CBZ Q1 Earnings Call: Revenue Misses Expectations as Integration and Economic Headwinds Shape Outlook

Yahoo

12-05-2025

Financial services provider CBIZ (NYSE:CBZ) fell short of the market's revenue expectations in Q1 CY2025, but sales rose 69.5% year on year to $838 million. The company's full-year revenue guidance of $2.88 billion at the midpoint came in 1.6% below analysts' estimates. Its non-GAAP profit of $2.29 per share was 8.7% above analysts' consensus estimates.
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Revenue: $838 million vs analyst estimates of $860.2 million (69.5% year-on-year growth, 2.6% miss)
Adjusted EPS: $2.29 vs analyst estimates of $2.11 (8.7% beat)
Adjusted EBITDA: $237.6 million vs analyst estimates of $219.5 million (28.4% margin, 8.3% beat)
The company dropped its revenue guidance for the full year to $2.88 billion at the midpoint from $2.93 billion, a 1.7% decrease
Management reiterated its full-year Adjusted EPS guidance of $3.63 at the midpoint
EBITDA guidance for the full year is $453 million at the midpoint, in line with analyst expectations
Operating Margin: 23.9%, up from 22.1% in the same quarter last year
Free Cash Flow was -$93.23 million compared to -$68.84 million in the same quarter last year
Market Capitalization: $3.87 billion
CBIZ's first quarter results were shaped by the integration of its recent Marcum acquisition, ongoing macroeconomic uncertainty, and a shifting mix between recurring and project-based services. Management emphasized that essential, recurring services—especially in core accounting, tax, and benefits—remained stable, while more discretionary, project-based advisory services saw softness. CEO Jerry Grisko noted that government healthcare consulting and benefits and insurance businesses were bright spots, helping offset declines in areas affected by lower capital markets activity and client conflicts related to the merger.
Looking ahead, CBIZ widened its full-year revenue outlook, citing persistent economic and geopolitical uncertainty and limited visibility into demand for nonrecurring services. Management maintained its adjusted earnings guidance, pointing to flexibility in cost management and the advantages of a variable expense model. CFO Brad Lakhia highlighted the company's ability to adjust compensation and discretionary spending in response to top-line pressures, while also focusing on completing the Marcum integration and executing technology system upgrades that are expected to support future growth.
Revenue growth in the first quarter was primarily driven by the Marcum acquisition, with recurring service lines performing as expected and project-based services experiencing pressure from economic and industry-specific factors. Management provided additional context on integration progress and the evolving business environment:
Integration Progress on Track: The Marcum acquisition is proceeding according to plan, with collaborative teams and a focus on unifying technology systems. This integration is expected to drive operational improvements and unlock new revenue synergies over time.
Recurring Service Stability: Essential compliance services in accounting, tax, and benefits continued to deliver mid-single-digit growth, according to internal analysis. These areas make up roughly 77% of total services and provide resilience against broader market volatility.
Project-Based Softness: Discretionary and project-based advisory services—comprising about 23% of revenue—were impacted by lower capital markets activity and reduced deal flow, particularly in private equity and SEC-related audit work. Management attributed this to unpredictable economic and geopolitical conditions.
Government Healthcare Consulting Strength: The government healthcare consulting division posted strong growth and expanded its project pipeline, benefiting from increased demand for compliance and cost containment services among state clients.
Client Conflicts and Revenue Impact: Some anticipated client losses occurred due to conflicts arising from the merger, particularly in healthcare and capital markets practices. These factors, along with the wind-down of legacy Marcum SPAC-related work, contributed to revenue softness but were largely expected and factored into internal models.
Management expects continued uncertainty in demand for nonrecurring services to weigh on near-term revenue, while cost controls and integration initiatives support profitability.
Economic Environment Remains Uncertain: Management believes that persistent macroeconomic and geopolitical unpredictability will continue to affect project-based advisory revenue, making forecasting challenging for the remainder of the year.
Cost Flexibility Supports Margins: The company's variable compensation structure and discretionary expense controls provide levers to manage earnings even if revenue growth slows. Management indicated this flexibility will be important to maintaining profitability targets.
Integration Synergies and Technology Upgrades: Ongoing integration of Marcum and investments in unified technology platforms are expected to drive operational efficiencies and create cross-selling opportunities, which management sees as critical for future growth and margin expansion.
Christopher Moore (CJS Securities): Asked which project-based service lines are most vulnerable to falling to the low end of guidance; management cited capital markets and private equity deal-related work as the main areas of risk.
Andrew Nicholas (William Blair): Requested detail on how CBIZ will offset top-line softness while maintaining earnings guidance; executives pointed to compensation flexibility and lower discretionary spending as primary levers.
Marc Riddick (Sidoti): Inquired about the timing and scope of client losses from conflicts post-acquisition; management confirmed most have already occurred and were within expectations.
Andrew Nicholas (William Blair): Asked about capital allocation priorities in light of higher leverage; CFO Brad Lakhia said debt reduction is the top focus, but the company will remain opportunistic with M&A and share repurchases.
Marc Riddick (Sidoti): Queried about pricing trends and the risk of rate pressures; CEO Jerry Grisko reported positive pricing trends in Q1 but acknowledged potential downward pressure if the environment worsens.
In the quarters ahead, the StockStory team will be monitoring (1) the pace and success of Marcum integration efforts, particularly the rollout of unified technology systems; (2) the stability of core recurring revenue streams amid broader market headwinds; and (3) any recovery in project-based advisory services tied to improved economic clarity and capital markets activity. Progress on cost containment and realization of anticipated integration synergies will also be important indicators for the company's trajectory.
CBIZ currently trades at a forward P/E ratio of 19×. In the wake of earnings, is it a buy or sell? Find out in our free research report.
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