CBIZ, Inc. (CBZ) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the CBIZ' Second Quarter 2021 Results Conference Call. All participants will be in the listen-only mode. Please note, that 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' second quarter and first half 2021 results conference call. In connection with this call, today's press release has 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 as well as an archived replay and transcript, can also be found on our website. Before we begin our presentation, we would like to remind you that during the call, management may discuss certain non-GAAP financial measures.
Jerry Grisko: Thank you, Lori, and good morning, everyone. With the release of our second quarter results, I'm proud to report another quarter of exceptional performance with strong growth across nearly every major service line. But before I comment on our most recent results, I'd like to discuss the legal settlement that was announced at the end of June. The settlement related to a lawsuit pertaining to actuarial services provided eight years ago, by a former employee regarding valuation of pension plan liabilities. This suit was unusual in a number of ways, including the complex and technical nature of both the claims and defenses by each of the parties. There was also very little legal precedent related to, many of the claims that guide the jury in their deliberations. These facts created unique risks, including the claims by plaintiff could have resulted in large jury verdict of up to several hundred million dollars, if the jury elected to award punitive damages. We were in the midst of the trial when the parties reached an agreement. Given the complexity of the facts, the risk of substantial loss and the uncertainty inherent in jury trials and this one in particular, we believe that settling the case for the amount previously disclosed was the most responsible decision for the company and our shareholders. Moreover, this settlement does not materially increase our debt, and our steady cash flow, strong balance sheet, and access to capital, allows us to continue to make investments to grow our business, complete strategic acquisitions, buyback stock and fully fund our operations.
Ware Grove: Thank you, Jerry, and good morning, everyone. I want to take a few minutes to go over the highlights of the numbers we released this morning and talk about what we expect for the full year. The results we reported for the second quarter and first half include the impact of two major nonrecurring items. As required, the reported GAAP numbers fully reflect the impact of those items. But in order to provide greater clarity on the results from continuing operations, we have also presented adjusted numbers to exclude the impact of those items. Jerry talked about the settlement we reached on the UPMC matter and the second quarter charge of $30.5 million that we reported net of insurance coverage.
Jerry Grisko: Thank you, Ware. I'd like to touch on our M&A activity, before we turn it over to Q&A. As I discussed last quarter, we started this year with the strongest M&A pipeline we've seen in our recent history. M&A continues to be a key component of CBIZ's growth strategy and will remain a top priority for us in 2021 and beyond, especially as we see increasing interest in CBIZ as a potential partner. Our performance over the last year on the backdrop of the pandemic demonstrates the value and stability of our business model. We also continue to emphasize our unique position in the market given the breadth and depth of our expertise and our services. Moreover, our steady cash flow, strong balance sheet and access to capital allows us to continue to make investments in the business that many of our competitors simply cannot fund. We know that these messages resonate with firms in each of our various businesses and we are eager to explore these opportunities. So far this year, we've completed four acquisitions with three of those coming in the second quarter. During the second quarter, we completed one acquisition to support our retirement plan services business and another the acquisition of Berntson Porter, a core accounting firm located in the Pacific Northwest, which I discussed in our last earnings call. Most recently at the beginning of June, we completed the acquisition of Optumas, a firm based in Scottsdale Arizona, that specializes in providing actuarial and consulting services to government health care agencies to assist in the administration of Medicaid programs. Optumas has a long history of partnering with CBIZ and this acquisition will allow us to expand our relationship with existing clients and enable opportunities to scale these services through our national infrastructure. With this, I will turn it over for Q&A.
Operator: Thank you. We will now begin the question-and-answer session. The first question today will come from Chris Moore with CJS Securities. Please go ahead.
Chris Moore: Hey, good morning guys. Thanks for taking a couple of questions. So, yes, same-store growth was up I think 6.8% in the first half. I'm just trying to get a better sense in terms of how pricing increases works in that. Can you maybe talk a little bit the mix between price increases and increased volume from cross-selling share gains, et cetera?
Ware Grove: Yes, hi Chris, this is Ware. We did get some higher yield and some price increases aligned with some of the efforts we talked about to increase or improve efficiencies and the engagement on the financial services side. And then of course, market conditions on the property and casualty insurance side are -- it's a strong market. So, there are some increases there as well. We typically would say and I don't think this is anything unusual for the first half this year about half of the increase is due to volume and just increased activity whereas about half of it is due to pricing increases. I think that's the case here for the first half this year.
Chris Moore: Got it. Very helpful. How much revenue did the divested wholesale insurance business? How much was that generating on a kind of trailing 12-month basis?
Ware Grove: Yes Chris. This is Ware again. Slightly less than $3 million. It's actually a pretty small non-core piece of our business.
Chris Moore: Got it. And just last one for me. On the University of Pittsburgh settlement. So, I know there's one other active case out there Zotec Partners. I’m wondering if maybe you could kind of compare and contrast that to the University of Pittsburgh. For example you talked about no real legal precedent which was a big risk factor on University of Pittsburgh very complicated. Kind of any thoughts on the Zotec side.
Jerry Grisko: Hey, Chris this is Jerry. How are you? Yes, I'll provide a couple of comments on that. What I would say are very different facts and circumstances relating to UPMC compared to Zotec. The UPMC claim was at its core an errors and omissions claim relating to work that we did very complex actuarial work we did on a pension plan. The Zotec case actually is a claim by the purchaser of if you recall, our medical billing business some years ago. And again, very different claims, very different facts and circumstances and we believe we have as we've announced strong defenses to that claim and we will vigorously pursue those defenses.
Chris Moore: Got it. I will leave it there and turn back in the line. Thanks guys.
Operator: Next question will come from Marc Riddick with Sidoti & Company. Please go ahead. Mr. Riddick, you are now on the podium, perhaps your line is muted.
Marc Riddick: Hi, good morning.
Jerry Grisko: Good morning Marc.
Marc Riddick: So, I was wondering if you could discuss a little bit around the announcements around the new headquarters and maybe some of the things that are going into to that and from a time frame and sort of how that might flow. I know that the pressures talked about next September. But I was wondering if you could sort of give a little bit of color around that and what we can expect there?
Jerry Grisko: So, this is something we've been working on for a while. We've been in our existing facilities for about 18 years. And candidly, just the way that we work and the way that our workforce comes to work and the way we collaborate with each other has changed over that period of time. And while we're very happy with where we are and enjoyed certainly the time that we spent here we were really excited about the opportunity to enter and to be an anchor tenant at a brand new facility state-of-the-art we are actually at the table helping to design that facility as the acre tenant and it will allow us to really prepare for the next 20 years and what that work -- the way our workforce comes to the office the way that we collaborate with each other the way that we collaborate with our clients including state-of-the-art technology workflow in the design and the workspaces that are within that facility. So, kind of, across the board really just a great opportunity for us to do that. You probably also saw that we received considerable support from the State of Ohio and from the local governments and we're really appreciative of that partnership as well. So, kind of, everything came together to allow us to do this and we're excited about what that means for us going forward.
Marc Riddick: And then the timing I guess is more -- so we're looking at the fall of next year. If I remember correctly are we sort of targeting from a seasonal standpoint, it certainly doesn't -- it would be after-tax season, but I was wondering if we should think about any potential disruptions or anything going on those lines to take into consideration for next year?
Jerry Grisko: Yes, Marc, the time -- you're right. It's in the fall of next year. We don't have exact kind of move in date, but it will be the fall of next year. The only kind of potential disruption and I think it's pretty insignificant, particularly in light of what we've learned over the past year is that there will be some gap between the time that we leave this space our existing space and the time that the next space will be available. But we're working through that now in the combination of Flex base which is available in our local market and some continued remote work will allow us to bridge that gap. So, really no bearing material bearing on the business in the move that we can see right now.
Marc Riddick: Okay, great. And then I was wondering if you could spend a little time talking about -- you touched on this in your prepared commentary, but I was wondering if you could expand a little bit on maybe some of the progress you're making because certainly from the numbers it certainly seems as though it's positive. But are some of the benefits that you're getting from your marketing programs whether it be the -- sort of the digital outreach that was ramped up during the pandemic and maybe we're seeing the benefit of some of that as well as further progress that's made of those new contracts? And then maybe you could also talk a bit about how we should think about or how you feel your local market share has progressed during the course of the challenges of the pandemic? Thank you.
Jerry Grisko: Sure. Thanks Marc. We see this like many businesses. We learned a lot over the past 16 months, right? And one of the things I think that has been most beneficial to us is our ability to provide really our value, our unique value proposition which is breadth of services and depth of expertise in a way that candidly, we haven't experienced before COVID. So an example of that is when we sit with a client and our clients have multidisciplinary needs, pre-pandemic oftentimes we would have to fly people in from around the country the experts the subject matter experts to sit with our clients and sit with our team to solve whatever challenges or opportunities the client was working on. Today through the virtual tools that we've all learned to adopt that's much easier to do. Our clients are far more receptive to that and we're far more comfortable providing services in that way. As far as digital is concerned, we reached out to our clients the outside of the pandemic with as we talked about in earlier calls very frequent webinar programs trying to anticipate what was front of mind for them what their greatest needs were in putting programs in front of them. And that effort has continued. We've also learned to follow-up with our clients using those digital channels and digital outreach in ways during that pandemic and that effort has continued as well. And as a result of that the top of the funnel for our sales pipeline has not been this full in many, many, many years. So not only have we learned to identify opportunities and put them in the top of the funnel, but also to convert those opportunities to sales in a hybrid approach some face-to-face, but certainly some more virtual. So -- and we're learning to close those opportunities as well. So we've learned a lot. We continue to learn, but the future looks very promising in all those regards.
Marc Riddick: Very encouraging. Thank you very much.
Operator: At this time there are no further questions in the question queue. This will conclude today's question-and-answer session. And I would like to turn the conference back over to Jerry Grisko for any closing remarks.
Jerry Grisko: Thank you, Sean. Before I conclude the call today, I want to put our performance for the first half of this year in the context of our business model and what we believe these results mean for the rest of the year and beyond. Over the last several quarters, I've emphasized the fundamental attributes of our business model, including the essential and recurring nature of our services, our high level of client retention year-over-year, the diversity of our client base in terms of size and industry and our broad geographic footprint. As we've demonstrated over the last 16 months, these attributes allow us to perform well even in uncertain economic conditions. Moreover the breadth and depth of our services puts us in a unique position to be responsive to our clients' needs, especially when they require a coordinated multidisciplinary approach. I've talked about the importance of our model because of the strength and stability it offers in both good and less favorable economic conditions. The extraordinary results we reported today are a testament to this model, but also demonstrate the potential of our business moving forward. For the first half of 2021, nearly all of our service lines are growing many at the rate we have not experienced in year. In these results, we are seeing the return on our long-term investments we've made in our people, tools and systems. We're also seeing the value we bring to our clients in both new ways, but also in the services and solutions they rely on year-over-year. And of course our team continues to be the driving force behind these results. The energy and commitment of our team and their willingness to go above and beyond for our clients and each other is evident in our performance. I'm incredibly proud of what we've accomplished in the first half and even more excited about what is possible as we look ahead. Based on our strong performance year-to-date, we increased our revenue guidance today and we are guiding adjusted EPS growth to the high end of the 12% to 15% range that we previously announced. For the reasons, were outlined earlier we are not yet prepared to increase our adjusted EPS guidance, but remain optimistic given the momentum in our business and we look forward to revisiting this at the end of the third quarter. I want to close by thanking our analysts and our investors as we always do for your continued support. And I'd also like to take this opportunity to invite our analysts and shareholders to participate in our virtual investor conference to be held in September. That will include deeper dives into our business operations and culture in addition to Q&A with Ware and I and some of our business leaders. You’ll be receiving an invitation and more information in the coming weeks. Thank you for your time and have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
