CBIZ, Inc. Q2 FY2025 earnings call

1. Business Resilience: Core and recurring essential business is resilient, but market-sensitive areas are impacted by economic conditions. 2. Revenue and Cost Initiatives: Managing directors tasked with identifying new clients, scheduling meetings, and stewardship. Expedited integration-related decisions including workforce integration, resulting in 450 fewer FTEs. 3. Marcum Acquisition: Positive impact on scale, client base, and growth opportunities. Integration is on schedule with positive early results. 4. Pricing and Market Conditions: Year-to-date rate increases averaged ~4%, below expectations, creating a $75 million headwind. Market conditions expected to persist, impacting revenue guidance.

Consolidated: Second quarter revenue was $684 million, first half revenue was $1.5 billion. Adjusted EBITDA increased by 128% to $66 million in Q2 and more than doubled to $356 million in the first half. Adjusted EBITDA margin was 17% in Q2 and 23% year-to-date. Financial Services Segment: Q2 revenue was $570 million, up $261 million or 84%. Adjusted EBITDA more than doubled to $111 million, margin 20%, 250 basis points higher than last year. Benefits and Insurance (B&I) Segment: Q2 revenue was $102 million, up nearly $5 million or 5%. Adjusted EBITDA was $20 million, up $3 million or 21%, margin 20%, 260 basis points higher than last year.

Maintaining revenue and earnings guidance, but expects revenue to be at the low end of $2.8 billion to $2.95 billion due to persistent market conditions. Recurring and nonrecurring revenue mix updated to 72% and 28% respectively, including SEC practice in nonrecurring.

1. Economic uncertainty, including tariffs, geopolitical unrest, and government funding cuts impacting market-sensitive services. 2. Client pushback on rate increases, affecting revenue and margin. 3. Integration challenges and potential delays in realizing synergies.

Q: First, I wanted to talk on the advisory business. Obviously, it was part of the reason for the guide down last quarter. It sounds like things haven't really changed a whole lot. But if you could speak a little bit more to kind of what you saw throughout the quarter, did May and June look any better than April. And then tied to that, when you talk about being at the low end of the guidance is the assumption embedded in there that there is no improvement from here? I just want to make sure that's clear.

A: Yes, Andrew, thank you. It's Jerry. Let me answer the second part of that question first, which is the guidance for the rest of the year suggests that the second half will look much like the first half. And you're right, the first half, while we're very pleased with relatively flat performance within that business kind of coming off of high watermarks in '24 and in the years before that. So we're really happy to be able to maintain that. In this environment, as you continue to see across the middle market, clients are really kind of sitting on the sideline and in many times, in many instances, just waiting for more stability before they move forward with anything that's discretionary. So all the headlines say that, our competitors continue to experience that anecdotally when we speak with them, and that's what we're seeing too. But all in all, pleased again that we're able to maintain at least the level of performance that we've seen over the past couple of years. It's just been hard to grow on top of that in this environment.

Q: Next question I have is just on the pricing commentary. I guess multipart question again, if you don't mind. I guess, is there a particular part of the business where that pushed back on pricing is more pronounced? Do you have any sense of or opinion as to how much of that is cyclical versus maybe having reached some sort of structural limit? And lastly, does it change your optimism or maybe you could speak to your optimism on potential pricing improvements in the Marcum business?

A: Yes, those are all great questions. So let me address the structural change first. I don't think we've reached the limits of what we're going to be able to do in pricing. I think what we've experienced year-to-date is really market-driven. As I stated in the comments, we were really pleased over the past several years to really be able to see kind of high single-digit rate increases year-over-year-over-year. And we continue to push for those things. We went into this year expecting that we'd see similar pricing. It wasn't until we set those bills in and started to receive kind of comments back and push back from the clients that we made the realization adjustments. But even at a 4% price increase or kind of mid-single digits, low to mid-single digits in this environment, we're pleased that we're able to get that. And again, it's a testament to the value that we bring to the client relationship. So that's what we're seeing. I think when the market improves, we will be able to resume the same levels of pricing that we've historically seen. The other opportunity and the one that you raised is that our pricing discipline, the tools that we have, the reporting we have, the training that we put around it really is not reflected in the Marcum numbers. And so we're just beginning that today. Now with that said, historically, they've just been intuitively good at it. Their pricing has historically reflected very similar trends to ours as far as we can see. But we think that they'll be able to do even better when we bring the reporting, the tools, the training, the methodology to it. So I think very bullish looking forward, what we're seeing in the first 6 months is just a reflection of market conditions.

Q: Makes sense. And then maybe my last question for me is just sounds like you're pulling back on some spending to manage the bottom line, which is obviously a great part of the model. Just wondering how much of that could be attributed to Marcum synergies? Or are those $25 million plus or more still mostly a '26, '27 event?

A: Yes, Andrew, I'll take that question. So I think I'll say a couple of things. I'd just reiterate what I said in my remarks. If you look at our margin, our EBITDA margins that we reported, I commented on the fact that about 400 -- let's call it, 400 for a year-to-date and about 300 basis points in the quarter of that year-over-year margin improvement is driven by the kind of the management of incentive compensation as well as other discretionary items. Most of that is incentive compensation just to give you a little bit more insight into that. The discretionary items as we're bringing these organizations together, it becomes a little bit more difficult to kind of narrow in on where we're going to land with those ultimately. But Jerry did mention, we're operating with nearly 450 folks on a combined basis, lower year-over-year. So as a result of that, the nonpersonnel-related costs that come with that, we expect to be able to continue to capture the benefits of that. On the synergy part of your question, I will just say we're not in a position where we're ready to update our outlook on synergies, but we are gaining more and more line of sight to not only the $25 million, but really clearly surpassing that. And when the time is right, we look forward to providing you and the others in our investment community an update on that. But we're very confident in terms of where we're at with $25 million and we're realizing those sooner than 2026 at this point. So that's helping us mitigate some of the headwinds we're seeing in our business as well.