Q4 2024 CBIZ Inc Earnings Call

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.

Speaker Change: 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.

Lori Novickis: Good morning, everyone, and thank you for joining us for today's conference call to discuss CBIS fourth quarter and full year 2024 results.

Lori Novickis: A replay and transcript will also be made available after the call. Before we begin, we would like to remind you that during the call, management may discuss certain non-GAAP financial measures.

Lori Novickis: Reconciliations of these measures can be found in the financial tables of today's press release and investor presentation.

Lori Novickis: Today's call may also include forward-looking statements regarding our business, financial condition, results of operations, cash flows, strategies, and prospects.

Lori Novickis: Forward-looking statements represent only our expectations, estimates, and projections as of the date of this call and are not intended to give any assurance of future results.

Lori Novickis: Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.

Lori Novickis: Many factors could cause future results to differ materially, and CBIS assumes no obligation to update these statements, except as required by law.

Lori Novickis: A more detailed description of such factors can be found in today's press release and in our filings with the Securities and Exchange Commission.

Speaker Change: Joining us for today's call are Jerry Grisko, President and Chief Executive Officer, Ware Grove, Chief Financial Officer, and Chris Spurio, President of our Financial Services Division. I will now turn the call over to Jerry Grisko for his opening remarks.

Thank you, Lori. 2024 was an exceptional year for CBiZ.

Speaker Change: Building on our strong momentum coming out of 2023, we are pleased to have achieved growth across nearly every major service line.

Speaker Change: We achieved these results in the face of some uncertainty through much of last year, resulting in our client base pausing discretionary projects pending more clarity on interest rates, inflation, and the outcome of the national elections.

Speaker Change: That said, our results reflect ongoing strong demand for our services.

Speaker Change: our ability to continue to realize price increases and the ability to expand margins that comes from the significant size and scale of the business that CBiz has now achieved.

Speaker Change: On top of another strong year for Legacy SEBIS, we completed a transformational transaction in November, the largest in our history, with the acquisition of Markham. With Markham, we solidified our position as the leading provider of professional services of our kind to middle market businesses.

Speaker Change: offering a breadth of service and depth of expertise unmatched by our competitors.

Speaker Change: It's a testament to both the strength of our business model and the dedication and commitment of our team that we were able to achieve our financial results while also completing this monumental deal.

Speaker Change: Later on in the call, I'll provide an update of our early progress with the integration of Markham, but first I want to provide some additional detail on our results for the year.

Speaker Change: Overall, we're pleased to report that our results for 2024 came in generally as expected.

Speaker Change: when we consider the stand-alone performance of CBIS and were within the revenue and EPS ranges we provided in our guidance for the year.

Speaker Change: With the addition of Markham for the last two months of the year, it does create an unusual optic with our results, which Ware will walk through in just a few minutes.

Speaker Change: This was expected given the timing of the closing and the seasonality of the accounting and tax business that makes up the bulk of Markham's revenue.

Speaker Change: Let me begin with our Finance and Services Division for Legacy CBIS, which had another very impressive year, with growth coming from every major service line, including accounting and tax, advisory, and our government health care consulting business.

Speaker Change: Growth for this division was driven by a combination of pricing, yield, increased realization within our advisory businesses, and new projects within our government healthcare consulting group.

Speaker Change: For our accounting and tax business, we saw growth across all major markets.

Speaker Change: For advisory, strong demand for our private equity-focused services, combined with increased production and valuation and increased billable hours in our forensic group, contributed to strong growth.

Speaker Change: Our government health care consulting group also benefited from a higher volume of new project work.

Speaker Change: Now turning to our Benefits and Insurance Division, we also saw strong growth across nearly every major service line, including our employee benefits, retirement investment services, and payroll businesses.

Speaker Change: Growth is driven by a variety of factors including high client retention and strong production.

Speaker Change: The only outlier with this division was within our property and casualty insurance group where our results were impacted by the departure of a small group of producers in the southeast region that we discussed in our second quarter earnings call.

Speaker Change: Aside from this isolated incident, we saw growth in this business as well, driven by impressive performance within commercial lines.

Speaker Change: Again, our results for the year reflect our team's exceptional focus and execution in delivering strong financial results.

while at the same time completing the Markham transaction.

Speaker Change: Despite the complexity and demands of this milestone, we never took our eye off the ball and remained disciplined in our overall operations, driving growth, and executing on our strategic priorities.

Speaker Change: Our achievements over last year speak volumes about the dedication and resilience of our team and their ability to balance their day-to-day performance with long-term value creation.

Speaker Change: Obviously, in terms of M&A, the Markham transaction was our most significant accomplishment for the year.

Speaker Change: At the same time, we completed two other strategic acquisitions and two tuck-in acquisitions.

Speaker Change: During the first quarter of 2024, we acquired Erickson, Brown & Kloster, an accounting, tax, and financial advisory services provider located in Colorado Springs, Colorado.

Speaker Change: EBK complements our growing Denver practice and services clients across a broad set of industries.

Speaker Change: In March, we also acquired CompuData, Inc., a provider of technology services and solutions located in Philadelphia, Pennsylvania.

Speaker Change: CompuData enhances our technology focused advisory service offerings including cloud hosting, ERP solutions, IT security, and managed IT services.

Speaker Change: As we look to 2025, we begin the year with a healthy pipeline of M&A opportunities.

Speaker Change: The Markham transaction has enabled us to further refine our approach to integration.

Speaker Change: And based on our track record of successful acquisitions in a wide range of businesses, we continue to be recognized as an acquirer of choice within our industries.

Speaker Change: With that, I'll turn it over to Ware to review our financial results in detail before we talk more about our progress on the Markham Acquisition.

Ware Grove: Ware? Yes, thank you Jerry and good morning everyone. With the Markham transaction that closed November 1st, this impacts the consolidated fourth quarter and year-end results released this morning. There's a lot to unpack. Let me get started with some of the key highlights.

Ware Grove: I think the central issue to emphasize this morning is the full year outlook for the consolidated business in 2025.

Ware Grove: The health of the business is good. Of highest importance, our full year outlook for 2025 is in line with the general guidance we provided when we first announced the transaction in mid-2024.

Ware Grove: But before we dig into expectations for 2025, recognizing the optics of the short stub period in 2024 may present a challenge, let me share a few brief comments on 2024 results.

Ware Grove: When we provided an update to our guidance at the end of the third quarter last year, we commented that if the Markham transaction closed in the fourth quarter, the impact for this short stub period would greatly amplify the seasonal nature of our fourth quarter results.

Ware Grove: For this reason, we have typically closed financial services acquisitions early in the year rather than in the fourth quarter.

Ware Grove: Closing the transaction in November, however, was a decision we made to accelerate progress towards integrating the business to enable planning as we prepare for a strong full year 2025. There is a significant seasonal loss from the newly acquired Markham operations for the months of November and December that is characteristic of the accounting and tax business.

Plus, there are significant one-time transaction and integration costs.

Ware Grove: The seasonal nature of the November and December operating results for the core tax and accounting business is not unique to Markham.

Ware Grove: Without the benefit of non-seasonal business services such as benefits and insurance, government health care consulting, or others within the CBIS mix of services, we experience a similar seasonality in our core CBIS tax and accounting business.

Ware Grove: Also consider that in the fourth quarter with a heavy load of tax work being done in connection with the October 15th extended filing deadlines for corporate and personal tax returns, October is typically a very strong and profitable month.

Ware Grove: Without contributions from October activity, the fourth quarter seasonal operating loss reported for the newly acquired Markham operations is greatly amplified.

Ware Grove: The additional amortization expense of $8.9 million, plus the incremental interest expense of $14.5 million, further increases the seasonal operating loss.

Ware Grove: So that you can better understand the disproportionate impact from the acquisition for the short stub period, you can find an outline of those items in the supplemental NODGAP schedule included in the release this morning.

In the fourth quarter, total revenue is up 40.5%.

Ware Grove: There was $108.9 million, or a 33.2% increase in revenue, attributed to the newly acquired Markham Operations.

Ware Grove: with a 7.3% increase in revenue when you exclude the contributions from the newly acquired Markham operations.

Same unit revenue was up 6.4% in the fourth quarter.

Ware Grove: Same unit revenue for financial services was up 7.2% in the fourth quarter, and within benefits and insurance, the same unit revenue grew by 3.8% in the fourth quarter.

Ware Grove: For the full year, total revenue is up 14%, with $108.9 million, or 6.8% increase attributed to the newly acquired Markham Operations.

Ware Grove: excluding that portion of revenue attributed to Markham, total revenue is up 7.1% with same unit revenue up 4.8% for the full year.

Ware Grove: Same unit revenue for financial services was up 4.8% for the full year and same unit revenue for benefits and insurance was up 4.0%.

Ware Grove: Comparing a 7.1% increase to the previous full-year revenue growth expectations that were within a range of 7 to 9 percent for CDIS, which excluded the potential impact from Markham, we can see that full-year revenue growth was within that range.

Ware Grove: The supplemental schedule included in the release reconciles the GAAP-reported earnings information to a non-GAAP result that excludes the impact of the acquisition.

Ware Grove: This schedule reflects that when eliminating the operating results from Markham, plus the transaction integration expenses, and normalizing the tax rate and share count impact to exclude the impact of the acquisition,

Ware Grove: The result is a non-GAAP adjusted earnings per share of $2.67 in 2024.

Ware Grove: This is a 10.8% increase over the $2.41 adjusted earnings per share reported the prior year, and that is within the 10-12% growth range that we outlined at the end of the third quarter.

Ware Grove: With total consolidated depreciation and amortization reported at 48.1 million for 2024, we can attribute approximately 38 million dollars to see this if we exclude the incremental amount from market.

Ware Grove: In a similar manner, the interest expense attributed to CDIS is approximately $19.9 million if we eliminate the incremental amount arising from the Markham acquisition.

Ware Grove: With this information, you can determine that eliminating the impact of the acquisition adjusted EBITDA was up approximately 9-10% over the prior year.

Ware Grove: Adjusting for the incremental impact of the acquisition, we are pleased to see those results were in line with expectations for the full year of 2024.

Ware Grove: Looking ahead now to 2025, we expect total revenue within a range of 2.9 to 2.95 billion dollars.

Ware Grove: Revenue growth in 2025 will largely be organic as we focus on integration activities.

Ware Grove: Because we have a short stub period of consolidated results in 2024, year-over-year comparisons will not be readily available throughout next year.

Ware Grove: With this range of revenue growth, we expect to achieve revenue growth in the mid-single-digit range.

Ware Grove: In July of 24, when we announced the signing of this agreement, we outlined an expectation that 2025 combined results would be approximately 10% accretive to adjusted earnings per share compared with CBIZ expected performance without the acquisition.

Ware Grove: In line with this earlier projection, our expectation for 2025 calls for adjusted earnings per share within a range of $3.60 to $3.65 per share.

Ware Grove: In addition to adjusting to eliminate integration and other acquisition-related costs, going forward, the adjusted earnings per share will eliminate the non-cash amortization expense associated with acquisition activity.

Ware Grove: Non-cash amortization for next year will include an incremental layer of $52 million resulting from the Markham acquisition.

Ware Grove: plus the prior level of acquisition-related amortization at $23 million a year for a total consolidated amount of approximately $75 million in 2025.

Depreciation is expected at approximately $22 million for 2025.

Ware Grove: Adjusted EBITDA for 2025 is expected at approximately 455 million dollars. Adjusted EBITDA will eliminate the same types of items described in arriving at adjusted earnings per share.

Ware Grove: An item we highlighted when we announced the signing of the transaction back in July last year was the favorable cash flow value of the goodwill deduction for tax purposes.

Ware Grove: This item will not impact the reported effective tax rate for the income statement and related earnings per share, but it will serve to enhance cash flow by creating a substantial non-cash element to tax expense.

Ware Grove: and this will get reported through the Statement of Cash Flows.

Ware Grove: We do not currently report a cash flow metric that captures this, but we will evaluate this as we go through 2025 with quarterly reporting on a fully consolidated basis.

Ware Grove: We estimate the cash flow benefit at approximately $15 million for 2025, growing to approximately $30 million a year, as shares are fully issued through installments over the next 24 months.

Ware Grove: I understand that some who are on this call have considered this favorable cash flow item as a potential enhancement to EBITDA. I am outlining this item and you can make the adjustment as you think appropriate.

Ware Grove: Going forward, the business is expected to continue with the same strong cash flow attributes we have exhibited in the past.

Ware Grove: If cash flow is fully utilized to reduce leverage, we expect that leverage will approach 2 to 2.25 times EBITDA within 24 months, and the unused capacity will increase substantially.

Ware Grove: Included in this projection is the future payment of earn out obligations of prior acquisitions that are projected at approximately 58 million dollars in 2025, 28 million dollars in 2026, and approximately 8 million dollars in 2027.

Ware Grove: Interest expense for the full year of 2025 is projected at approximately 100 million dollars. To reach this projected amount, we are projecting a flat rate environment with no change to current rates throughout the year.

Ware Grove: Of course, as future cash flow is utilized to reduce debt, the interest expense is expected to decline.

Ware Grove: Capital spending for 2024 was approximately 13 million dollars. On a combined basis going forward, we expect capital spending within a range of 20 to 25 million dollars.

Ware Grove: With substantial unused capacity, we can allocate capital to repurchase shares.

Ware Grove: As a six-month lockup associated with newly issued shares to Markham expire, it is natural that some sales may occur as new shareholders pay taxes or raise liquidity for other purposes.

Ware Grove: As a reminder, the newly issued shares are being issued over a 36-month period.

Ware Grove: Depending on conditions at the time, we intend to be active with share repurchases later in the year.

Ware Grove: Without projecting any potential share repurchases, we estimate the 2025 share count at approximately 64.5 to 65 million fully diluted shares for the full year.

Ware Grove: Our primary focus in 2025 is to quickly and successfully integrate operations, systems, and processes with the newly acquired Markham organization.

Ware Grove: As Jerry described, we have a pipeline of potential future strategic acquisition opportunities, and we may have opportunities for additional acquisitions later in 2025 or in early 2026.

Ware Grove: Beyond 2025, as has been our track record over time, we expect revenue growth be driven by a combination of organic revenue initiatives, supplemented by strategic acquisitions, so that organic revenue growth can be equally matched with growth from strategic acquisitions.

Ware Grove: With greater scale, the operating leverage in the business continues to allow opportunities to expand margins and grow earnings per share and EBITDA at a faster rate than revenue growth.

Ware Grove: Of course, we are making investments in the business, but as we have in the past, we believe there is an opportunity to improve margin by the same 20 to 50 basis points per year, perhaps more, as scale presents greater operating leverage opportunities.

Ware Grove: We have mentioned approximately 25 million dollars of synergy opportunities over the next three years, perhaps more. Some small portion of this may be realized in 2025, but the majority will occur in 2026 and expected to be more fully realized in the following years.

Ware Grove: One thing to bear in mind as you project 25 results is with the increased concentration of core tax and accounting business services resulting from the Markham transaction, this will impact the quarterly seasonality of the business.

Ware Grove: Using the full year expectation of $3.60 to $3.65 per share, as a general rule, compared with the historic trends with CBiz, you may see the first half earnings about 10% stronger than prior seasonal patterns.

with a second half about 10% weaker.

Ware Grove: So with this information, let me conclude and I'll sum up our outlook for 2025.

Ware Grove: Revenue is expected within a range of 2.9 to 2.95 billion dollars. Revenue growth in 2025 will primarily come from organic sources as we focus our efforts on integration activities throughout the year.

Ware Grove: The tax rate for 2025 is expected at approximately 29 percent.

Ware Grove: This rate is driven by the increased concentration of activity with higher state tax rate geographies such as New York, Mid-Atlantic, and New England. Of course, this rate can change as a result of a number of unpredictable factors.

Ware Grove: The fully diluted weighted average share count is expected at approximately 64.5 to 65 million shares for the full year.

Ware Grove: As I commented earlier, this projection does not assume any level of share repurchases in 2025.

Ware Grove: GAAP earnings per share is expected within a range of $1.97 to $2.02 and adjusted earnings per share for 2025 is expected within a range of $3.60 to $3.65 for the full year.

Ware Grove: Adjusted EBITDA for 2025 is expected at approximately 455 million dollars for the full year and of course for those who want to consider the value of goodwill tax asset adjustment you would add that amount.

Ware Grove: So with those comments, I will conclude and I'll turn it back over to Jerry. Thank you, Ware. Now turning to our acquisition of Markham, I'd like to discuss some of the early progress we're making on integration.

Ware Grove: This acquisition creates tremendous opportunities for us, propelling us to the seventh largest accounting firm in the U.S.

expanding our capabilities and service offerings.

Ware Grove: strengthening our market position and brand and accelerating our long-term growth strategy.

Ware Grove: Now, at just four months into the integration process, work is underway to realize many of the benefits and opportunities we anticipated as a result of this transaction.

Ware Grove: We recently held a town hall meeting for our team members where I outlined priorities for the year as integration, people, cultural alignment, and growth.

Ware Grove: Today, I want to provide an update of our progress in each of these areas, starting with integration.

Ware Grove: As we discussed in our last call, given the size and scope of this transaction, we established an integration management office to guide our process and ensure that we are hitting the milestones within our overall time frame.

Ware Grove: The IMO helps to support multiple workstreams led by leaders and teams from across the company.

Ware Grove: focused on identifying how we can truly bring the concept of stronger together to life.

Ware Grove: Within each of the integration workstreams, these groups are taking a best-of-both approach to craft a path forward that leverages the collective strength of both organizations.

Ware Grove: I'm pleased to report that we're making excellent progress with strong cooperation and collaboration across our teams and a shared commitment to achieving our milestones, including the anticipated synergies.

Ware Grove: While we don't expect to fully realize many of these synergies until starting in 2026, our focus this year will be to identify the synergies and begin to execute on the plan.

Ware Grove: At the same time, we remain laser-focused on our clients and continuing to deliver the exceptional services they rely on us for.

Ware Grove: We're now in busy season for our accounting and tax services business and we're being very intentional about the pace of integration while at the same time minimizing disruption to allow our professionals to focus on client work and deadlines during this important time of year.

Ware Grove: That said, there is still a great deal of work happening behind the scenes, including alignment of key business functions and the standardization of policies and processes.

Ware Grove: We're also developing our timeline for integration of key systems, which will enable further integration of our day-to-day operations.

Ware Grove: In terms of people, much of the work since CLOSE is focused on organizational redesign, bringing our teams together, and identifying our future leaders.

Ware Grove: Recently, we identified six industry leaders to shape our go-to-market strategy and align our service and solutions around key industries.

Ware Grove: While both Legacy CBIZ and Legacy Markham have strong industry expertise, Legacy Markham's industry teams were further developed, which is helping us to accelerate our progress in this area.

Ware Grove: Perhaps most importantly, we continue to experience a high rate of retention with our team and we have people from both legacy organizations seeing new opportunities for advancement through integration.

Ware Grove: We often talk about the importance of cultural alignment as a critical factor in determining the overall success of an acquisition.

Ware Grove: We continue to find that the cultural similarities between Legacy Cebis and Legacy Markham far outweigh any differences.

Ware Grove: Our stronger together approach means we are working hard to create a new unified culture grounded in our shared values and shared commitment to growth and innovation.

Ware Grove: Our focus right now is on communication engagement to stay connected with our teams.

Ware Grove: For example, we're using monthly town hall meetings, internal newsletters, and in-person meetings to share information on key initiatives and create connections across our organization.

Ware Grove: Finally, we continue to focus on growth, whether through new incentives to encourage and empower our teams or through the connecting clients to a wider array of services.

Ware Grove: We're very pleased with some early wins in terms of introducing new services to our clients.

given our expanded breadth of services and depth of expertise.

Ware Grove: We're also pleased with our retention rates of our clients and from the growing interest in our expanded array of services from both new and existing clients.

Ware Grove: So far we've seen tremendous engagement and collaboration with our teams, embracing new opportunities, sharing ideas, and exploring how to best work together to achieve the possibilities that now exist as a leading provider of professional services to middle market businesses.

Ware Grove: The energy, openness, and genuine excitement being exhibited by our team members is inspiring.

Ware Grove: We have great momentum and the feedback to date has been very positive.

Ware Grove: Looking ahead, we couldn't be more excited for the opportunities we now have to bring even greater value to our team members, clients, and shareholders.

Ware Grove: We're committed to continuing to deliver on our strategic and financial objectives, and we look forward to the opportunities that lie ahead as we continue to integrate and grow as one team.

With that, we'll turn it over to Q&A.

Ware Grove: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Ware Grove: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Christopher Moore with CJS Securities. Please go ahead.

Christopher Moore: Hey, good morning guys. Thanks for taking a couple and I want to say thank you to Ware for all his hard work and help over these years. So thank you very much.

Speaker Change: I joined the call a little bit late so I just want to make sure that I understand. The 360 to 365 adjusted EPS

Speaker Change: Does that include an add back of the tax adjusted intangible amortization?

Speaker Change: It does not. The amortization is simply the normal intangible amortization that's added back.

Speaker Change: It is all tax-affected, of course, but the, I'll call it the cash flow tax asset that you're referring to, I believe, is a separate issue.

Thank you.

Speaker Change: got it I wasn't sure I'm glad to hear that so it's apples to apples in terms of we're not we're not double counting anything it's a

Speaker Change: It's a bit of a tougher conversation to weave your way through that, but the amortization expense that's attributed to the acquisition and the intangible assets that are amortized, that's added back.

And that's clearly non-cash in the P&L.

Got it, okay.

Speaker Change: Just in terms of the ability to get leverage down in that 2.1 to 2.3 times in the next 24 months.

Speaker Change: I guess you know 25 versus 26 cash flow is there you expect there to be a significant difference between those years or just a little incremental improvement in 26 just you know any thoughts there?

Speaker Change: Yeah, good question, Chris. I think the cash flow generating capability will accelerate.

Speaker Change: But initially in 2025, we're going to have a layer of integration expenses and things like that that

Speaker Change: while eliminated to arrive at adjusted earnings per share, they're going to still represent cash flow. Retention payments and things like that are considered to be part of those integration expenses.

Got it. In terms of Markham itself, I mean...

a big partner like Mark. I'm in there.

Speaker Change: Yeah, of course, Chris. Thank you. That's among the many benefits, right? So when we think about the combination, you know, prior to the transaction, we were about $1.6 billion in revenue. We're now pushing up about $3 billion. At that scale, we can do more on the technology side. We can do more on the innovation and transformation side. We can do more to elevate our brand. We can do more to attract talent. So there are countless.

Speaker Change: benefits that come from that scale. You combine that with the fact that it's such a strong synergistic fit. Again, we are bringing things to legacy Markham like our advisory practice that was considerably more built out. They brought things to us.

Speaker Change: such as industry groups that were considerably more built out, but together what we can now bring to our clients and gain greater share of wallet, bring greater value through our industry expertise, bring greater depth of expertise and breadth of services through our advisory. The combination is really powerful.

Got it. Very helpful.

Speaker Change: And maybe just, obviously, the Markham seasonality is even stronger in Q4.

Speaker Change: Is there any opportunity in terms of, you know, kind of cross-selling the financial services at Markham into, you know, on the B&I side?

Ware Grove: Yeah Chris, this is Ware. The seasonality is not dissimilar to the CBIS core tax and accounting business.

Ware Grove: It looks amplified because with CBIS, you have non-seasonable elements such as government healthcare consulting and benefits and insurance. Plus, you also have in the fourth quarter, remember, the October month is typically very strong.

Ware Grove: So when you just remove that and remove those non-seasonal elements, it looks like it's amplified. But it's not actually dissimilar if you were to look at CBIZ on a very similar apples-to-apples basis.

Ware Grove: so that's that's one comment but the cross-serving opportunities are terrific and already we're seeing a lot of excitement

Ware Grove: on the benefits and insurance side working with the new Markham team. And they're engaging quickly to introduce new services to the Markham clients.

Ware Grove: So we're excited about that opportunity. Hey Chris, let me just bring you back to a comment that Ware made in his opening comments. You asked about the seasonality. Ware is absolutely correct. Their seasonality looks very similar to ours, apples to apples.

Ware Grove: but now combined, and Ware made this common in his opening remarks,

Speaker Change: We would expect because of that seasonality and because of the combined core accounting tax We're going to see a stronger kind of first half of the year maybe by as much as 10%

Speaker Change: and then in the second half of the year, probably not quite as strong of a year, I mean, on the bottom line, only because of that seasonality. So that will be important for modeling purposes.

Speaker Change: got it I appreciate it guys let me let me jump back in line

Thank you.

Moderator: The next question comes from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas: Hi everyone, good morning and congratulations on an incredibly successful career.

Andrew Nicholas: I wanted to first hone in on on Markham. It sounds like the expectation is that 2025 growth at Markham is relatively muted. I guess could you confirm kind of what your expectation is?

Andrew Nicholas: for Markham on an organic basis in 25 and maybe just speak to how 24 wrapped up.

Andrew Nicholas: for them as well. I know they had some headwinds in 24 as they pared down some of their audit and public company work, but any additional color on kind of the organic trajectory both last year and looking ahead would be great.

Speaker Change: Yeah, Andrew, you know, 24, it was hard for us to do an apples-to-apples comparison because, you know, they're non-GAAP, etc., but as best we could tell, their performance in 24, what...

Speaker Change: kind of tracked ours, with the exception of the SPAC and some of the other specialty things that we expected to be a little softer in 24 than they've historically been there. When we look forward into 25, we expect that they're

apples-to-apples practice, so they're a core accounting practice.

should track very close to our core accounting practice.

Speaker Change: quite strong performance for them in 25 and performance that kind of mirrors our performance for the same practice.

Speaker Change: Got it. Okay. Thank you. And then maybe just bigger picture thinking about the combined organization Can you talk a bit about kind of what areas or practices?

Speaker Change: you're most excited about in 25, what the growth rates, maybe not in terms of guidance, but just overall demand for audit tax, business advisory, and on the business advisory front in particular.

what you've seen to this point around

Speaker Change: decision-making post-election, F&B optimism, likelihood of some increased M&A activity. I'm just looking for a little bit more color at the practice level within financial services.

Speaker Change: there's conversations around interest rates, but I think labor pressure is abeased.

Speaker Change: supply chain pressures have eased. There are some other things that I think have are giving them comfort and I think there's a view that the generally put tariffs aside the administration will be supportive of a growth environment so all of those things are combining to have us to provide us with a healthy level of optimism with regard to the more discretionary project oriented services advisory services and we look into as we look into 25

and therefore overall kind of healthy organic growth rates.

Great, thank you. And then maybe one last one.

Just on the government health care consulting business

quite a bit of, you know, an evolving...

set of regulatory

instruction or

demands out of Washington. I don't think it would impact...

that business, but just to clarify or confirm.

Speaker Change: whether or not you'd expect there to be any pauses or...

Speaker Change: Uncertainty impacting that business based on the new administration. Thank you Andrew we don't we're not hearing it from that team and we don't expect it. In fact There is some and it's speculative right at this point, but there's some conversation that if in fact

Speaker Change: the federal workforce is reduced, they may need to rely more heavily on some external partners like us. So it could actually go the other way. It's early state right now.

Great, thank you.

Speaker Change: And the next question comes from Mark Riddick with Sidouti. Please go ahead.

Very good morning.

Morning, Mark.

Mark Riddick: Ware, I just want to thank you again for all of your efforts and particularly coming to the finish line here. It certainly has kept you busy, so I do want to thank you for that once again.

Speaker Change: I wanted to touch a little bit on maybe you made mention in your prepared remarks around client retention trends with, maybe you could sort of delve a little bit into that, into maybe the type of feedback that you're getting from those clients and how that sort of plays into your opportunity set for cross-selling opportunities going forward there.

Speaker Change: I'll take it in two pieces here. First of all, we're only four months in. We're very pleased with the level of

Speaker Change: obviously the legacy Markham clients, also the legacy Seabiz clients, and I think we've done a good job, our team's done a good job.

Speaker Change: of capturing that excitement, communicating with those clients, and explaining to them the opportunities.

Speaker Change: the even expanded opportunities for a broader array of services, deeper industry expertise, all the things we're talking about. I think clients are excited to hear that and so we expected a little bit of attrition just as a result of some conflicts that we had. That number actually came in at or below our model expectations so we were really pleased with that but beyond the kind of conflicted clients we're really pleased with the retention.

Speaker Change: As far as cross-serving is concerned, I think I mentioned on the last call, you know, we closed the deal on November 1. The very next week, we had just...

Speaker Change: coincidentally and fortuitously able to be in front of their former partner group.

Speaker Change: We had, I think, almost 600 or 700 people at that meeting, and the level of excitement around

the service capabilities.

Speaker Change: the additional products and solutions that we can bring to the client, the fact that we can now bring in what was less traditional around payroll and employee benefits, retirement plan, a whole host of additional services, and we're seeing some of those things even in this early stage start to come through the pipeline. So I think a very high level of excitement around what we can now do for our combined clients not only Legacy Markham that we weren't able to do before.

about that encouraged by it.

Speaker Change: Great. And then you touched on quite a few things as far as what's inherent in your growth expectations and in the guide. Can you talk a little bit about maybe the pricing environment? Maybe how you see the combined CBIZ going forward vis-a-vis the historical CBIZ pricing efforts and what we might expect there and how that sort of plays into the guidance numbers

Speaker Change: Yeah, so Mark, you know, pricing is obviously always supply and demand, right? And so, as we kind of highlighted based on the other question, we think demand is going to be very high. It was high and really strong for our core services in 2024. We would think that that would continue, which gives us pricing ability. As we look into 2025 and our planning, you know, we always say,

Speaker Change: kind of mid-single digit organic. We're in that range. We always say, kind of in any given year, half volume, half pricing. We've been a little stronger on the price. I think we would expect to...

Speaker Change: you know, within those ranges, it could be, you know, two-thirds price and one-thirds volume, but, you know, half-half, one-thirds, two-thirds, in those ranges, and we think that's really healthy for the business.

Speaker Change: Okay, great. And then I guess the last piece for me, at least for now, I was sort of curious as to whether or not you've seen any

Speaker Change: particular standouts when it comes to client activity, when we're looking at particular industry verticals, are there any particular call-outs that we should be thinking about that are maybe a little more active, a little less active, you know, what we're seeing initially as far as activity levels from client industry verticals that might be helpful.

Speaker Change: Yeah, you know, when we look at, again, what we keep talking about is...

prior to the transaction, when we thought about...

Speaker Change: accelerated future growth, our focus is going to be on industry groups, right? And as it turns out, as I mentioned, they were they were further developed in that area. We now have

Speaker Change: together, we now have 10 either industries or specialty practices with revenues over a hundred million dollars. The power of what that brings to the organization...

the ability to come and bring

Speaker Change: brought leadership into each of those ten industry groups and specialty practices, the ability to bring deep subject matter expertise.

just, you know, kind of really accelerates our path.

Speaker Change: and our growth opportunities there. So I can't say any one client, although I have heard some really encouraging prospect news, but I think it's a little too early to kind of see how that all plays out.

Speaker Change: Just the power of what we now have by bringing these two organizations in that industry offering is, I think, really exciting for us.

Great. Thank you very much. Congratulations.

Thanks, Mark.

Speaker Change: Again, if you have a question, please press star and then 1.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Jerry Grisko for any closing remarks.

Jerry Grisko: Yeah, thank you. And thank you everybody for joining us. As we wrap up today, I want to thank our shareholders and analysts, as we always do, for joining us on the call and for your continued support. This is an exciting time for CBIS, and we're excited to share the news with you.

Jerry Grisko: As others have done on this call today, I also want to take this opportunity to recognize my friend and colleague Ware Grove, our Chief Financial Officer, who will be retiring next week, next week, next year.

Speaker Change: next month. Could you give me another year, Ware? That's how last year started. Ware's been obviously a fixture on these calls for almost 25 years and his outstanding leadership, strategic vision, dedication and support has been invaluable in allowing us to navigate

really strong and tremendous growth during that time.

Ware Grove: We're obviously grateful for all that you've done for us, and we wish you well in your well-deserved retirement. Yeah, yeah, thank you, and thank you everyone for your kind comments. I think

Speaker Change: the business. It's been a long journey, and it's been a good journey, and I know as investors, many of you have been along for a long time with us, so that's a that's a great shared experience.

Speaker Change: But I think that the business is in a great spot today. There's an exciting opportunity ahead.

Speaker Change: It's time for me to step down, but the transition is going to be a good, smooth transition.

Speaker Change: Already, I've been working with Brad Lackia quite a bit, and I'll be here for an extended period of time to ensure that we have a great, smooth transition, and, you know, I wish you well, and I think the future is very bright for CBIS.

Speaker Change: Thanks, Ware. Well, you know we have you on speed dial, so I appreciate you hanging out with us for a while. In closing, I want to recognize our incredible team, many of whom are listening today.

Speaker Change: 2024 was obviously a historic year for CBiz and one that positions us for even greater success in the years ahead. Our legacy business combined with a transformational acquisition marks the beginning of an exciting new chapter for our company.

Speaker Change: one filled with even greater opportunities for growth, innovation, and impact than ever before.

Speaker Change: I want to extend a very warm welcome to all of our members.

from our new SEBIS, or I'm sorry, new Markham family.

Speaker Change: I'm thrilled you're here and look forward to building an even stronger future together. None of what we've accomplished would be possible without the hard work, passion, and commitment of our entire team. You are the driving force behind our success, and I could not be more grateful.

Speaker Change: As I've said many times before, I've never been more excited and optimistic about our future and what we will accomplish together. Thank you and enjoy your day.