Good day, and welcome to the CBIZ Fourth Quarter 2022 Results Call. [Operator Instructions]. 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..
Good morning, everyone, and thank you for joining us for the CBIZ Fourth Quarter and Full Year 2022 Results Conference Call. In connection with this call, today's press release and quarterly investor presentation, have been posted to the Investor Relations page of our website, cbiz.com.
As a reminder, this call is being webcast, and a link to the live webcast can also be found on our site. An archive replay and transcript will also be made available following the call. Before we begin, we would like to remind you that during the call, management may discuss certain non-GAAP financial measures.
Reconciliations of these measures can be found in the financial tables of today's press release and investor presentation. Today's call may also include forward-looking statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects.
Forward-looking statements represent only estimates on the date of this call and are not intended to give any assurance of future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.
Many factors could cause future results to differ materially and CBIZ assumes no obligation to update these statements. A more detailed description of such factors can be found in our filings with the Securities and Exchange Commission.
Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; and Ware Grove, Chief Financial Officer. I will now turn the call over to Jerry for his opening remarks.
Jerry?.
Good morning, everyone, and thank you for joining us. On today's call, we're proud to share our fourth quarter and full year results for 2022 and our outlook for this year. Last year on this call, we discussed our record performance and results for 2021. We are pleased to report that our momentum continued throughout 2022.
And from nearly every measurable perspective, our results for last year were exceptional and at or near our strongest performance in recent history. Most notably, for the full year, total revenue was up 27.8%, where organic revenue grew by 10.9%. Adjusted EPS was up by 28.3%. Adjusted EBITDA improved 28.1%.
Our stock price increased by 19.8% and we made 2 sizable acquisitions adding over $154 million in annualized revenue.
At CBIZ, we always strive to achieve success by design and our full year results of the product of the strategic plan that we set for our business over 5 years ago and then diligently executed by our devoted team of over 6,500 professionals.
Our results are also a product of the fundamental attributes of our business, which include the combination of the essential recurring services that we provide to our clients on a regular basis, supplemented by a number of more project-based discretionary services.
Also, we serve a diverse client base that include companies of all sizes, doing business across our broad geographic footprint and representing a wide range of industries.
Those attributes make us less susceptible to market conditions that may disproportionately impact businesses at certain sizes or industries or that are located in specific geographies. And it's based on those attributes that we entered 2022 confident in our ability to continue to perform well regardless of the business climate.
While the year presented a number of challenges for many businesses, including labor shortages, increased wages, rising interest rates, supply chain shortages, inflation and threat of a recession, our strong performance throughout the year is a testament to the strength of our business model and the confidence and resilience of the clients that we serve.
And while we expect that 2023 may also present a more challenging business climate for many, we remain equally confident in the resilience of both our business and our clients which will enable us to perform relatively strong as we move forward.
As we demonstrated over the last year, our essential services help our clients to run their businesses and to take advantage of opportunities regardless of the business climate. We are also uniquely positioned to help them with services and solutions to help navigate emerging challenges. Now turning to the performance of our individual divisions.
Our Financial Services division had an especially strong year with a record 37.6% increase in total revenue when compared to 2021. This double-digit growth was driven by strong demand for all 3 major service lines, that being our core accounting and tax services, our advisory services and our government health care consulting services.
Our growth within this group also reflects our ability to continue to improve pricing with our clients. This allowed us to respond to wage pressures in a highly competitive labor market.
We also saw remarkable traction with many of our more bespoke services that we offer, including our work to support our clients and securing the employee retention tax credit.
As we demonstrated through the early days of the pandemic, our teams are always proactively identifying new ways to support our clients and guide them through emerging opportunities.
In the second half of the year, we also saw the investments focused on attracting and retention of talent yield results as we accelerated hiring to drive an increase in much needed capacity.
Within our advisory services, each of our significant service lines experienced strong demand for their more discretionary and project-based services that we provide to our clients, which created opportunities to drive rate increases and value billing.
Our government health care consulting business also experienced nice growth through both new project work and the expansion of existing projects. We were also able to drive some pricing improvement which has a more complex process given that much of this work is structured through multiyear contracts in published rates.
Finally, throughout the year, we did see the return of some work that had been on hold or delayed due to the pandemic.
During our quarterly calls throughout 2022, we talked about the importance and impact of a number of multiyear investments that we've been making to improve our processes, tools and training aimed at enhancing client and team member experience and maximizing profitability. The cumulative impact of these investments is evidenced in our results.
As we look ahead in 2023, we will build on these efforts with a keen focus on innovation that includes how we use data to better serve our clients and adopt automation and improve processes to drive even greater efficiency.
Now turning to our Benefits and Insurance division, where we also experienced strong growth and performance across every major service line, resulting in organic revenue growth of 8.3% for the year.
While the key drivers of that growth varied slightly within the 4 major service lines, all benefited from strong sales and continued favorable client retention rates. One service line that is worth noting is our retirement investment services business, where approximately $25 million of their revenue is tied to assets under management.
As one would expect, those fees were down last year due to the performance of the broader stock market. Despite this, the team was able to grow revenues by increasing fees for other services, improving sales and continuing strong client retention rates. We are extremely pleased with the performance of our business throughout 2022.
While it's difficult to predict the business climate in 2023 and how it may impact demand for certain of our more discretionary services, based on our strong financial performance over the past 2 years, the continued high demand for our services that we've experienced in recent months, the investments to accelerate growth that we've made in the business and our access to capital, we will once again be providing financial guidance for the year.
With this, I will turn it over to Ware Grove, our Chief Financial Officer, to provide more specific details on our financial performance for the fourth quarter and the full year of 2022 and our thoughts on guidance for 2023.
Ware?.
we expect total revenue to increase within a range of 8% to 10% over the $1.4 billion reported for 2022; on an adjusted basis, we expect 2023 adjusted earnings per share to increase within a range of 11% to 13% over the adjusted earnings per share of $2.13 reported in 2022; GAAP reported earnings per share is expected to increase within a range of 15% to 17% over $2.01 reported in 2022.; the effective tax rate for the full year of '23 is expected at approximately 28%.
As I mentioned earlier, there are several considerations at play and the rate can be impacted either up or down by a number of unpredictable factors; and lastly, fully diluted weighted average share count is expected within a range of 51 million to 51.5 million shares for the full year of 2023.
So with these comments, I will conclude, and I'll turn it back over to Jerry..
Thank you, Ware. Given the importance of acquisitions on our growth strategy, I wanted to spend a few minutes on our approach to M&A, what we've accomplished over the past 12 months, including our recent announcement of our Somerset acquisition and the strength of our pipeline.
As a quick reminder of our M&A strategy, we look for acquisitions that will allow us to enter attractive and growing geographic markets; strengthen our presence, scale and capacity in our existing markets; expand our service offerings to include additional services or specialties that we know to be in high demand by our clients and to access top talent.
During 2022, we completed 2 sizable and strategic acquisitions. The first was Marks Paneth, a leading accounting and tax firm with multiple locations in the Metro New York area and with offices in Philadelphia, Boca Raton and Washington, D.C.
The second was Stine & Associates, a risk and advisory services firm that provides consulting services around areas like cybersecurity and SOX compliance. Stine brought offices in Tulsa and Oklahoma City, as well as a presence in capacity in Dallas, Houston, San Antonio and Denver.
When combined, these 2 acquisitions added almost 700 professionals to our team and annualized revenue of approximately $154 million. To date, we have made significant progress with the integration of these teams into our operations.
The investments that we've made in our integration approach and how we welcome these teams to CBIZ, have allowed us to accelerate the overall process and to realize the desired value of these acquisitions on or ahead of schedule.
In addition to the acquisitions that we completed in 2022, we just announced our recent acquisition of Somerset CPAs and advisers, an accounting and tax firm that also offers a variety of consulting services. headquartered in Indianapolis, Indiana with offices in Fort Wayne and Michigan City, Indiana and Nashville, Tennessee.
Somerset brings 240 professionals and approximately $55 million in annualized revenue to CBIZ and allows us to enter a growing and attractive geographic market with a firm that has significant size and scale that will position CBIZ to be competitive right out of the gate.
Each of these acquisitions adds to our CBIZ family bring strategic value and strength to the breadth of our services and the depth of expertise and helps us to differentiate ourselves within the markets that we serve. Our M&A pipeline remains healthy, and we have access to the capital needed to pursue these opportunities.
With that, we will turn it over for Q&A..
[Operator Instructions]. Our first question comes from Chris Moore from CJS Securities..
Maybe we just break down the 8% revenue growth estimate a little bit further.
At the midpoint, from a same-store perspective, is that translate into roughly 4%? Or am I looking at that correctly?.
Chris, this is Ware. Yes, we're looking at in that 8% to 10% range for revenue growth. We're looking at roughly 5% to 6% for organic and the balance through acquisition..
Got it. That's helpful. Is there much Marks Paneth kind of synergy assumed in there? I'm just trying to get a sense as to, you guys didn't assume much for '22 and felt like '23 is when you might start to see some of that maybe you could just talk to that a little bit..
Yes, Chris, a little bit. This is Ware again. We have -- typically, you're aware that we have 3-year earn-out periods for these transactions. There is beyond the onetime nonrecurring first year expenses. We do have a layer of kind of transition expenses during that earnout. But yes, there is incremental improvement between year 1, year 2 and year 3.
So there is some modest improvement projected for Marks Paneth..
Got it. And just with respect to the 28% tax rate, I just want to make sure I heard it correctly.
So looking out beyond '23, what you're saying is that '24 is not likely to be any higher than the 28% range, correct?.
Yes, that's exactly right. This is -- can be characterized as kind of a onetime 2023 versus '22 headwind that's presented by an increase in tax rates because primarily for the expiration of some of the grandfathered benefits that are now expiring as a result of the Tax Reform Act of 2017..
Got it. And maybe just one more for me.
When you look at project work in fiscal year '22, which areas could be more challenging to match in '23? And which, if any, might be a little bit easier?.
Yes, Chris, time will tell, right? But when we look at project work, we basically say, of the types of things historically that have been impacted by a softer economy, that's roughly about, total about 14% of our revenue. Of that 14% of our revenue, obviously, much of it -- that work continues to be done.
So what we did is we went back and looked at some historic numbers. And when we've seen some softness there, it's been approximately call it, 13% to 14% of that 14% or about 2% of our total revenue. So we don't think that it's that material in the overall scheme or size of CBIZ, but that's -- those are the numbers..
[Operator Instructions]. Our next question comes from Andrew Nicholas from William Blair..
I wanted to start by following up on that last answer with respect to business advisory. Have you seen demand there slow already? I know last quarter or last couple of quarters, you talked about being relatively sold out in that business. Wondering if you've already seen some softness there.
And then relatedly, if there's any way to quantify kind of what your expectation is or at least what's built into guidance on the business advisory front for '23, that would be helpful..
Yes. Andrew, it's Jerry. Through the most recent quarter, several months here, we continue to see overall strong demand for our advisory services. So we're really encouraged by that. With that said, there are I think, 8 different service lines that we include in that advisory category.
And there are a couple that are a little softer, but overall, continued strong demand for those services. When we look into '23 budget, we are predicting continued strong demand for those services overall..
Understood. And then for my follow-up, I was just hoping you could spend a little bit more time on Somerset. It sounds like a good fit culturally. Can you speak a bit more to their areas of expertise, any cross-sell opportunities that immediately come to mind as you integrate them over the course of '23.
And then lastly, and I apologize for the multipart question, but anything you could say on the multiple paid or -- and/or the expected contribution from an EPS perspective in '23? All those things would be helpful..
Yes. Let me take a crack on some of these things. As far as the fit, we couldn't be more excited to bring them on, terrific organization, great leadership, strong culture. We were with that team. I think when we did the welcoming meeting. We had over 20 of our CBIZ team members together with their almost 300 members.
I think there were 270 or something in the room. And you would think that we've been together for years. I mean, just a very strong cultural fit. So very encouraged by that. As far as specialties are concerned, they're a terrific fit for us. They serve a very similar client base across very similar industries. They do have a couple of specialties.
One in particular is dealerships. They represent a significant number of not only auto dealers, but also large equipment RV dealers and large equipment dealers. We think we can build on that. We're excited about that. They've got a medical real estate kind of practice consultant that we're excited about, we think we can build on that.
We like their markets not only Indianapolis itself, but the other markets that they bring to us, including Michigan City and Fort Wayne and Nashville, all really good markets for us. So a lot there that we were excited about and are looking forward to getting -- starting to bring into our fold. You talked about cross-serving in '23.
We typically don't see a lot of cross-serving right out of the blocks because there's sometimes spend kind of getting familiar with -- for them getting familiar with our organization, and us getting familiar with them.
We may see some, and we've certainly seen that with Marks Paneth and Stine and some of the others, but we don't kind of build that into the model. But overall, very, very encouraged by what we see culturally leadership and the opportunities that it presents together..
Anything to say on kind of expected bottom line contribution in '23, and then I'll get back in the queue..
Yes, Andrew, this is Ware. Just building on the response I had earlier about the earn-out periods of time. We're normalizing out roughly $0.05 of equivalent earnings per share, cost from the transaction-related costs and then clearly onetime nonrecurring expenses in the initial integration.
Beyond that, though, in the 3-year earn-out period, we do have a layer of expenses. So the net contribution would be fairly modest in the first year on the bottom line. Would improve, clearly more to the CBIZ norm kind of at the end and post earn-out..
[Operator Instructions]. Our next question comes from Marc Riddick from Sidoti..
So really kind of touched on pretty much all of my main questions. I guess maybe one of the things I'll sort of ask in the round about -- sorry about -- there being emergency going by, I guess, in the background.
I was wondering if you would talk a little bit, clearly, there's market share gains being taken place in market, the organic growth that you're seeing.
I was wondering if you could talk a little bit about that whether you're getting a sense that, that's a function of share of wallet, multiservices being layered on existing clients, just -- do you think you're just gaining from competitors or the like? Maybe sort of talk a little bit about the end market gains that you seem to be having because there's clear outperformance on a local level, it seems..
Yes, Marc. I think it's all of the above, right? I mean, I think there's some component of all of those things. I will say that in speaking to our offices are our unique kind of approach to the market, that being the breadth of services that we offer, the depth of expertise really is a differentiator in the market.
And I think we are taking market share as a result of that differentiating characteristic of the business as well as deeper share of wallet within our existing clients.
The other thing that's really kind of taking hold here is kind of our digital outreach and our ability to communicate both that breadth of services and depth of expertise to our clients more directly and not have to rely exclusively on the relationship manager, all of those things are helping us and we're making pretty significant investments in making sure that we continue to accelerate our message to the market to take advantage of that..
Great. And then could you just add a little bit as to maybe what you're seeing and planning for with pricing for this year, for pricing increases, timing and that type of thing..
Yes. So as Ware indicated in his comments and I did in mine as well is we've been -- we've made some significant investments in just our tools and our processes around pricing, as we've talked about on prior calls, over the past number of years. We really saw a significant impact and improvement in those areas in 2022.
We would expect that we would not only hold those prices in '23, but also continue to get even better pricing throughout 2023. So we have significant pricing built into our model for '23 and a lot of confidence that we'll be able to get that and hold it..
Great. And then 1 more if I could sneak in there. I wasn't sure -- I know that you mentioned high retention. Was there a ballpark retention rate number that was mentioned or maybe I missed it..
Yes, we didn't give it on this call, but 90-plus percent in most of our more significant service lines, which is really the high end of our industries..
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. As we wrap up today, as always, I want to thank our shareholders and analysts for your continued support. And for our CBIZ team, when I reflect on the record performance throughout the past year and all that you do to support each other and our clients I really can't thank you enough and we, as a senior team, can't thank you enough.
At our core CBIZ is a people business and the results that we discuss today are the direct result of the hard work and dedication of each of our 6,500 team members. With that, we'll conclude our call. Thank you, and have a great day..
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..