Good day, and welcome to the CBIZ Third Quarter 2022 Results Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Lori Novickis, Director of Corporate Relations. Please go ahead.

Good morning, everyone. And thank you for joining us for the CBIZ second quarter and first half 2022 results conference call. In connection with this call, today's press release and quarterly investor presentation have been posted to the Investor Relations page of our website, cbiz.com. As a reminder, this call is being webcast. A link to the live webcast can be found on our site. In addition, an archived replay and transcript will also be available following the call. Before we begin, we would like to remind you that during the call, management may discuss certain non-GAAP financial measures. Reconciliations of these measures can be found in the financial tables of today's press release and investor presentation. Today's call may also include forward-looking statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only estimates on the date of this call and are not intended to give any assurance of future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause future results to differ materially, and CBIZ assumes no obligation to update these statements. A more detailed description of such factors can be found in our filings with the Securities and Exchange Commission. Joining us for today's call are Jerry Grisko, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer. I will now turn the call over to Jerry for his opening remarks. Jerry?

Thank you, Lori. And good morning, everyone. Thank you for joining us for today's call. We are pleased to report that the very strong results that we experienced during the first half of this year have continued through the third quarter. With impressive revenue growth coming from every major service line of our business. Within our financial services group, we continue to experience strong demand across all three major service lines, those being our core accounting businesses, our advisory businesses and our government healthcare consulting business. We're also pleased to report that our recent acquisitions within this group are in total, performing in line with expectations and making a positive contribution to our overall results. Organic revenue growth within our financial services group was 14.4% for the third quarter, and 12% year-to-date, which reflects our continued success in hiring and our ability to improve pricing for our services. While the market for talent remains very competitive. Our investment over the past several years to expand our recruitment team has allowed us to add the talent needed to keep up with robust client demand. Also, our ability to drive pricing increases as a result of the significant investments that we have made in systems, reporting, tools and training to equip our team to have better visibility into pricing and profitability trends by client and by service line. Our pricing discipline should also serve as well if faced with a more competitive environment in the future. As a reminder, certain of our advisory services tend to be more discretionary by our clients, which make them less predictable to the forecasts and the more recurring essential services that we provide. So far this year, we continue to experience high demand for new work and have also had success in expanding existing projects. Also,…

Thank you, Jerry. And good morning, everyone. Let me take a few minutes to talk about the key highlights of the third quarter and year-to-date numbers we released this morning. As Jerry, commented, the strong momentum we saw throughout our business earlier this year has continued through the third quarter. Total revenue in the third quarter increased by $80.5 million, up by 28.5% over third quarter a year ago. Third quarter same unit revenue was up by 12.3% with acquisitions contributing 16.2% to growth compared with last year. For the nine months this year, total revenue grew by $254.8 million, up by 29.6% compared with last year. Same unit revenue for the nine months grew by 11.1% with acquisitions contributing 18.5% to revenue growth for the nine months this year compared with last year. Within financial services, for the third quarter, total revenue grew by $72.8 million, up 38.9%. Same unit revenue for the third quarter was up by 14.4% with strong revenue growth throughout traditional core accounting services, advisory services, and government health care consulting services. For the nine months, total revenue within financial services grew by 39.8%. And same unit revenue for the nine months was up 12.0%. Within benefits and insurance, same unit revenue in the third quarter grew by 7.3%. And for the nine months, same unit revenue grew by 8.6%. We continue to see strong client retention and strong new client production. The investments we have made in recent years, the higher and increase the number of new business producers has continued to gain traction. We remain committed to further enhancing growth capabilities within the Benefits and Insurance Group. And we will continue to make investments in hiring additional producers for the balance of this year and beyond. Acquisition activity in 2021 and through this…

Thank you, Ware. Before we move to Q&A, I want to touch on what we're hearing from our clients. The fundamental attributes of our business that we believe will allow us to continue our strong performance. Even if the business climate becomes more challenging, and provide a brief update on our M&A activity. Every quarter, we informally survey a broad cross section of our clients to get a feel for their outlook on the economy, and the prospects for their business. While responses vary across our wide range of clients, the geographies they serve and their industries. Our clients generally remain optimistic about their performance through the end of this year. Although longer term, there is an increasing level of concern about rising interest rates, the rate of inflation, threats of an economic downturn, shortages of skilled labor and continued supply chain challenges. With those items and all the discussions around the possibility of a more challenging business climate in the months ahead. I want to take this opportunity to emphasize how the strength of our business model combined with our long-term investments in our people, service offering, systems and tools position us to continue to perform relatively well even in less favorable business climates. The fundamental attributes of our business model include that approximately 75% of our revenue comes from essential and recurring services. That's work that our clients need us to perform regardless of the business climate. And of the remaining 25% of the more project oriented work, we often see continued demand for a good portion of that work, even in slower economic periods. Although, the services provided in the scope of engagements may be different. Other positive attributes of our business are that we enjoy very high rates of client retention at approximately 90%. We operate…

[Operator Instructions] Our first question comes from Christopher Moore from CJS Securities.

Good morning. This is Stefanos Cris calling in for Chris, thanks for taking our questions. Can you talk a little bit more about price increases in the financial services business? And how susceptible those are in a slowing economy?

Yes, this is Jerry. Look, what we've done over the past several years is make substantial investments in the tools and the systems and the reporting that give us better visibility into our pricing opportunities by client by service line. And that's reflected in the results that you've seen today and the very strong results, how that plays out in, a more challenging business climate time will tell, although I will comment and our expectation is that there's still pricing opportunities in that environment for us. And we will work with our offices to make sure that we're taking advantage of those opportunities. So I think it's still going to be positive for us. But time will tell exactly how that plays out.

Great, thanks. And just to follow up, private equity has been relatively a recent entrant in the financial services M&A. Can you just talk about what valuations you're seeing today versus, 12to 18 months ago?

Yes, definitely. And that's the right timeframe. About 18-months ago we, it was rare that we would really have that type of competition, when we were talking to firms, we have seen them over the past 18-months, and that in multiples have ticked up a little one or two turns in that space, but it's still very affordable. And we find that the pricing, we can be very competitive in our pricing and still provide, our targeted IRR on those transactions. So to date, it really hasn't -- they haven't driven pricing beyond something I think is reasonable.

We have question now from Andrew Nicholas from William Blair.

Hi, good morning. Thanks for taking my questions. The first one I wanted to ask kind of plays off of your recession or resiliency commentary, Jerry, and it's about kind of the profitability of the different practices within your two segments, or your two primary segments. Is there any major difference in profitability between those businesses that would perhaps be a bit more susceptible? Maybe what makes up that 25% of more project based business relative to the 75% that's locked in?

Ware do you want to get --?

Yes, let me, hi, Andrew, how are you? The area that might be more susceptible. And we talked about this before. Core accounting is pretty repetitive in a central government healthcare services is pretty recurring and long term in nature. But on the financial services side, the advisory business is more project oriented. Having said all that, there's a good I'll say half of that business that tends to be recurring from year-to-year, for example, valuation does annual goodwill impairment and then tangible studies and things of that. They also do project work related to purchase price accounting and transaction that's maybe a little more volatile, just to give you an illustration. So that's the piece of business that slowed down a bit in ’20 - ‘21. But rebounded very nicely ‘21 and ‘22, we've got it, we've got an eye on that. So far, the pipeline is full, and we're seeing some signs of initial softness. But we also have some variability in the cost structure that will enable us to protect margins as we go forward. So that's probably the area that we look at as probably being the most vulnerable area within our suite of businesses.

And Ware all else equal is that piece that is vulnerable higher margin than the rest of the segment or is it pretty comparable to kind of the core accounting tax were.

Now it tends to be higher margin we've had value pricing opportunities this year because demand has been so strong. If our ability to continue that is compromised, or we need to be a little more flexible clearly the pricing could, I think it'll step but it won't enable the year-over-year increase as we've seen this year. To the extent that we're under pressure on projects and pipeline and business, we have some variability in the cost structure with contractors and the like. They're where we conserve staff against surge demand. So that's a bit of a variable component within that model that really serves as well here, if we encounter a slowdown, where those steps are needed.

That's helpful. Thank you. And then going back to the pricing comments, is there an outsized opportunity in that department? When it comes to acquisitions generally, and maybe even Marks Paneth more specifically, do you take that as a key part of your acquisition case now maybe more so than you did a couple of years ago? And is or is that something that takes a little bit more time to assess after incorporating or integrating an organization like Marks Paneth?

Andrew, it’s Jerry, that's a great observation. I will tell you that we have not seen a firm anywhere, I'm sure the Big Four have some of these capabilities. But below the Big Four, we've not seen a firm that have the tools, the processes and systems or reporting that we've built in this area. So the answer is, yes, in every instance, when we look at a firm, we see opportunities to bring those tools to that firm, and help improve their discipline around pricing. We don't typically put it in the, well, we don't typically, we don't ever put it into the model. But we know that that opportunity is there for us.

That's helpful. And then if you don't mind me squeezing one more in just looking at the acquired revenue over the past three quarters or year-to-date. I know we as analysts are kind of forced to make some assumptions on the smaller deals, but it certainly seems like that Marks Paneth has been incredibly successful year-to-date maybe $120 million - $125 million year-to-date revenue if my math is correct. That certainly seems like it's pacing ahead of the $138 million that you had originally targeted. I don't maybe my math wrong, but just trying to square away that math with what seems like, in line commentary in terms of your expectations, because it seems to me that Marks Paneth is really fitting the cover off the ball.

Yes, Andrew, another good observation and maybe Ware and I could take him on this a little bit. But the one thing that to keep in mind with regard to the accounting practice, in general, and certainly true at Marks Paneth is, it's really hard to look at it on less than a full year basis, because in any given quarter, certain work can get pulled forward. And so it's hard to yes, the answer is they're performing very well. We're very pleased, continued strong performance. But it's hard to look at the performance of that business to the first three quarters and then kind of straight line that growth through the rest of the year.

[Operator Instructions] Our next question is coming from Marc Riddick from Sidoti & Co.

Hey, good morning. So I wanted to touch on certainly have covered a lot of things and really appreciate that as well, I was wondering if you could talk maybe sort of big picture here, because on top of the acquisition contributions, and going back to the pricing and the organic growth it's pretty clear that you guys have gained a lot of market share, I was wondering maybe you could talk a little bit about what you're seeing there. as far as some of those benefits, and maybe how you think that might continue to play out.

Hey, Marc, it's Jerry. Again, another really good observation. What we've seen is that the model that we've been really kind of building over a long period of time, which is expanded expertise and depth of expertise and scope of services has resonated very well with the market. And so that combination of continuing to build depth of expertise and breadth of services, combined with a very strong kind of business development, sales outreach combined with now a reception, receptivity to digital outreach and thought leadership and programs all have gone to drive significant growth across the business. So those are, again, very intentional steps that we've taken along the way that are now really kind of paying dividends and that's what we're seeing in our growth.

And I noticed it's probably predictable. But I'd be remiss if I didn't ask anyway, could you bring us up to date as far as where you are, as far as the marketing approach, I think not just with the commercials, but maybe the broad brush wise, not just from a spending perspective, but sort of maybe effectiveness that you think you're seeing there. Thanks.

Yes, from an effectiveness standpoint, marketing is really, you have -- hard to activities, and then you take a pause, and you measure your brand awareness. And the last time we did that, which was certainly within the past 12-months, we were very pleased with the results and the outcome as to within markets where we are focused our brand awareness, certainly relative to prior periods of time, and then the performance, or how well recognized we are certainly compared to our peer group. So what that tells us is that we're doing the right things in the right areas. With that said, it continues to evolve all the time. And in particular, I think, the digital portion of that and how we're approaching our clients and prospects from a digital perspective and the results of that striving.

And then you touch on this a little bit, I'm sorry, --

On the campaign, you will see that as soon as the next kind of wave of our campaign of our national TV campaign will come out right after election cycle. So we'll -- you'll see some of that coming out shortly here.

Make sense. I would imagine those rates are a lot less expensive. Last thing, you touched on this a little bit. But as far as reaching out to clients and getting feedback from them, you touch a little bit about the broad reach of verticals that you touch on the industry clients verticals there. I was wondering if you could talk a little bit about maybe if there any standouts either good or bad, as far as the differentiation that we've seen from your – from the client industries, and maybe what they might be experiencing or what you're hearing from them. Thank you.

Of course, there's always -- there are always differences by industry. So for example, if you're in the construction industry, you're particularly interested in interest rates and what's happening there. If you're in the -- if you own, develop and own those properties, residential is in higher demand right now than commercial rental property. So there are those types of factors that are weighing in on particular segments. But again, the takeaway to the comments are that we are not overly weighted in any particular industry, or geography that might have a more difficult time in various economic climates.

This concludes our question and answer session, I would like to turn the conference back over to the CEO, Mr. Grisko for any closing remarks.

Thank you. As we wrap up today, I just want to take this opportunity, as we always do to thank our shareholders and analysts for your continued support. And also, as always, I want to take this opportunity to recognize and thank the key drivers to our success and that being our team members. It was a very busy third quarter procedures with client deadlines and various busy seasons across our business. Whether going above and beyond for a client or connecting with or supporting a colleague. Our team's focus on growth, dedication to service and our commitment to our core values is what really sets CBIZ apart. And it's the foundation for our strong performance. I'm grateful to each team member for how they contribute to our success and make CBIZ a better place for all of us every day. With that we'll close our third quarter call. Thank you again for your time and enjoy your day. Thank you.

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