Good morning, and welcome to the CBIZ first quarter 2019 results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Lori Novickis, Director of Corporate Relations. Please go ahead.
Thank you, Laura. Good morning, everyone, and thank you for joining us for the CBIZ first quarter 2019 results conference call. In connection with this call, today's press release has been posted on the investor relations page of our website, www.cbiz.com. This call is also being webcast. A link to the live webcast as well as the replay 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. A reconciliation of these measures can be found in the financial tables of today's press release. Remember that management may also make forward-looking statements. Such statements are based on current information and management's expectations as of this date and do not guarantee future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that can be difficult to predict.
Actual results can, and sometimes do, differ materially. A more detailed description of such risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission. Joining us for today's call are Jerry Grisko, President and CEO, and Ware Grove, Chief Financial Officer. I'll now turn the call over to Jerry for his opening remarks. Jerry?
Thank you, Lori. Good morning, everyone. With this morning's release of our results for the first quarter of 2019, we reported total revenue growth of 1.5%, a 60 basis point improvement in our margin and pre-tax income, and a 4.7% increase in our earnings per share over the results reported for the same period a year ago. Same-store revenue grew by 1% for the quarter. While revenue growth for the quarter was somewhat softer than anticipated, it wasn't significantly below our internal expectations. To better understand the quarter-over-quarter comparison, it's helpful to review some of the items that impacted both quarters. Many of you will recall that the first quarter of 2018 was an exceptionally strong quarter for CBIZ, with total revenue growth of 10.2% and EPS up over 42% compared to the same period in 2017.
As we said at the time, the results for the first quarter a year ago were significantly impacted by a number of extraordinary non-recurring factors, including revenue that we recorded within our financial services group relating to carryover work resulting from Hurricane Irma, an event that occurred in the third quarter of the prior year. We also benefited from a higher than usual amount of revenue from a number of our non-core transactional businesses, including our real estate advisory business and our executive recruiting business. In addition, in 2018, we sold a small accounting office as well as another at the beginning of this year, plus one small book of business with our Benefits and Insurance Segment. All of which contributed to revenue in the first quarter of 2018 without any contribution in the first quarter of this year.
While the results for the first quarter of 2018 were favorably impacted by the foregoing factors, there were a number of factors that occurred in the first quarter of 2019 that reduced the amount of revenue that we were expecting for that quarter. Most notably, the partial shutdown of the federal government that occurred this past December and January, combined with the significant number of changes under the new tax law, caused the IRS to be late at issuing certain forms and guidance relating to the Tax Reform Act. This caused delays in the availability and performance of third-party software used to prepare the tax returns for many of our clients. Those delays impacted the entire accounting industry, not just CBIZ. I've read reports estimating that the entire tax season may have been compressed by as much as four weeks this year.
For CBIZ, this caused a reduction in the number of tax returns that we're able to prepare and an even greater increase in the number of extensions that were filed. As a result, the revenue related to the extensions, which would normally have been recognized in the first quarter, will be recognized as work is completed in the second and third quarters of this year. Despite the tailwinds that we experienced in the first quarter of 2018 and the reduced level of tax work that we experienced this quarter, we were pleased to report growth in the first quarter of 2019 over an exceptionally strong first quarter a year ago. Turning to some specific comments within our two primary practice groups.
Within our Financial Services Group, same unit revenue grew by 2.7% and total revenue increased by 2.5%, which reflects the impact of the sale of the two small accounting practices I mentioned earlier. Client demand continues to be strong within our core tax and accounting business, and we're encouraged by a healthy level of optimism by many of our clients that the business climate will remain favorable for the remainder of 2019. This should bode well for the level of consulting and advisory work that we typically provide to our clients in the seasonally off-peak months of the year. In addition, demand for the services provided by our Financial and Transaction Advisory Business continues to be robust, and we have a significant amount of backlog work in that area.
We are, however, experiencing some labor market tightness in this area, and we're working hard to ensure that we have the appropriate number of experienced staff to meet high client demand for these services. Consistent with our long track record of success, our government healthcare consulting business continues to grow at high single-digit rates, and that business line is performing well. Turning to our benefits and insurance group, total revenue declined by 1.4%, and same unit revenue declined by 3.3%. As noted earlier, the quarter-over-quarter comparison was affected in part by the unusually high amount of revenue that we received from our executive recruiting business in the first quarter of 2018, and the sale of a small book of business that contributed to the results in the first quarter of 2018, but not in the same period for 2019.
While we are not yet achieving the rate of growth that we ultimately expect from a number of the businesses within this group, the results for the first quarter of this year are generally in line with expectations. For the businesses that comprise the four core service lines within this group, client retention is equal to or improved in all four businesses over the same period last year. Revenue production is up at three of the four businesses, and the new producers that we've recently hired within our employee benefits and our property and casualty businesses are generally outperforming expectations. With these comments, let me turn it over to Ware Grove, our Chief Financial Officer.
Thank you, Jerry, and good morning, everyone. Considering the exceptionally strong results we reported in the first quarter a year ago, together with the impact of the divestitures we announced at the end of 2018, we expected the first quarter results this year would likely not reflect the level of year-over-year growth that is consistent with our full year guidance for 2019. The strong performance in the transactional businesses last year, coupled with the loss of revenue from the divestitures that effectively neutralized the growth we would've otherwise achieved, impacted our total revenue growth by approximately 150 basis points in the first quarter this year compared with prior year. Our business is healthy, client demand is strong, and we want to affirm that we are comfortable with our full year 2019 growth targets and guidance.
Considering the impact of continued investments we are making in the business, we're happy to report a margin increase of 60 basis points compared with the first quarter a year ago. We have a continuing investment in new business producers within our benefits and insurance group. As many of you understand, this is a multi-year effort for us as it takes time for newly hired individuals to ramp up to generate new business production to target levels. With the increased hiring in the second half of last year, and continuing into the first quarter this year, the incremental cost incurred impacted first quarter margin by approximately 28 basis points. As Jerry commented, we are seeing positive trends with stronger first quarter production and higher client retention rates, and we expect to reflect improving performance within our benefits and insurance business by the end of the year.
As noted in the release issued this morning, we've been active with share repurchases. Through the end of the first quarter, we repurchased approximately 580,000 shares of our common stock at a cost of approximately $11.6 million. Through April 24th this year, we have repurchased a total of approximately 612,000 shares. With our seasonal trend to use cash in the first quarter, cash flow for the business is as expected, and the debt level at the end of the first quarter this year was at 1.7 times EBITDA. Our priority continues to be to use capital for strategic acquisitions. With nearly $210 million of unused borrowing capacity, we also have the flexibility to continue an active approach towards share repurchases.
As a result of recent share repurchase activity, we expect full year 2019 fully diluted, weighted average share count within a range of $56 million-$56.5 million. This is a slight reduction from our earlier year guidance. In the first quarter, we used approximately $4.4 million of cash for payments on acquisitions. For the remainder of this year, for prior year acquisition-related payments, we forecast the use of approximately $14 million. For next year, 2020, approximately $11.5 million. For 2021, approximately $4.9 million, for 2022, approximately $2.7 million. DSO on receivables at the end of the first quarter this year was 91 days, compared with 92 days a year ago.
Remember, the seasonal nature of our business causes a rise in DSO in the first half of the year as revenue is generated with billing and payment activity to occur later in the year. Capital spending in the first quarter was $5.4 million. Largely driven by facilities moves and related tenant build-out costs. In addition, we are transitioning to purchase rather than lease some IT equipment. As a result, for the full year this year, we expect capital spending of approximately $12 million. I want to remind you of the impact of accounting for gains and losses in the deferred compensation plan for CBIZ. At March 31st, we have approximately $96 million of assets in this plan. You will see a significant $9.1 million first quarter gain that impacts reported results. This is outlined in the notes that accompany our earnings release.
Eliminating the impact from the GAAP reported operating expenses and general administrative expenses, gross margin improved by 10 basis points compared with a year ago. General administrative expense was 4% of revenue compared with 3.8% a year ago. Primarily due to investment in technology and systems and stock compensation related expenses compared with the prior year. The effective tax rate in the first quarter was 26.6%. We continue to project a full year tax rate of approximately 25%. The tax rate will be impacted by stock compensation accounting, this could be either higher or lower, depending on subsequent activity over the balance of this year. As a heads up, I want to note that we adopted the new lease accounting standard at January 1st, 2019. There is no impact to earnings or cash flow, nor is there any impact to our credit agreement or credit availability.
When we issue a full balance sheet in our upcoming first quarter 10-Q filing, you will find a right-of-use asset on the balance sheet that is offset by a present value liability for future lease payments. Looking ahead to the balance of the year, business conditions are favorable, and we expect continued strong client demand for services. Government healthcare consulting continues to grow at high single-digit rates. Our financial and transaction advisory business continues to see robust demand for services. First quarter tax work was softer than expected as a result of delays in IRS regulations and guidance. With a larger number of extensions filed to date, this work will be done later in the year.
As a result of the investments we are making in new producers, we expect improving revenue growth trends within our benefits and insurance business segment through the balance of this year. With these factors in mind, I want to recap our full year 2019 guidance. We expect total revenue growth within a range of 4%-6% over the $922 million we reported in 2018. We expect the effective tax rate for the full year 2019 will be approximately 25%. The first quarter effective tax rate was 26.6%. Estimating the expected impact of full-year stock compensation expense, we continue to expect a full-year rate of approximately 25%. Again, a number of unpredictable factors could cause the full-year rate to be either higher or lower than our estimate.
Considering the recent share repurchase activity, the full-year weighted average fully diluted share count is now estimated within a range of 56 million to 56.5 million shares compared with 56.5 million shares for 2018. We expect full year growth in earnings per share within a range of 10%-12% higher than the $9 per share we reported for the full year 2018. With these comments, I'll conclude, and I'll turn it back over to Jerry.
Thank you, Ware. I'd like to take just a moment to discuss our approach to investments and growth. We continue to believe that it's important to invest in both organic growth and in acquisitions. From an organic perspective, embedded in our results are significant investments in people, technology, marketing, and processes that we believe will fuel the short and long-term growth of the company. While the list of those investments is too long to cover on this call, some of the most noteworthy include the continued investment in producers within our benefits and insurance group that Ware mentioned earlier. Additional national resources within our financial services group that assist our offices to better leverage our national tax office and our other national resources to provide a higher level of service to our clients. A continuation of the national cable television branding campaign that we launched last year.
A new best-in-class technology platform for a portion of our payroll business. From an acquisition perspective, our balance sheet remains strong, and we have approximately $210 million of unused borrowing capacity on our credit facility at the end of the first quarter. This provides us with the capacity and the flexibility to continue with our strategic acquisition program. In 2018, we closed three transactions that are expected to contribute approximately $11 million to annualized revenue. So far this year, we've closed one additional acquisition that is expected to contribute an additional $2.4 million to annualized revenue. While we remain optimistic that we will close the three to five transactions that we targeted for this year, it is very difficult to predict the number of closings that may occur in any particular year and the precise timing of those closings.
What I can say is that our pipeline continues to be very strong, and we are at various stages of conversations with a number of very high-quality companies that would be strong strategic fits and significant contributors to our long-term success. Turning to our forecast for the remainder of 2019. While the remainder of the year is far more reliant on discretionary project-oriented work than the first quarter, the metrics and other information that we track generally seem to indicate that we're going to continue to experience favorable business conditions for the types of services that we provide, and that we will remain on track to hit the full-year guidance that we previously established for the year. At this point, and I'll turn it over for Q&A.
Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question will come from Christopher Moore of CJS Securities.
Hey, good morning, guys.
Morning, Chris.
Hi, Chris.
Good morning. Yeah, maybe we just stay with M&A just for a second. I know you can't get too specific, but just in kind of looking at the pipeline on a year-over-year basis or this time versus two years ago. How would you characterize it and the types of acquisitions? Are most of the things you're looking at on the smaller size, or what's the kind of range of things that you might consider at this point in time?
Yeah. Let me answer them in order, Chris. First, the pipeline that we have today is at least as robust, if not more robust, than we've had over the past couple of years. That's principally a result of the resources that we've committed to sourcing transactions. We've always had internal resources. We've also engaged some external resources. We've engaged heavily with the third-party intermediaries that provide those types of transaction opportunities to us, both on the accounting side of the business and the benefits & insurance business. I think all of those things combined are allowing us to have a larger number of looks at transactions than we have maybe going back 24 or 36 months. We're pleased with the amount of transactions that are coming across the transom.
With that said, there's a high mortality rate to many deals that we look at, as you would expect, for a lot of reasons. As far as the size of the transactions are concerned, I will tell you that it's a mix. On the accounting side of the business, we tend to see larger transactions. We've historically seen larger transactions, and that's holding true at this time, both on the traditional accounting firms and on the size of many of the advisory types of practices that we're having discussions with are just larger than they've been in the past. On the benefits & insurance side, it's consistent with what we've seen. The industry is very fragmented. You tend to see a lot of small brokerage firms that are transacted in that space, and we see that same mix of transactions.
Got it. That's helpful. On the benefits & insurance sides, organic growth was down 3.3% in Q1. Part of that was kind of some of the one-time things that happened in Q1 of 2018. If you look at your fiscal 2019 guidance, do you assume kind of flat growth in benefits & insurance? I mean, is that reasonable, or is it likely to be down still marginally for the year organically?
No, we think you're right on, Chris. We think relatively flat for the year for the benefits & insurance group. As we've commented a couple times in our notes, that we've made substantial investments in producers. That really kind of ramped up in the second half of last year. We continue to make sure that we're filling the pipeline of producers in that area. We would expect that we would start to see some incremental growth from that group in the latter half of 2019. As a total division for us, relatively flat year.
Got it. Appreciate it. Let me jump back in line. Thanks, guys.
The next question comes from Timothy McHugh of William Blair & Company.
Thanks. Was wondering if you've been able to, I guess, quantify the size of the deferral in tax work in any sense. Can you remind us also, I guess, how unusual was the executive search type of revenue in the year-ago period, just to put some numbers around kind of the factors that affected growth?
Yeah. Hi, Tim. This is Ware Grove. Hey, the number of extensions, and we track these things, was up into the mid-teen range compared to last year, it was not insignificant. We think there's probably a 50 basis points impact on our reported revenue this year, the good thing is that work will be done. It's not work that's disappearing. It's also actually a bit of a nice thing that we can smooth the peak here and kind of generate more revenue in the second and third quarter, that's what we always try to do. This year-over-year, because of the delays in rules and regulations and guidance, we did probably a half a percent or 50 basis points lower revenue than otherwise we would have had that not occurred.
Okay.
The second question was on the executive search and the impact.
Yeah.
I think if you look at the impact on the B&I side, we reported a negative 3.3% negative organic growth for the first quarter. If you adjust out and kind of keep that executive search piece flat year-over-year, the B&I, benefits and insurance organic growth would have been approximately 2% down, not 3.3% down, if that helps you understand that impact.
Okay. I guess I understand what basically you said, retention's better. There's some signs of productivity coming from the new hires within the benefits and insurance segment. I guess I would've thought that you'd see more evidence of that, I guess. I mean, we've seen down 1%-2% for the last several quarters. Doesn't seem like it really had any impact, I guess, on the revenue number. Is it performing as Well, I guess maybe the question is you're seeing some progress, but is that progress coming as fast as you would have thought it would be coming?
Yeah, the question is: is it coming as fast as we would expect it? The answer is yes. The first quarter is basically performing as expected. I think the one anomaly that we may not have talked about was there was a contingent amount of income that we received in the first quarter of last year that we didn't get this year, that's also impacting those numbers. If you kind of scrub all the things that are beyond our control out of the numbers, I think the business unit is performing as we expected it in the first quarter. We, of course, would like to see faster progress there. There are frequent conversations about how we can bolster growth within that group, but I do think we've taken the right steps. We're making the right investments.
We have the right people focused on the right issues, I think we're going to start to see improvement in the latter part of the year.
Okay, great. Thank you.
Again, if you would like to ask a question, please press star then one at this time. Our next question will come from Marc Riddick of Sidoti & Company.
Hi, good morning.
Morning, Marc.
Hey, Marc.
Wanted to touch a little bit on the impact of the extensions. I was wondering if there's any kind of residual impact on a state and local tax filing basis as well, if you're seeing any kind of follow-through on that part of it, and if there's any particular mix of types of customers that were filing extensions or whether it was just across the board.
Yeah. The first question, Marc, I really don't have knowledge of as to whether there was a particular state and local impact of the extensions. The second one, the regs and the code changes that were made, particularly with regard to pass-through calculations and limitations on interest. We do an awful lot of pass-through entities. We do a lot of real estate work, partnerships, et cetera. There's a Section 199A code section that was significantly impacted by the regulations that were delayed and the lack of guidance, as well as the limitation on interest. Again, it did impact more the pass-through entities, at least that pass-through calculation, the Section 199A. The interest calculation is really, I think it impacted all small businesses that have borrowings outstanding. The answer is a mix, I guess.
Okay. Okay, great. I was wondering if you were seeing any impact on demand from certain types of customers that may have been impacted from tariffs or the like. I'm kind of thinking about farmers, but I was thinking along the lines of just general local businesses that may have had a greater tariff impact over the last several months.
Marc, we asked those questions prior to the call and at the end of every quarter as to general client sentiment, whether anything materially impacted them, their sentiment kind of for the quarter and for the rest of the year. We have not heard that any of our clients were materially impacted in the areas that you've asked about.
Okay. Okay, that's fair. I was wondering if you'd give a bit of an update. I know you talked about the national advertising part of things. I was wondering if you'd give a little bit of an update on thoughts as to where you're going. I think you touched on this last quarter, just wanted to check to see if there was an update that we could sort of think about for the remainder of the year.
Obviously, the objective of that campaign is to increase our brand awareness. We do brand awareness surveys, at the beginning of the campaign and throughout the campaign. The positive there is that our results for brand awareness have increased nicely from survey to survey. The reality is that we had low brand awareness when we started. Those improvements, we need to continue to make strides there. What's required in order to make those strides is that we have to continue with that program. We had two flights of the campaign last year. We've had another flight so far this year, we plan on continuing throughout the year with a consistent approach to the market. The dollars that we spent last year will be spent again this year. We expect to continue to do that into the future.
Okay. This may be a bit of a guess, I'll give it a shot anyway. With the extensions, you mentioned the concept of, okay, well, maybe there might be a little bit of just smoothing for benefit for the second and third quarter. Is there a reason to believe that that might be slightly more beneficial to the third quarter versus the second quarter, or do you have any opinions on that as of yet?
Yeah, we really don't have a feel for that. Right now, we're saying it's going to impact both quarters. It should impact them nicely, but we just don't have a visibility as to what'll come in the second and third.
Okay. That's fair. I appreciate it. Thank you very much.
Thanks, Marc.
Once again, if you'd like to ask a question, please press star then one. This concludes our question and answer session. I would like to turn the conference back over to Jerry Grisko for any closing remarks.
Thank you, Laura. For those of our team members who are on the phone who may not have seen the latest news, we were just notified that once again, we've been recognized as among the top 10 by Forbes magazine's rankings of the 2019 best mid-size employers in the professional services category, and among the 2019 best workplaces in consulting and professional services by Great Place to Work in Fortune magazine. These recent recognitions add to a long list of similar industry and local market awards that we've received this year for best places to work. I want to thank each of our nearly 4,800 team members who come to work every day and contribute to the culture that make these awards possible.
We are in the quintessential people business, and there's nothing more important than culture and our ability to attract and retain the best and brightest talent in our industries. I'd like to close by thanking our analysts and our investors for their continued support and our team members for the exceptional job that you do in providing best-in-class services to our clients. We look forward to speaking to you again after we report our second quarter results. Thank you and have a nice day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.