Good morning, and welcome to the CBIZ Second Quarter and First Half 2017 Results Conference 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.

Thank you, Brandon. Good morning, everyone and thank you for joining us for the CBIZ second quarter and first half 2017 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 a live webcast as well as a 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 to comparable GAAP measures can be found in the financial tables of today’s press release. Finally, 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 will now turn the call over to Jerry Grisko for his opening remarks. Jerry?

Thank you, Lori and good morning everyone. We are pleased that the positive momentum in our financial results reported in the first quarter this year has continued into the second quarter. These results reflect continued strong demand for our services, stemming from an increasingly favorable business climate and a generally more optimistic outlook by our clients. For the second quarter of 2017, revenue increased by $14 million or 7.1% compared to the second quarter a year ago, with 3.8% of that increase reflecting organic revenue growth. We also reported a 25% increase in our earnings per share from $0.16 per share in the second quarter of 2016 to $0.20 per share in the second quarter of this year. For the full 6-month period ended June 30 of this year, we recorded revenue of $452 million, that’s up 7.4% over the first 6 months a year ago, with 2.9% of that increase reflecting organic revenue growth. As a result of the operating leverage that is inherent in our businesses and our continued focus on cost controls, we are pleased to report a 70 basis point improvement in margin on our pretax income. Combined with the lower tax rate associated with the new accounting standard for stock compensation expense, this translates into fully diluted earnings per share from continuing operations of $0.66 compared with $0.57 a year ago, an increase of 15.8%. We have also been successful in completing three acquisitions this year. Combined with the acquisitions that closed in the second half of last year, our recent acquisitions have contributed $19 million or 4.5% to our revenue growth in the first half of this year. Turning to the performance of our 2 primary practice groups. Total revenue within our Financial Services group was up 5.9% for the first 6 months of…

Thank you, Jerry, and good morning, everyone. As Jerry mentioned, we closed on three acquisitions so far this year. Combined with the earn-outs that we have paid on prior year acquisitions, we used approximately $32.9 million for acquisition-related payments in the first half of this year. Future spending on earn-outs is projected at $5.6 million in the second half of this year, approximately $12.5 million next year in 2018, approximately $13.9 million in 2019 and then $7.1 million in the year 2020. As Jerry commented, we are pleased to report a 70 basis point improvement in our margin on income before tax expense for the first half this year compared with a year ago. Eliminating the impact of accounting for gains and losses on assets held in the deferred compensation plan, gross margin was up 10 basis points, and we leveraged G&A cost by 40 basis points for the first half this year to 3.9% of revenue versus 4.3% of revenue a year ago. This translates into a 13.2% growth in pretax income this year on 7.4% growth in revenue. And this is the type of performance we always strive to achieve. Days sales outstanding on receivables stood at 88 days this year at June 30 compared with 83 days a year ago. As is typical with our seasonal business, we expect days sales outstanding will decline in the second half of the year as client payments occur after our first half busy season. Bad debt expense in the first half this year was 54 basis points on total revenue compared with 52 basis points on revenue for the first half a year ago. Capital spending has been $6.7 million for the first 6 months this year. This is slightly higher than our normal spending level and much of the…

Thank you, Ware. I wanted to take just a few minutes to briefly comment on the two acquisitions that we announced in the second quarter. Pursuant to our strategic planning process, we identified the private equity industry as an attractive growth opportunity for CBIZ. We are very fortunate to have the team from CMF Associates join us, effective June 1. CMF is very well known and highly regarded as a valued adviser to middle-market private equity firms. And together with our existing and very talented team of professionals that serve that industry, we are now well-positioned to serve private equity firms and their portfolio of companies with a scope of services and geographic reach unmatched by many of our competitors. In addition, the acquisition of Slaton Insurance, also effective June 1, allows us to expand our growing and successful South Florida insurance operations and add some very talented members to our existing team of advisers and professionals in that market. As Ware mentioned in his comments, we have sufficient borrowing capacity under our existing credit line to continue with our historic acquisition activity and have a full pipeline of prospects that we are in various stages of discussions with. Finally, we know that we cannot continue to enjoy the success that we have experienced without meeting the needs of our over 4,600 team members who come to work everyday dedicated to the success of CBIZ and our clients. We work hard to make CBIZ their employer of choice and are proud that every year, we are recognized as the best place to work in many of the cities where we maintain offices. We are pleased to have already received 35 such awards through the end of July this year. With those by way of comments, I’ll turn it over for any questions.

[Operator Instructions] Our first question comes from Jim MacDonald with First Analysis. Please go ahead.

Good morning, guys.

Good morning, Jim.

Can you give us the same-store breakout by division for this quarter and could you – obviously same-store improved versus the first quarter, maybe you could talk a little bit about why your same-store sales bumped up in the second quarter, if there is an explanation?

Yes, Jim, this is Ware. Couple of things. We have had continued strong performance within Financial Services. So for the quarter, Financial Services was up 3.2% and 3.2% same-unit for the year-to-date 6 months. As Jerry mentioned, we’re seeing strength in both the core tax and accounting businesses as well as good strength and growth in our government health care consulting. So those are two very positive factors, and we’re pleased to see that. The other good news that we are seeing is we have struggled, as we have talked about in the past, with showing organic growth in the Benefits and Insurance area. And last year, we talked about lapping some of the client termination retention issues that we needed to lap associated with some prior acquisitions. So for the first half this year, the Benefits and Insurance group is up 0.2%, relatively flat. But in the quarter, they are up 0.9%. So we think we are turning the corner as we have talked here for the last couple of quarters and we are very pleased to see that turn positive.

Great. And your G&A was a little high at least versus my model this quarter, anything unusual there?

No, nothing unusual. There is a little bit of choppiness in G&A from time-to-time. The important thing that we look at is the trend over time. And we are now leveraging G&A for the first 6 months at 3.9% of revenue compared to 4.3% a year ago. The items that create some short-term quarterly choppiness might be the spending pattern on some legal fees associated with some of the issues we need to address. That’s not particularly predictable. It’s not necessarily a large item, but from time to time, it might create a little choppiness. And then from time to time, the accruals on the incentive compensation might be adjusted and that might create some choppiness.

Just one more on the acquisitions and maybe following up on that last one, so you had some big acquisitions in the quarter, maybe does that impact G&A or does that get capitalized? Then, could you talk about – you normally have had a goal of three to five acquisitions, we have already done three. So, any change in that goal for the year?

Yes, Jim, that’s a great point. The fees associated and the cost associated with transaction support for acquisitions are now expensed as they occur. And previously, I think some time ago, they were capitalized. So, that’s another issue that causes some choppiness to G&A on a temporary short-term basis.

Yes. Hey, Jim, it’s Jerry. I will take the M&A question. As you know and as we have discussed in the past, it’s often difficult to predict timing on these. In 2015, I think we had 3; 2016, we had 6. We have 3 already this year. We have a pipeline that’s consistent with prior periods of time. And we have various transactions at stages – various stages of that pipeline, but it is difficult for us to see right now or predict right now whether those transactions that may close at the end of this year and those transactions that may lapse into 2018. So, all I can say is we have a – we are pleased with the pipeline we have and we are committed to continuing to – with our acquisition program.

Okay, great. Thanks.

[Operator Instructions] Our next question comes from Joan Tong with Sidoti & Company. Please go ahead.

Good morning, guys. I would like to ask you about your guidance. And can you just remind us if you include unannounced acquisitions in your revenue guidance since you closed like three transactions this half and you talk about the annualized revenue rate from these deals. And also together with the comment about improving operating environment or climate in general, is it fair to say that you are more confident today than before to reaching the high end of the revenue guidance range?

Yes, hi, Joan, this is Ware Grove. Hey, just as a reminder, we typically do not include unannounced acquisitions in any guidance just because of the fluid nature of acquisitions and the fact that they are unpredictable. The timing is unpredictable and then the incremental results for the balance of the year, is very unpredictable. And many times, when we do acquisitions, particularly on the Financial Services side, because of the seasonality of the business, if they occur late in the year, there is very little to any positive impact to those. So you will see those typically occur late in the year. However, having said that, yes, to the extent that we’re revising guidance here midyear, a lot of that is driven by the reduction in the tax rate, but it’s also partially driven by the recent acquisitions that we have announced. And those are now incorporated into the full year guidance.

Right. And then you are keeping your revenue growth guidance unchanged. So you are just sort of thinking about all the commentaries as well as the three deals that you announced you closed. So is fair to assume that like you are more confident today than going into 2017 that the high end of the revenue guidance range maybe more reachable?

Yes, I think that’s a fair conclusion. We are kind of near the higher end of the range and we would shade it that way. We are a little more optimistic towards the higher end of the range, but still within a 6% to 8% range. I do want to remind you that the second half of our year is seasonally weaker than the first half, so it’s slightly less predictable. And therefore, we are still within a range of 6% to 8%.

Okay, got it. And then on the employee services side, it’s great to see you guys go back to organic growth in the second quarter. Can you just maybe walk us through the – some of the puts and takes and the different sub-segments within that business? And like, for example, like the employee benefit versus some of those like insurance brokerage type of business. And help us to understand maybe like strength in certain areas versus like other areas?

Yes, Joan, it’s Jerry. We typically don’t give specific organic growth numbers for each of those, but let me try to answer your question. We are seeing better growth in our retirement plan services this year, our property and casualty services this year and our payroll. And we are seeing improved results, as Ware indicated, in our employee benefits. So we’re pleased with the activity and the growth that we’re seeing in each of those areas. As you would expect, we’re having frequent discussions with the teams that manage those businesses around the opportunities in the market and the resources that they need in order to continue that trajectory. But I’m very pleased with what we are seeing so far this year.

Okay, okay. And then just a follow-up like sort of still talking or trying to focus a little bit on the operating climate and how it’s going to positively impact your business going forward. So obviously, your organic growth rate, in general, for this quarter is higher than first quarter. And we know that we are heading into like a seasonally weak second half. But we talk about – there is advisory work like off-season. It’s something that you guys are looking into and obviously a better like environment out there would drive some of this growth. So can you just talk about your possibility that like organic growth rate would accelerate in the second half, also into maybe 2018? Just want to get a sense of how sustainable that, that sort of like positive environment that we are seeing here, that it’s going to carry through for the rest of the year into next year?

Yes, that’s a good question there, Joan. A couple of things that I would say that are encouraging for us. First of all, as we commented on generally a more positive and optimistic outlook among certainly small middle-market businesses and our clients, we are reading that in all the reports, we are hearing that when we go from office to office, and the reports we are getting back from the leaders of those offices. So, just generally, a more positive business outlook, which translates into more opportunities for us in the second half of the year, which tends to be more project oriented. So, that’s encouraging for us. The other thing that I will note and we talked about the CMF acquisition that we made on June 1. If you look at our transaction advisory services and many of the advisory services that we provide, they are having very, very strong years this year compared to the same periods last year and the year before. So, all of those things are directionally positive for us. Having said that, it is a relatively softer period of time for us, so it’s hard for us to, in that period of time, to materially impact the overall growth of the organization in what is typically a seasonally slower period of time for us.

Got it, got it. Fair enough. Thank you, guys. Thank you.

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, Brandon. For the members of our team who are listening on today’s call, I want to congratulate you on another very strong quarter and thank you for all that you do to serve our clients and contribute to our success. I would also like to thank our shareholders and analysts for your continued support of the company. With that said, I would like to thank you all and have a nice day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.