earnings per share impact of approximately $0.01 a share. Considering the steady rise in borrowing rates throughout 2023, we expected a slight headwind with interest expense in the first half this year. As always details of the GAAP accounting for gains and losses in our nonqualified deferred compensation plan are outlined in the release. As you look at both gross margin and operating income comparisons the impact of the gains and losses should be excluded for a meaningful comparison. And as a reminder pretax income is not impacted by this accounting. Now, turning to cash flow and balance sheet items, we experienced our normal seasonal use of cash in the first quarter.
On March 31st this year, the balance outstanding on the $600 million unsecured financing facility was $438 million with approximately $148 million of unused capacity. With a leverage ratio of approximately 1.96x adjusted EBITDA, this provides plenty of capacity to continue with strategic acquisitions and also provides the flexibility to address share repurchases. In the first quarter of this year, we completed two acquisitions. We used approximately $55 million for these acquisitions including earnout payments on previously closed transactions. For earn-out payments for acquisitions previously closed, we expect to use approximately $25.5 million over the remainder of this year. Approximately $39.4 million in 2025, $15.3 million in 2026 and approximately, $6.8 million in 2027 pre-estimated earn-out payments.
Deploying capital for strategic acquisition purposes continues to be our highest priority. Since the end of 2019 we have closed 22 transactions and we have deployed approximately $444 million of capital for acquisition purposes including the earn-out payments over that time. Beyond using capital for acquisitions we have the flexibility to use capital for share repurchases with approximately 9.4 million shares repurchased since the end of 2019 were about 17% of shares outstanding since that time. We have used approximately $342 million of capital towards share repurchases since that time. Days sales outstanding on March 31st this year was 101 days compared with 94 days a year ago. The increase driven in part by the extended California tax filing deadline last year plus tax consulting work recorded later in 2023 and into the first quarter this year.
The DSOs at the end of the first quarter reflect the seasonal nature of our core tax and accounting business. Bad debt expense for the three months was 11 basis points of revenue compared to 10 basis points a year ago. Depreciation and amortization expense for the first quarter was $9.5 million compared with $8.6 million a year ago. For the full year, we expect depreciation and amortization at approximately $36.5 million this year compared with approximately $36 million last year. Amortization expense is primarily driven by acquisition activity and the amortization of intangible assets. For those of you who like to make adjustments for this for the three months amortization expense was $5.9 million and for the full year amortization may be approximately $24 million this year.
Capital spending for the first quarter was $5.1 million and this included $1.7 million of capital items associated with our new headquarter move that occurred in the fourth quarter last year. For the full year, we expect capital spending within a range of $12 million to $15 million. The effective tax rate for the three months this year was 26.1%, which is slightly lower than 26.5% from a year ago. The quarterly effective tax rate can be volatile for a number of reasons and we continue to expect the full year effective tax rate for 2024 at approximately 28%. The recurring and essential nature of many of our services, provide stability through economic cycles. At this point, as we look at employment-driven metrics, within our benefits and in our payroll business, we are seeing continued signs of steady employment within our clients.
If we experience pressure on revenue growth, there are a number of variable items within our cost structure and we can take measures to mitigate the impact. We are pleased with the performance of business in the first quarter of this year, and we continue to have a very positive outlook for the full year 2024. So to reaffirm our full year guidance, we will say the following. We expect total revenue to increase within a range of 7% to 9% for the year. GAAP reported earnings per share, is expected to increase within a range of 13% to 15% over the $2.39 reported in 2023. On an adjusted basis, we expect 2024 adjusted earnings per share to increase within a range of 12% to 14% over the adjusted earnings per share of $2.41 that was reported in 2023.
The effective tax rate for the full year of 2024 is expected at approximately 28%. This rate could be impacted either up or down by a number of unpredictable factors. And lastly, a fully diluted weighted average share count is expected to within a range of 50 million to 50.5 million shares for the full year of 2024. So with these comments, I'll conclude and I'll turn it back over to Jerry.
Jerry Grisko: Thank you, Ware. Before we move on to Q&A, I'd like to provide a brief update on our M&A activity and our results for the year. M&A continues to be a key part of our growth strategy as we build on our reputation as an acquirer of choice given the volume and quality of transactions that we've completed in recent years. We began this year with a healthy pipeline of M&A opportunities and have already completed two acquisitions. As I outlined in our last earnings call, in February, we acquired Erickson, Brown & Kloster or EBK, a CPA firm located in Colorado Springs, Colorado. EBK's wide range of accounting impact services complements our growing Denver-based financial services practice and provides us with broader representation across the state.
Last month, we were also pleased to welcome CompuData, a premier technology solution provider targeting middle-market organizations. Headquartered in Philadelphia, CompuData specializes in cloud computing, accounting ERP software, managed IT and security services. These services are in high demand and our essential solutions that our clients rely on to operate and grow their businesses. CompuData brings deep technical expertise and knowledge within key industries that we serve. CompuData is another example of how we're using M&A to strengthen and build our service offerings that are in high demand by our clients. We welcome both EBK and CompuData teams to CBIZ. With that said, we'll move on to Q&A.
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