Good morning, and welcome to the CBIZ Fourth Quarter 2019 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 Investor Relations. Lori, please go ahead.

Good morning, everyone, and thank you for joining us for the CBIZ Fourth Quarter and Full Year 2019 Results Conference Call. In connection with this call, today's press release has been posted on the Investor Relations page of our website, www.cbiz.com. This call is being webcast. A link to the live webcast as well as the replay can also be found on our website. Before we begin our presentation, we would like to remind you that during the call, management may discuss certain non-GAAP financial measures. A reconciliation of these measures can be found in the financial tables of today's press release. 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 for his opening remarks. Jerry?

Thank you, Lori, and good morning, everyone. With this morning's release of fourth quarter and full year results for 2019, we were pleased to report that earnings per share from continuing operations increased by 16.5% for the full year. That being $1.27 for 2019 compared with $1.09 for the prior year. We also reported 110 basis point improvement in our profit margin and income before tax and total revenue growth of 2.9%. While fourth quarter revenue growth of 2.1% was lower than full year growth, it's important to remember that revenue growth in the third quarter, reported at 6.9%, was much stronger. As we advised at the end of the third quarter, certain project-related work that could have occurred at any time in the second half of the year was completed in the third quarter. And as a result, we expected revenue in the fourth quarter to be somewhat softer. As we've commented many times in the past, revenue in the second half of any year for us is far more dependent on project-oriented work, which, by its very nature, is difficult to predict. So internally, one of the trends that we consider is the rate of growth in the second half of a given year compared to the first half of that same year. In 2019, for the third and fourth quarters combined, second half revenue grew by 4.6% compared with first half revenue growth of 1.4%. This first half versus second half revenue growth dynamic was driven by several factors. To start, first half revenue in our Financial Services group was negatively impacted by delays encountered in connection with tax reform. This was largely caught up during the third quarter and was reflected in the stronger revenue growth at that time. And second, as expected, continued investments in…

Yes. Thank you, Jerry, and good morning, everyone. As I think about the highlights for 2019, the full year 110 basis point margin improvement on income from continued operations before tax is a sign of real strength in our business. The timing of investments in our business in any 1 year has an impact on margin. But we will continue to say that a 20 to 50 basis points annual improvement in pretax margin is what we strive for as a goal over time. Cash flow in the business continues to be strong. Adjusted EBITDA was $120.6 million for 2019 or 12.7% of revenue. That is a nearly 90 basis points improvement compared with the prior year. We can continue to leverage the growth in adjusted EBITDA, and we expect further improvement in 2020. At December 31, 2019, the balance outstanding on our $400 million unsecured credit facility was $105.5 million. This represents a $30 million reduction over prior year leaving unused financing capacity of $287.7 million at year-end 2019. During 2019, our cash flow statement will reflect that we used $29.2 million for acquisitions, net of client cash acquired. Aside from the client cash acquired in connection with our acquisition of pay time, a small payroll operation that was acquired in July, we used $37.3 million for acquisition payments in 2019. As we look ahead on future acquisition earn-out obligations, as of year-end 2019, we expect cash payments of approximately $16.5 million in 2020, $8.9 million for 2021 and approximately $5.8 million for 2022. We actively conducted share repurchases throughout 2019. For the full year, we used approximately $27.2 million to repurchase approximately 1.3 million shares of our common stock, including activity in the fourth quarter, during which we repurchased approximately 160,000 shares at a cost of approximately $4.3…

Thank you, Ware. Before we move on to Q&A, I'd like to take a few moments just for a few additional comments. First, relative to our outlook for the year, as Ware stated in his remarks, we're expecting total revenue growth within the range of 5% to 7% in 2020. While certain components of forecasted revenue are more difficult to predict than others, we're comfortable today guiding within that range based on the continued strong demand for our core services that we're experiencing and a return to more historic growth rate from certain of our project-oriented consulting businesses. Now turning to acquisitions. We've already experienced a much stronger start in 2020 with more deals further along in our process than in recent years. Already this year, we've completed the acquisition of Pension Dynamics, a full-service retirement and benefit plan adviser located in the San Francisco Bay area. This acquisition expands our retirement plan advisory capacity and complements our existing footprint on the West Coast. We also completed the acquisition of Alliance Insurance Services, Inc., a property and casualty insurance agency with a proven track record of serving small and mid-market businesses in the D.C. Metro area, a market where we already have a strong presence and are in much need of the exceptional talent that we added through this acquisition. Finally, I talked earlier about our transition to a more comprehensive payroll and human capital management platform to serve larger and more complex clients. Our recent acquisition of Sunshine Systems provides implementation expertise and capacity that will ensure that we can be responsive to the strong pipeline of client interest that we are seeing in this new platform while continuing to provide exceptional client service. Last, a note on our culture. Perhaps the defining characteristic of CBIZ, in which we all take an incredible amount of pride, is our culture. Our culture is what ties our team together and our values are the foundation of that culture. We are truly a people business, and the nearly 5000 professionals who make up our team are among the most talented in our industries. One of the most important metrics we use to measure our progress is the feedback we receive from our workforce through surveys conducted by various external organizations. In 2019, CBIZ was recognized with 62 workplace awards, including many Best Place to Work awards. This is a new record for our company and demonstrates why we prioritize our work around culture. I'm grateful to our team members and their commitment to our clients and their commitment to each other. With that, I'd like to turn it over to Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Andrew Nicholas with William Blair. Please go ahead.

Hi. Good morning. Thanks for taking my questions. You talked about your M&A pipeline skewing a bit more towards large firms. And I'm wondering if that's a concentrated effort on your part to go after some bigger players? Or if there's anything unique to the market driving that trend?

Thank you, Andrew. This is Jerry. It's really not unique to the market. We have, for a long time, really been increasing the amount of effort that we put into sourcing transactions. As a result of that, I think our volume has increased over the past several years. And by virtue of the volume increase, we just have a number of transactions that are larger than we have completed in recent years. These aren't transactions that are outside the band of what you may have seen historically in CBIZ, but certainly larger than what we've been able to complete in recent years

Got it. And then I think in the past, you talked about institutionalizing your efforts to improve pricing yields across a variety of your businesses. I'm just wondering if you could speak to the progress of that initiative. And how much you expect pricing to contribute to same-store growth in 2020?

Another good question. That is something that we really initiated about 2 years ago. That's a continuing effort. So I would say we're still in the pretty early innings there. What I would tell you is that it's kind of office-by-office. We've made investments here at the corporate office with a group of resources that are dedicated to working with each of those offices. We also have some support with some external resources. The offices that we've been able to work with have, the efforts have been very well received. It's a combination of process and tools to help them give, have better visibility into client pricing and client profitability, and by actually service line. And so again, early innings, but we believe that we've seen some impact from those efforts in '19, we expect to see even greater impact in '20. And we expect that that impact will continue on into years even beyond that.

The next question comes from Chris Moore with CJS Securities.

This is Stefanos Crist calling for Chris. Can you provide some more detail on the rollout of the human capital management program? Is there a time that will be fully rolled out? And are there any other specific milestones for 2020?

Yes. So that system is now fully operational within our payroll business. What we found, Stefanos, was that the platform that we, our legacy platform that we've historically had is very well suited for smaller or mid-sized clients. But as our clients, some of them were larger, certainly larger prospects, with more sophisticated needs, more complex needs, the legacy product that we had wasn't always well suited for those needs and that level of clients. So we identified that platform probably 18 months ago. We had anticipated that we would have a contract signed with them early in 2019. It took a few more months for us to get that contract signed. But once we have the contract signed, and we had our teams trained on the capabilities of that platform, what we've seen is a very strong reception from our clients, very strong reception from prospects and a very encouraging pipeline of opportunities coming out of that. What we expect going forward is that the momentum that we've seen throughout the second half of 2019 will continue to get even stronger. And so we're very encouraged by what we've seen and continue to be very bullish on the opportunities there.

And beyond M&A, what are the biggest uncertainties for 2020? And maybe more specifically, what would drive a stronger-than-expected year? And also on the other side, what would drive a weaker-than-expected?

Yes. So let's start with our outlook for 2020, where I, what we said in our comments is that if you look at the optimism that we're seeing in the market for our clients, which are SMB, principally SMB clients, our clients continue to be very optimistic about the prospects for their business. They're quite optimistic about their local economies and their state economies. There is always going to be, or at least in recent years, there's more uncertainty around the global economic picture. And then as we get into the year, the question will be the impact of the election on their optimism. So I think the real uncertainty is anything that may happen globally, coronavirus, tariffs, et cetera, and certainly how the market reacts to the unfolding election outcomes.

Next question comes from Jim MacDonald with First Analysis.

Could you talk a little bit -- so in your guidance for revenue, are you assuming any more acquisitions in that? Or is that just what you've done so far?

Yes, Jim, this is Ware. Just the acquisitions that we've announced effective February 1, those are included in the guidance for 2020. Any future acquisitions are not included in the guidance. So as we close future acquisitions, we can update guidance, if it's warranted at that point in time.

Okay. And you seem to have continued good earnings leverage in your 2020 guidance, can you comment about where those -- what -- where that's coming from?

Yes. Thanks, Jim. This is Ware, again. Same sources we always look to. We want to utilize people, and we talked about the pricing initiative and getting the yield per hour up that improves margin, improving our back office staffing and our fixed costs with rent facilities and those different office-related expenses. That's typically the source. Now against that, we do time different investments. So it's a little bit choppy in terms of our ability to gain great leverage or some modest leverage. But we will say 20 to 50 basis points annually is a good target over time.

Okay. And just a follow-up question on the HCM module. Could you talk a little bit more about what's included there? And what are some of the new applications in addition to payroll that might be in that -- those -- in that module?

Yes. Thanks, Jim. I know you're familiar with this space. That HCM module is really a complete and comprehensive HRIS system, along with payroll and also allows us to integrate employee benefits and retirement plan services. So some 401 into that platform. So it is a true, kind of, A to Z HRIS system that works very well with our ability to integrate other product offerings for our clients.

[Operator Instructions] The next question comes from Marc Riddick with Sidoti & Company.

I wanted to -- if you could share a little bit of -- what the cadence of last year, the timing of the IRS guidelines and complexities, I was wondering if you could sort of give some thoughts and views as to what you're seeing this year, and how much of it has sort of hopefully returned to normalcy. But I was wondering if you could give a little bit of a background as far as what you're seeing as far as level of complexity, and what we should expect as far as cadence of tax filings this year.

Yes, Marc, thank you. You're right. I think when you describe it as a return to normalcy, that's what we're hoping for, and that's kind of what we're expecting to do 2020. There is nothing of the magnitude of tax reform on the horizon that we see right now. As we -- we're hoping that 1 year into tax reform, we will become much more efficient and familiar with the requirements there, and that will help us, obviously, from a profitability standpoint throughout 2020. But we don't see anything that is, again, on the horizon that would be outside the norm, at least at this time.

Okay, great. And then maybe if you could just give a brief update on investment priorities other than the -- certainly, you've been busy with acquisitions, so I was wondering if you could sort of talk about headcount, personnel, maybe some priorities and target areas that you're looking at to focus on for 2020. Thank you.

Yes. So to start with, obviously, we're a human capital business, right? So we're always going to be focused on talent. As we've commented many times on these calls, increasing -- continuing to make investments and increase the number of producers that we have on the Benefits and Insurance side of the business and then making sure that they have the right tools to provide high-quality, high-value, differentiated products and services to our clients. So things like the HCM system, obviously, are going to be ongoing investments. Same thing, I guess, on the Financial Services side, there's always opportunity for us to bring on lateral talent that oftentimes is costly certainly in the year that they join us. But we've budgeted for those things. We've been able to find top talents around the country and been able to absorb those within our P&L. We mentioned the investments in what we call our PMO office, which is really the practice management office that helps our -- each of our offices, understand -- better understand client profitability and pricing. As I mentioned, we're using some outside resources there. That's been very well received. And then, of course, we started several years ago with our national branding campaign, and we would expect those efforts to continue at about the same levels into 2020. So we just came out of, as you would expect, right, last -- the end of last year, budgeting. We work very closely with the offices and the service lines and of course, the heads of the practice groups to understand their investment needs. We are very pleased to say that we feel like we've been able to meet those needs in the numbers that we're guiding to for 2020 and continue to produce the results that you're seeing and the results that we're guiding to.

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

Yes. Thank you, Anita. I just want to close by thanking our team members for yet another outstanding year and also thanking our analysts and investors for their continued support and confidence. We look forward to speaking to you again after we report our first quarter 2020 results. Thank you, and have a nice day.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.