CBIZ Reports Third-Quarter And Nine-Month 2017 Results

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(In thousands, except percentages and per share data)

THREE MONTHS ENDED

SEPTEMBER 30,

2017

%

2016

%

Revenue

$

207,723

100.0

%

$

199,794

100.0

%

Operating expenses (1)

184,723

88.9

%

174,069

87.1

%

Gross margin

23,000

11.1

%

25,725

12.9

%

Corporate general and administrative expenses (1)

7,979

3.8

%

8,679

4.4

%

Operating income

15,021

7.3

%

17,046

8.5

%

Other income (expense):

Interest expense

(1,777)

-0.9

%

(1,760)

-0.9

%

Gain on sale of operations, net

-

0.0

%

329

0.2

%

Other income, net (1) (2)

2,792

1.3

%

2,632

1.3

%

Total other income, net

1,015

0.4

%

1,201

0.6

%

Income from continuing operations before income tax expense

16,036

7.7

%

18,247

9.1

%

Income tax expense

6,172

7,260

Income from continuing operations

9,864

4.7

%

10,987

5.5

%

Loss from operations of discontinued businesses, net of tax

(206)

(133)

Net income

$

9,658

4.6

%

$

10,854

5.4

%

Diluted earnings per share:

Continuing operations

$

0.18

$

0.20

Discontinued operations

-

-

Net income

$

0.18

$

0.20

Diluted weighted average common shares outstanding

55,827

53,846

Other data from continuing operations:

Adjusted EBITDA (3)

$

23,701

$

25,355

(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" ($2.7 million expense in 2017 and $2.1 million expense in 2016, or (1.3%) and (1.1%) of revenue, respectively) and "Corporate general and administrative expenses" ($0.3 million expense in both 2017 and 2016, or (0.1%) of revenue for both 2017 and 2016) and are directly offset by deferred compensation gains or losses in "Other income, net" ($3.0 million income in 2017 and $2.4 million income in 2016, or 1.4% 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 income, net" for the three months ended September 30, 2017 and 2016, is expense of $0.5 million and income of $0.2 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)

NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(In thousands, except percentages and per share data)

NINE MONTHS ENDED

SEPTEMBER 30,

2017

%

2016

%

Revenue

$

660,198

100.0

%

$

621,047

100.0

%

Operating expenses (1)

565,609

85.7

%

526,182

84.7

%

Gross margin

94,589

14.3

%

94,865

15.3

%

Corporate general and administrative expenses (1)

25,979

3.9

%

27,270

4.4

%

Operating income

68,610

10.4

%

67,595

10.9

%

Other income (expense):

Interest expense

(4,986)

-0.8

%

(5,019)

-0.8

%

Gain on sale of operations, net

45

0.0

%

480

0.0

%

Other income, net (1) (2)

9,293

1.5

%

5,482

0.9

%

Total other income, net

4,352

0.7

%

943

0.1

%

Income from continuing operations before income tax expense

72,962

11.1

%

68,538

11.0

%

Income tax expense

26,656

27,366

Income from continuing operations

46,306

7.0

%

41,172

6.6

%

Loss from operations of discontinued businesses, net of tax

(776)

(421)

Net income

$

45,530

6.9

%

$

40,751

6.6

%

Diluted earnings (loss) per share:

Continuing operations

$

0.83

$

0.77

Discontinued operations

(0.01)

(0.01)

Net income

$

0.82

$

0.76

Diluted weighted average common shares outstanding

55,641

53,320

Other data from continuing operations:

Adjusted EBITDA (3)

$

95,070

$

89,436

(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" ($7.6 million expense in 2017 and $3.7 million expense in 2016, or (1.2%) and (0.6%) of revenue, respectively) and "Corporate general and administrative expenses" ($0.8 million expense in 2017 and $0.6 million expense in 2016, or (0.1%) of revenue for both 2017 and 2016) and are directly offset by deferred compensation gains or losses in "Other income, net" ($8.4 million income in 2017 and $4.3 million income in 2016, or 1.3% and 0.7% 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 nine months ended September 30, 2017 and 2016, is income of $0.2 million and $0.9 million, respectively, related to net decreases 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

NINE MONTHS ENDED

SEPTEMBER 30,

SEPTEMBER 30,

2017

2016

2017

2016

Revenue

Financial Services

$

130,305

$

123,049

$

421,529

$

398,112

Benefits and Insurance Services

69,663

68,979

215,386

199,790

National Practices

7,755

7,766

23,283

23,145

Total

$

207,723

$

199,794

$

660,198

$

621,047

Gross Margin

Financial Services

$

17,309

$

17,434

$

73,293

$

72,013

Benefits and Insurance Services

10,508

11,352

36,212

32,139

National Practices

646

871

1,932

2,368

Operating expenses - unallocated (1):

Other

(2,779)

(1,793)

(9,220)

(7,988)

Deferred compensation

(2,684)

(2,139)

(7,628)

(3,667)

Total

$

23,000

$

25,725

$

94,589

$

94,865

(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, 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, net".

CBIZ, INC.

SELECT CASH FLOW DATA

(In thousands)

NINE MONTHS ENDED

SEPTEMBER 30,

2017

2016

Net income

$

45,530

$

40,751

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

Depreciation and amortization expense

17,167

16,359

Amortization of discount on notes and deferred financing costs

392

393

Bad debt expense, net of recoveries

4,265

3,291

Adjustments to contingent earnout liability

(651)

(936)

Employee stock awards

4,247

4,332

Other adjustments

(3,235)

1,135

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

67,715

65,325

Changes in assets and liabilities, net of acquisitions and divestitures

(33,340)

(30,935)

Operating cash flows provided by continuing operations

34,375

34,390

Operating cash flows (used in) provided by discontinued operations

(748)

507

Net cash provided by operating activities

33,627

34,897

Net cash provided by investing activities

43,463

35,164

Net cash used in financing activities

(79,306)

(70,397)

Net decrease in cash and cash equivalents

$

(2,216)

$

(336)

CBIZ, INC.

SELECT FINANCIAL DATA AND RATIOS

(In thousands)

SEPTEMBER 30,

DECEMBER 31,

2017

2016

Cash and cash equivalents

$

1,278

$

3,494

Restricted cash

32,104

27,880

Accounts receivable, net

213,418

175,354

Current assets before funds held for clients

269,804

228,135

Funds held for clients

134,051

213,457

Goodwill and other intangible assets, net

615,316

584,401

Total assets

$

1,128,688

$

1,118,588

Notes payable, current

$

1,628

$

1,060

Current liabilities before client fund obligations

128,343

125,592

Client fund obligations

134,119

213,855

Notes payable, non-current

1,797

1,721

Bank debt

205,041

190,049

Total liabilities

$

598,202

$

638,567

Treasury stock

$

(481,572)

$

(471,311)

Total stockholders' equity

$

530,486

$

480,021

Debt to equity

39.3

%

40.2

%

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

89

76

Shares outstanding

54,829

54,044

Basic weighted average common shares outstanding

53,804

52,321

Diluted weighted average common shares outstanding

55,641

53,513

(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 September 30, 2016 was 86.

CBIZ, INC.

GAAP RECONCILIATION

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

(In thousands)

THREE MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

SEPTEMBER 30,

2017

2016

2017

2016

Income from continuing operations

$

9,864

$

10,987

$

46,306

$

41,172

Interest expense

1,777

1,760

4,986

5,019

Income tax expense

6,172

7,260

26,656

27,366

Gain on sale of operations, net

-

(329)

(45)

(480)

Depreciation

1,402

1,369

3,864

4,024

Amortization

4,486

4,308

13,303

12,335

Adjusted EBITDA

$

23,701

$

25,355

$

95,070

$

89,436

(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.