Good morning, everyone, and welcome to the CBIZ Fourth Quarter 2023 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] please also note, today's event is being recorded. And at this time, I would like to turn the floor over to Lori Novickis, Director of Corporate Relations. Ma'am, you may begin..

Good morning, everyone, and thank you for joining us for the fourth quarter and full year 2023 CBIZ results conference call. In connection with this call, today's press release and 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 be found on our website. An archived 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..

Thank you, Lori, and good morning everyone. We are pleased to share our fourth quarter and full year results for 2023 and our outlook for the year ahead. Last year at this time, we reported on record performance and results in 2022.

We are pleased that this momentum continued in 2023 and that despite uncertainty at the start of the year about a potentially challenging business climate ahead, we successfully continued our trend in 2023 of achieving growth across every major service line of our business.

Over the past year, CBIZ posted strong growth, achieved new milestones and demonstrated the resilience of our business model in an uncertain environment.

Most notably, for the full year, total revenue was up 12.7%, organic revenue grew by 7.4%, earnings per share was up by 18.9%, adjusted earnings per share was up by 13.1%, and our stock price increased 33.6%.

The fundamental attributes that define our model, including a blend of essential recurring services, combined with more discretionary project-based services, a diverse client base that spans companies of all sizes, and a broad and growing geographic footprint continue to drive our success.

As we head into 2024, we expect the economic climate to remain favorable for the types of services that we provide to our clients. Now, turning to the performance of our business divisions in 2023.

Our Financial Services division demonstrated impressive growth across every major service line, including our accounting and tax, advisory, and government health care consulting businesses. Our accounting and tax services remained in high demand, which has allowed us to continue to achieve price increases in excess of our wage increases.

Our work to support clients in securing employee retention tax credit also helped to bolster our results. Our advisory services also continue to experience robust growth as strong client demand translated into steady production for our private equity advisory business, our risk and advisory, valuation and forensic consulting groups.

While demand for our technical accounting services group, a group that specializes in assisting companies in preparing to go public, reflected a somewhat muted market for IPOs in 2023, we are seeing signs of improvement for these services in the coming year.

Finally, our government health care consulting business finished the year strong in terms of both kicking off project work and securing new business. We reported on our last earnings call that this part of the business experienced some softness due to a number of large contracts being delayed.

The new work that we were seeing in this space more than made up for these timing changes. I will remind you that project delays are common when serving certain types of public sector clients and the business continues to navigate these changes well while maintaining strong performance.

Now, turning to our Benefits and Insurance division, where we built out our momentum coming into the year to achieve strong growth and performance across every major service line.

While the key drivers for growth varied slightly within the four major service lines, all benefited from high client retention rates, new sales and continued improvements in pricing. For our employee benefits business, growth came from higher starting valuations, new business, increased contingents and improved client retention rates.

Our producer count was also up along with another key metric we monitor, average production per producer. The strong activity from our producers is evident in our full year results and should provide some strong momentum going into 2024.

Moving to our property and casualty business, we experienced growth in both the program and commercial sides of the business. Higher starting valuations, new production, strong client retention and trend also bolstered our favorable results.

The retirement and investment solutions business saw growth through increased demand for our actuarial project work. We were also able to increase our producer pool within this business.

Finally, our payroll business had another strong year of performance, driven primarily by demand for our upmarket payroll platform, which also included high client retention rates for this service. We are extremely pleased with the performance of the overall business throughout 2023.

As we look ahead to 2024, we remain confident in our ability to continue to perform well and to capitalize on this momentum.

Based on our strong financial performance over the past three years, the high demand for our services, our ability to retain clients, the investment 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 2023, and our thoughts on guidance for 2024.

Ware?.

We expect total revenue to increase within a range of 7% to 9% over the $1.59 billion reported in 2023. On an adjusted basis, we expect 2024 adjusted earnings per share to increase within a range of 12% to 14% over the adjusted earnings per share of $2.41 that we reported in 2023.

GAAP reported earnings per share is expected to increase within a range of 13% to 15% over the $2.39 reported in 2023. The effective tax rate for the full year of 2024 is expected to be approximately 28%, which is slightly higher than the 27.3% rate we just reported for 2023.

Of course, the effective tax rate can be impacted either higher or lower by a number of unpredictable factors. And fully diluted weighted average share count is expected within a range of 50 million to 50.5 million shares for the full year of 2024. So, with these comments, I will conclude and I'll turn it back over to Jerry..

Thank you, Ware. Before we move on to Q&A, I'd like to provide a brief update on our M&A results for the year. Interest in M&A within our industry remains high, and CBIZ's strong performance and success with integrating a large number of firms of varying sizes and profiles, continues to position us as an acquirer of choice.

We began 2023 with a healthy pipeline of M&A opportunities, and we are pleased that we were able to complete three acquisitions and two tuck-in transactions totaling just over $67 million in annualized revenue. These transactions include Somerset CPAs and Advisors, a highly regarded accounting and tax firm headquartered in Indianapolis, Indiana.

Somerset was a platform acquisition for us, in that it allowed us to enter an attractive and growing market with size and scale. We've been pleased with the results from Somerset so far and are likewise pleased with our progress on integration.

We also acquired Pivot Point Security in 2023, an advisory firm specializing in cyber and information security, headquartered in Hamilton, New Jersey. We have been pursuing an acquisition to broaden our cybersecurity services and expertise for some time, given the growth in demand for these kinds of services.

We are pleased how this group has already complemented our existing risk advisory services practice. Both Somerset and Pivot Point are excellent examples of how to acquire firms that bring strategic value to CBIZ and strengthen the breadth and depth of our services while adding valued expertise and capacity.

And just last week, we announced the acquisition of Erickson, Brown & Kloster, a CPA firm located in Colorado Springs, Colorado, that will expand our reach across the State of Colorado and complement our growing Denver-based practice. EBK provides a broad range of accounting and tax services focused on small middle-market businesses.

We're happy to welcome the EBK team to Team CBIZ. With that, we'll move on to Q&A..

Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Chris Moore from CJS Securities. Please go ahead with your question..

Hey, good morning, guys. Congrats on another great year. Maybe I'll just start where Jerry left off on M&A.

Just curious, in terms of the pipeline, are there many $50 million-plus acquisitions that are in that pipeline at this point in time?.

Yeah, Chris, we don't comment, as you know, on the exact pipeline size and transaction size of the companies and the number in there. But what I would say is we remain pleased with the amount of revenue, certainly in aggregate, within that pipeline and the number of transactions represented by that pipeline. So, deals come and deals go.

We were pleased with what we were able to accomplish last year, and pretty pleased with what we're seeing so far in the pipeline..

Got it. I appreciate that. Maybe we'll just talk a little bit about visibility. I mean, given the backdrop, this time last year, there were more rate increases were likely versus today. At some point in time, we'll probably get some rate cuts.

Can you talk a little bit about visibility today versus this time last year?.

Yeah. So, Chris, the nature of the business is obviously a large percent of it of essential recurring services, so kind of through the busy season, we remain very pleased with what -- the business and what we're seeing and what we expect to do through that period of time.

As we sit here today, we don't obviously have as much visibility into the back half of the year, but we look at the factors. Like you said, we think interest rates will stabilize. We see cautious optimism among our clients.

So, we sit here today, I would say, equally optimistic and maybe even slightly more optimistic than we were sitting here at this time last year. The one uncertainty being obviously, it's election year, and you never know how that's going to shape consumer confidence..

Got it. Helpful. I was going to ask that as well. Maybe just one more for me. You talked about pricing during -- in Financial Services during fiscal '23 was above wage increases.

Is pricing now back to more normal 2% to 3% for the year for Financial Services, or just anything you can say in terms of what pricing looks like there?.

Yeah, I'll comment on two things. First of all, Chris, as you know, we've been able to more than offset any wage increases with pricing. We're seeing some easing in the labor pool, which are bringing wage increases down a little bit. You've seen that kind of across the board. So obviously that's the labor part of it.

As far as prices are concerned, yet to be seen. We still expect to be able to go out with favorable pricing this year. And as you know, we've built considerable processes, systems reporting infrastructure around our ability to methodically analyze our pricing within an office, within a client by service line.

So, we still think that there's considerable opportunity on the pricing side..

Got it. I really appreciate it. I will leave it there. Thanks, guys..

Our next question comes from Andrew Nicholas from William Blair. Please go ahead with your question..

Hi. Good morning. Thanks for taking my question. Just wanted to first follow up on that last question on pricing. Jerry, you said considerable opportunity. I imagine that's specific to '24, but maybe if you could talk about kind of the medium-term pricing opportunity? I know.

in prior years, you've had some benefit from the investments on that side, and maybe what you've described is some catch up pricing. I was under the impression that, that's largely out of the equation at this point. So, if you could kind of respond to that and talk about maybe medium-term price expectations, that'd be helpful..

Yeah. Andrew, when I say considerable opportunity, it never stops, right? So, the pricing discipline that we have, the systems, the processes, the tools, they're not fully embedded yet in Marks Paneth, obviously, that's a more recent acquisition, or Somerset, even more recent. So, we have opportunity there.

We also go through our client profiles and identify clients that may not fit the profile of a client that we can serve in a profitable way, call those clients, bring a different profile client into the fold, and pursue pricing with those clients as well.

So, I think this is an ongoing -- not I think, I know this will be an ongoing focus of CBIZ and our ability to continue to bring pricing. So, I think mid-term looks -- is positive..

Got it. That's helpful. And then, I wanted to ask a question. I think you touched on easing labor markets.

Can you kind of address capacity constraints at CBIZ broadly? Do you feel like you're properly staffed for what sounds like pretty uniformly strong demand from your clients and maybe how easy is it to find talent in the current environment?.

Yeah. Let me start here, Andrew. Labor is -- for the 25 years I've been in this industry, labor has always been tough to find, right? Always challenging to find qualified, experienced labor. With that said, you've seen some of the layoffs at the big four. That's obviously easing the labor demands in the labor pool.

We've seen some of that among some of the larger firms as well, other larger firms. So, right now -- and by the way our attrition rate, our retention rate is even higher today -- I'm sorry, our retention rates are even higher today, are more favorable today than they were pre-COVID. So, we're able to retain people at a more favorable rate.

We think the labor pool on the other side is easing a little bit, which allows us to attract and recruit a little bit more favorably. So, all of those things are positive for us. And yes, you're correct, we feel confident today that we have -- we're adequately staffed to be able to take advantage of the demand that we have for the services..

Great. And then maybe if I could ask one last one on the M&A environment. It sounds like you're pretty constructive on the pipeline and what makes it up. Can you talk a little bit about pricing there where multiples have trended? And there's another private equity sponsor investment in the space here recently.

Just wondering if you could maybe respond to the potential impact from that on your business. Thank you..

Yeah, Andrew, great question. Here's what I would say, below the large platforms in your -- the transaction that was recently announced fits into that category, very large firm, large platform acquisition. I would say below the large platforms, pricing hasn't moved considerably over the past couple of years.

I mean, it might have ticked up a quarter, 25 bps or 50 bps, certainly the larger platform transactions are trading at considerably higher multiples. And it's really a scarcity factor. So, as you would expect, they're trading higher. But in the types of transactions that we typically pursue, we haven't seen material pricing differences..

Thanks, Jerry..

[Operator Instructions] Our next question comes from Marc Riddick from Sidoti. Please go ahead with your question..

Hey, good morning..

Good morning, Marc..

Hi, Marc..

So, wondering if you could share a little bit of your views as to some of the -- if there's much in the way of differentiation of client behavior and demand drivers and in particular, whether that's an industry vertical type thing or a regional mix.

And also, I was wondering if you could talk a little bit about the thoughts around sort of the project-based work.

I mean, you touched on it in prepared remarks around some of the advisory, but maybe sort of give a little bit of color as to sort of maybe what folks are willing to move forward on, or maybe if you're seeing any changes, that sort of signal toward green shoots and the like..

Yeah, I'll take the first part of it and I'll turn to Ware for the second part of it. But as far as clients are concerned, client sentiments are concerned, as you know, one of the very attractive attributes of CBIZ is that we're not overly concentrated in any particular industry or any particular geography.

So, we are seeing -- we serve largely a kind of a middle market client, although we have clients on either side of that. Of course, that middle market client tends to be optimistic by nature, it tends to be resilient. And we heard that in our most recent client sentiment survey, is that, I characterized it as cautiously optimistic.

I think as interest rates start to normalize, that's a positive. And that client base, so long as they understand kind of what the landscape looks like, they tend to then invest forward and invest in growing their businesses. So, all of that's positive, including for the outlook for the more project-oriented work we do.

If we have a more optimistic, proactive client base there, they tend to turn to us to help them evaluate the types of projects that they're considering.

Ware, do you want to talk a little bit more about?.

Yeah. The only other thing about the advisory business I would remind you of is a good share of that tends to be recurring and repetitive. For example, the internal audit co-source and SOX consulting tends to be more long-term year-after-year, as does the valuation work, or at least pieces and parts of the valuation work are repeated annually.

On some of the project work that's focused on private equity or venture capital, IPO readiness and things like that, we see a bit of ebb and flow, but we've had a very strong year collectively in that group, and we've seen a bit of a rebound in those two pockets that I just mentioned. So, we look at 2024 with some optimism at this point..

Great. And then the last one for me, I was sort of curious as to, if there are any timing discrepancies around tax filing that we should be thinking about this year. I know we had this last year. Well, it seems like we've kind of had a little bit of it almost every year, right, last four or five years.

I was sort of curious as to whether or not there was any particular call out we should be thinking about or if this is more traditional as far as the timing of that..

As far as we know, this should tee up as a relatively normal year for us. Keep an eye on all the rains and the floods on the West Coast, we don't know. But just remember that if these things do occur, it really represents a shift seasonally, not a reduction in the business..

Right. Excellent. Thank you so much..

Thanks, Marc..

And, ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks..

Thank you. As we wrap up today, I just want to thank our shareholders and analysts as we always do, for joining the call and for your continued support in management and in the company. I also want to take this opportunity to recognize our team as many of you listen in on the calls on a regular basis.

I started the call today by reporting on our very strong performance and results for the prior year of 2023. It was a year that included a number of important milestones and achievements. Among them, and one that I'm particularly proud of, is setting a new record for workplace awards.

In 2023, CBIZ was recognized with over 100 workplace awards, most of which are based on anonymous feedback directly from our team members. Embedded in our company's vision statement is a commitment to strive to be our team's employer of choice.

And these awards are a testament to that commitment, the commitment of each of our team members to support each other and to the exceptional work that we do for our clients and to the strength of our culture. To our team, I'm grateful for your support, proud of all that we've accomplished together, and even more excited for a brighter future.

Thank you, and enjoy your day..

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines..