Release Date: October 29, 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 strong third quarter with total revenue up 6.9% and year-to-date revenue up 7.1%.
- The Financial Services Division experienced solid organic growth, primarily driven by pricing, and the advisory services exceeded growth expectations.
- The Government Health Care consulting business had a strong year, benefiting from new contracts and expansion of existing projects.
- The Benefits and Insurance division saw growth across all major service lines, contributing to overall revenue increases.
- CBIZ Inc (CBZ) is in the final stages of closing its largest acquisition of Marcum, which is expected to enhance its service offerings and market position.
Negative Points
- CBIZ Inc (CBZ) faced unique headwinds in the second quarter, impacting results for that period.
- Client sentiment has waned compared to the previous year, with concerns about the national election, market volatility, and geopolitical issues.
- The company incurred significant one-time nonrecurring merger-related expenses in connection with the Marcum transaction.
- Access to talent and inflation concerns remain top of mind for clients, potentially affecting future business decisions.
- The leverage levels post-Marcum acquisition are expected to be high initially, with a plan to reduce them over the next 24 months.
Q & A Highlights
Q: What has been the internal feedback on the Marcum acquisition, and what can you share about the post-integration leadership structure?
A: Jerry Grisko, President and CEO, stated that the reception has been very positive from both CBIZ and Marcum teams. There is excitement about the opportunities from combining the two organizations. While the leadership structure has not been formally announced, it will include a mix of Marcum and CBIZ team members, with some new hires, to position the company for future growth.
Q: Can you provide more details on the stronger-than-expected performance of the advisory services in the third quarter?
A: Jerry Grisko explained that the advisory services performed well across the board, with strong activity in private equity advisory. Although larger transactions were not as prevalent, there was an increase in the number of smaller transactions, contributing to the strong performance.
Q: How much of the organic growth was driven by pricing, and what are the expectations for pricing next year?
A: Ware Grove, CFO, noted that 80% to 90% of the organic growth in the Financial Services division was driven by pricing. While pricing increases have been significant in recent years, they are expected to moderate in line with lower inflation rates.
Q: What is the outlook for Government Health Care Services, and was the recent growth a surprise?
A: Ware Grove mentioned that the Government Health Care Services division is experiencing strong growth, continuing from the second half of last year. The growth is expected to continue, although at a slightly slower rate due to the division's increasing size.
Q: How will the leverage from the Marcum acquisition be managed, and what is the expected timeline for deleveraging?
A: Ware Grove explained that leverage is expected to be between 3.25 to 3.5 times EBITDA post-acquisition, with plans to reduce it to around 2 times EBITDA within 24 months. The deleveraging will be more pronounced in the second half of each year, following the seasonal cash flow patterns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
