CBIZ Reports Fourth-Quarter And Full-Year 2016 Results

CBIZ, INC.

FINANCIAL HIGHLIGHTS (UNAUDITED)

THREE MONTHS ENDED DECEMBER 31, 2016 AND 2015

(In thousands, except percentages and per share data)

 THREE MONTHS ENDED

 DECEMBER 31,

2016

%

2015

%

Revenue

$

178,785

100.0%

$

164,412

100.0%

Operating expenses (1) (2)

171,544

95.9%

159,914

97.3%

Gross margin

7,241

4.1%

4,498

2.7%

Corporate general and administrative expenses (1)

9,049

5.1%

8,019

4.8%

Operating loss

(1,808)

-1.0%

(3,521)

-2.1%

Other income (expense):

Interest expense

(1,574)

-0.9%

(1,237)

-0.7%

Gain (loss) on sale of operations, net

375

0.2%

(22)

0.0%

Other income, net (1) (3)

1,475

0.8%

1,780

1.0%

     Total other income, net

276

0.1%

521

0.3%

Loss from continuing operations before income tax expense

(1,532)

-0.9%

(3,000)

-1.8%

Income tax benefit

(967)

(2,226)

Loss from continuing operations

(565)

-0.3%

(774)

-0.5%

Loss from operations of discontinued businesses, net of tax

(121)

(1,097)

Loss on disposal of discontinued businesses, net of tax

-

(35)

Net loss

$

(686)

-0.4%

$

(1,906)

-1.2%

Diluted loss per share:

Continuing operations

$

(0.01)

$

(0.02)

Discontinued operations

-

(0.02)

Net loss

$

(0.01)

$

(0.04)

Diluted weighted average common shares outstanding

53,019

51,669

Other data from continuing operations:

Adjusted EBITDA (4)

$

5,406

$

3,480

(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" ($0.9 million expense in 2016 and $2.0 million expense in 2015, or (0.5%) and (1.2%) of revenue, respectively) and "Corporate general and administrative expenses" ($0.1 million expense in 2016 and $0.3 million of expense in 2015, or (0.1%) and (0.2%) of revenue, respectively) and are directly offset by deferred compensation gains or losses in "Other income, net" ($1.0 million income in 2016 and $2.3 million income in 2015, or 0.6% and 1.4% of revenue, respectively). The deferred compensation plan has no impact on "Loss from continuing operations before income tax expense".

(2)

"Operating expenses" for both the fourth quarter of 2016 and 2015 include a reduction of $0.9 million related to state payroll tax incentives associated with an office relocation. During the fourth quarter of 2015, the Company recorded the incentives associated with the office relocation to "Other income, net." These incentives were reclassified from "Other income, net" to "Operating expenses" to align the incentives with the expenses associated with the office relocation. This reclassification had no impact on "Loss from continuing operations" or diluted loss per share from continuing operations.           

(3)

Included in "Other income, net" for the three months ended December 31, 2016 and 2015, is income of $0.4 million and expense of $0.2 million, respectively, related to net decreases/increases in the fair value of contingent consideration related to CBIZ's prior acquisitions.

(4)

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)

TWELVE MONTHS ENDED DECEMBER 31, 2016 AND 2015

(In thousands, except percentages and per share data)

 TWELVE MONTHS ENDED

 DECEMBER 31,

2016

%

2015

%

Revenue

$

799,832

100.0%

$

750,422

100.0%

Operating expenses (1) (2)

697,726

87.2%

652,391

86.9%

Gross margin

102,106

12.8%

98,031

13.1%

Corporate general and administrative expenses (1)

36,319

4.6%

32,527

4.4%

Operating income

65,787

8.2%

65,504

8.7%

Other income (expense):

Interest expense

(6,593)

-0.8%

(8,902)

-1.2%

Gain on sale of operations, net

855

0.1%

84

0.0%

Other income, net (1) (3)

6,957

0.9%

1,146

0.2%

     Total other income (expense), net

1,219

0.2%

(7,672)

-1.0%

Income from continuing operations before income tax expense

67,006

8.4%

57,832

7.7%

Income tax expense

26,399

22,829

Income from continuing operations

40,607

5.1%

35,003

4.7%

Loss from operations of discontinued businesses, net of tax

(542)

(2,323)

Gain on disposal of discontinued businesses, net of tax

-

1,427

Net income

$

40,065

5.0%

$

34,107

4.5%

Diluted earnings (loss) per share:

Continuing operations

$

0.76

$

0.66

Discontinued operations

(0.01)

(0.01)

Net income

$

0.75

$

0.65

Diluted weighted average common shares outstanding

53,513

52,693

Other data from continuing operations:

Adjusted EBITDA (4)

$

94,842

$

87,039

(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" ($4.6 million expense in 2016 and $0.6 million income in 2015, or (0.6%) and 0.1% of revenue, respectively) and "Corporate general and administrative expenses" ($0.7 million expense in 2016 and $0.1 million income in 2015, or (0.1%) and 0.0% of revenue, respectively) and are directly offset by deferred compensation gains or losses in "Other income, net" ($5.3 million income in 2016 and $0.7 million expense in 2015, or 0.7% and (0.1%) of revenue, respectively). The deferred compensation plan has no impact on "Income from continuing operations before income tax expense."    

(2)

"Operating expenses" for the twelve months ended December 31, 2016 include a reduction of $3.2 million related to state payroll tax incentives associated with an office relocation. For the twelve months ended December 31, 2015, the Company recorded incentives associated with the office relocation of $1.6 million which were recorded in "Other income, net." These incentives were reclassified from "Other income, net" to "Operating expenses" to align the incentives with the expenses associated with the office relocation. This reclassification had no impact on "Income from continuing operations" or diluted earnings per share from continuing operations.   

(3)

Included in "Other income, net" is income of $1.3 million and $2.9 million at December 31, 2016 and 2015, respectively, related to net decreases in the fair value of contingent consideration related to CBIZ's prior acquisitions. During the twelve months ended December 31, 2015, CBIZ recorded a non-operating charge of $0.8 million from the early retirement of $49.3 million face value of its 2010 Notes that matured on October 1, 2015.

(4)

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)

(In thousands)

SELECT SEGMENT DATA

 THREE MONTHS ENDED

 TWELVE MONTHS ENDED

 DECEMBER 31,

 DECEMBER 31,

2016

2015

2016

2015

Revenue

Financial Services

$         103,195

$       97,539

$     501,307

$       476,396

Benefits and Insurance Services

67,816

59,525

267,606

244,493

National Practices

7,774

7,348

30,919

29,533

Total

$         178,785

$     164,412

$     799,832

$       750,422

Gross Margin

Financial Services

$            (2,960)

$        (1,226)

$       69,053

$         65,071

Benefits and Insurance Services

11,980

10,911

44,119

42,355

National Practices

854

825

3,222

3,116

Operating expenses - unallocated (1):

Other

(1,734)

(3,971)

(9,722)

(13,064)

Deferred compensation

(899)

(2,041)

(4,566)

553

Total

$             7,241

$         4,498

$     102,106

$         98,031

(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 (expense), 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 (expense), net."

CBIZ, INC.

SELECT CASH FLOW DATA

(In thousands)

 TWELVE MONTHS ENDED

 DECEMBER 31,

2016

2015

Net income

$       40,065

$       34,107

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

   Depreciation and amortization expense

22,098

20,389

   Amortization of discount on notes and deferred financing costs

523

2,271

   Bad debt expense, net of recoveries

4,090

5,658

   Adjustments to contingent earnout liability

(1,342)

(2,853)

   Employee stock awards

5,725

5,729

   Other adjustments

3,756

2,575

Net income, after adjustments to reconcile net income to net cash

provided by operating activities

74,915

67,876

   Changes in assets and liabilities, net of acquisitions and divestitures

(4,260)

(21,480)

   Operating cash flows provided by continuing operations

70,655

46,396

   Operating cash flows provided by discontinued operations

387

990

Net cash provided by operating activities

71,042

47,386

Net cash used in investing activities

(50,014)

(6,949)

Net cash used in financing activities

(18,384)

(40,566)

Net increase (decrease) in cash and cash equivalents

$         2,644

CBIZ, INC.

SELECT FINANCIAL DATA AND RATIOS

(In thousands)

 DECEMBER 31,

 DECEMBER 31,

2016

2015

Cash and cash equivalents

$           3,494

$             850

Restricted cash

27,880

24,860

Accounts receivable, net

175,354

153,608

Current assets before funds held for clients

228,135

200,983

Funds held for clients - current and non-current

213,457

171,497

Goodwill and other intangible assets, net

584,401

535,653

Total assets

$     1,118,588

$       996,331

Current liabilities before client fund obligations

$        125,592

$         99,735

Client fund obligations

213,855

171,318

Notes payable - long-term

1,721

-

Bank debt (1)

190,049

203,931

Convertible notes - non-current

-

750

Total liabilities

$        638,567

$       568,383

Treasury stock

$       (471,311)

$      (462,167)

Total stockholders' equity

$        480,021

$       427,948

Debt to equity (2)

40.2%

47.8%

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

76

72

Shares outstanding

54,044

52,953

Basic weighted average common shares outstanding

52,321

50,280

Diluted weighted average common shares outstanding

53,513

52,693

(1)

Effective January 1, 2016, CBIZ adopted Accounting Standards Update ("ASU") 2015-03 and ASU 2015-15, "Interest - Imputation of Interest" which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Upon the adoption of ASU 2015-03 and ASU 2015-15, the carrying amount of bank debt at December 31, 2015 has been retrospectively adjusted from $205.8 million to $203.9 million.

(2)

Ratio is calculated as bank debt, notes payable and convertible notes divided by total stockholders' equity. Upon the adoption of ASU 2015-03 and ASU 2015-15, the Company retrospectively adjusted the debt to equity ratio at December 31, 2015 from 48.3% to 47.8%.

(3)

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.

CBIZ, INC.

GAAP RECONCILIATION

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

(In thousands)

THREE MONTHS ENDED

TWELVE MONTHS ENDED

DECEMBER 31,

DECEMBER 31,

2016

2015

2016

2015

(Loss) income from continuing operations

$                (565)

$              (774)

$              40,607

$            35,003

  Interest expense

1,574

1,237

6,593

8,902

  Income tax (benefit) expense

(967)

(2,226)

26,399

22,829

  (Gain) loss on sale of operations, net

(375)

22

(855)

(84)

  Depreciation

1,355

1,372

5,378

5,658

  Amortization

4,384

3,849

16,720

14,731

Adjusted EBITDA

$              5,406

$            3,480

$              94,842

$            87,039