- Total Revenue Growth (Q2): 5.4%
- Total Revenue Growth (First Half): 7.2%
- Adjusted EPS Impact (Q2): $0.03 due to the exit of a small team in the property and casualty insurance business
- Expenses Related to Marcum Transaction (Q2): $6.7 million
- Non-Recurring Project Revenue Impact (Q2): $2.6 million less compared to the previous year
- Client Relationship Exits Impact (Q2): $2.3 million in revenue
- Property and Casualty Insurance Incident Impact (Q2): $2.5 million in revenue, $0.03 EPS
- Self-Insured Health Benefits Claims Impact (Q2): $0.02 EPS
- Self-Insured Health Benefits Claims Impact (YTD): $0.05 EPS
- Staffing Investments Impact (Q2): $0.02 EPS
- Staffing Investments Impact (YTD): $0.03 EPS
- Same-Unit Revenue Growth (Q2): 2.8%
- Acquisitions Contribution to Revenue Growth (Q2): 2.6%
- Same-Unit Revenue Growth (First Half): 4.4%
- Acquisitions Contribution to Revenue Growth (First Half): 2.7%
- Financial Services Revenue Growth (Q2): 6.3%
- Financial Services Same-Unit Revenue Growth (Q2): 3.0%
- Financial Services Revenue Growth (First Half): 7.5%
- Financial Services Same-Unit Revenue Growth (First Half): 4.1%
- Benefits and Insurance Revenue Growth (Q2): 1.6%
- Benefits and Insurance Same-Unit Revenue Growth (Q2): 0.7%
- Benefits and Insurance Same-Unit Revenue Growth (Q2, Adjusted): 3.8%
- Benefits and Insurance Same-Unit Revenue Growth (First Half): 4.2%
- Benefits and Insurance Same-Unit Revenue Growth (First Half, Adjusted): 5.7%
- Acquisitions Completed (First Half): 3 (EBK, CompuData, EIIA)
- Balance Outstanding on $600M Facility (June 30, 2024): $381 million
- Unused Capacity on $600M Facility (June 30, 2024): $210 million
- Leverage Ratio: 1.7 times adjusted EBITDA
- Capital Used for Acquisitions (First Half): $68 million
- Expected Earn-Out Payments (Remainder of 2024): $16.6 million
- Expected Earn-Out Payments (2025): $40.2 million
- Expected Earn-Out Payments (2026): $15.9 million
- Expected Earn-Out Payments (2027): $7.5 million
- Shares Repurchased Since 2019: 9.4 million shares
- Capital Used for Share Repurchases Since 2019: $342 million
- Days Sales Outstanding (June 30, 2024): 95 days
- Bad Debt Expense (First Half): 14 basis points of revenue
- Depreciation and Amortization Expense (Q2): $9.5 million
- Depreciation and Amortization Expense (First Half): $19 million
- Expected Depreciation and Amortization Expense (Full Year): $37.6 million
- Amortization Expense (First Half): $12 million
- Expected Amortization Expense (Full Year): $24 million
- Capital Spending (First Half): $7 million
- Expected Capital Spending (Full Year): $12 million to $14 million
- Effective Tax Rate (First Half): 26.9%
- Expected Effective Tax Rate (Full Year): 28%
- Expected Fully Diluted Weighted Average Share Count (Full Year): 50 million to 50.5 million shares
- Expected Total Revenue Growth (Full Year): 7% to 9%
- Expected GAAP EPS Growth (Full Year): 6% to 8%
- Expected Adjusted EPS Growth (Full Year): 10% to 12%
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CBIZ Inc (CBZ, Financial) reported a 5.4% increase in total revenues for the second quarter and a 7.2% increase for the first half of 2024.
- The Marcum acquisition will position CBIZ Inc (CBZ) as the seventh largest accounting services provider in the nation with combined revenues of approximately $2.8 billion.
- The acquisition is expected to be 10% accretive to adjusted EPS in the first year and is projected to grow over time.
- CBIZ Inc (CBZ) has a strong balance sheet with a leverage ratio of approximately 1.7 times adjusted EBITDA, providing ample capacity for the Marcum acquisition.
- The company has a healthy pipeline of new opportunities, particularly in its government healthcare consulting business, which has shown strong momentum.
Negative Points
- The exit of a small team of producers in the property and casualty insurance business negatively impacted second-quarter revenue by approximately $2.5 million and adjusted EPS by $0.03.
- CBIZ Inc (CBZ) incurred $6.7 million in expenses related to the Marcum transaction in the second quarter.
- Higher-than-normal claims costs in the self-insured health benefits program resulted in an incremental $0.02 per share impact in the second quarter and a year-to-date impact of $0.05 per share.
- The company experienced delays in project-based discretionary services and investments in systems and implementations, affecting revenue timelines.
- The quarter-over-quarter comparison of margin and earnings contribution was negatively affected by staffing investments made in the second half of 2023 to support growth.
Q & A Highlights
Q: What's the reason behind the $0.18 adjusted EPS shortfall in Q2?
A: Ware Grove, CFO: The shortfall was due to several unexpected items, including a $0.06 impact from a property and casualty issue. We also faced headwinds from non-recurring project revenue and higher staffing costs. Despite these challenges, we are confident in our second-half outlook.
Q: Can you provide more details on the timing and impact of the delayed client projects?
A: Jerome Grisko, CEO: Clients delayed discretionary investments in areas like systems and payroll due to economic uncertainty. However, our clients remain optimistic, and we expect these projects to resume in the second half.
Q: What are the specific areas of expertise at Marcum that will benefit CBIZ clients?
A: Chris Spurio, President of Financial Services: Marcum has strong practices in outsourced IT, HR, and finance for non-profits, as well as technology services and unique industry expertise in areas like alternative investments and digital assets.
Q: How will the stock component of the Marcum acquisition be structured?
A: Ware Grove, CFO: 25% of the stock will be issued at closing, with the remaining 75% distributed over three years. This structure is tax-friendly for the sellers and ensures alignment with our long-term goals.
Q: What is the expected impact of the Marcum acquisition on CBIZ's margins and operational efficiency?
A: Ware Grove, CFO: Marcum is a profitable firm with similar operational metrics to CBIZ. We expect margin expansion through efficiencies in back-office functions, facilities, and leveraging Marcum's experience in offshoring.
Q: Can you elaborate on the cost synergies expected from the Marcum acquisition?
A: Ware Grove, CFO: We anticipate $25 million in cost synergies by 2026, primarily from aligning organizational structures, reducing duplicative efforts, and optimizing IT infrastructure and facilities.
Q: How will the Marcum acquisition affect CBIZ's leverage and future capital deployment?
A: Ware Grove, CFO: Initial leverage will be around 3.25-3.5 times EBITDA, but we expect rapid deleveraging within 18 months. Post-integration, we will resume strategic acquisitions and share repurchases.
Q: What is the strategic rationale behind the Marcum acquisition?
A: Jerome Grisko, CEO: The acquisition enhances our scale, allowing us to make significant investments in talent, technology, and innovative solutions. This positions us for accelerated growth and strengthens our competitive edge in the market.
Q: How will the integration process be managed post-acquisition?
A: Jerome Grisko, CEO: The focus will be on integrating people, client service approaches, and elevating our brand. We aim to achieve full value from cost synergies and aligned processes by 2026.
Q: What are the expected financial impacts of the Marcum acquisition in the first year?
A: Ware Grove, CFO: We expect about 10% adjusted EPS accretion in the first year, growing over time. The transaction will be financed through a mix of cash and shares, with strong alignment with our shareholder group.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
