Good day, and welcome to the CBIZ' Second Quarter 2021 Results Conference Call. All participants will be in the listen-only mode. Please note that this event is being recorded. I would 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 2021 results conference call. In connection with this call, today's press release has been posted to the Investor Relations page of our website, cbiz.com. As a reminder, this call is being webcast and a link to the live webcast, as well as an archived replay and transcript, 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. Reconciliations of these measures can be found in financial tables of today's press release and in the investor presentation on our website. Today's conference call may also include forward-looking statements, including 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 conference call and are not intended to give any assurance as to actual 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. A more detailed description of such factors can be found in the filings with the Securities and Exchange Commission. Please note that CBIZ assumes no obligation to update forward-looking statements. 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.

Thank you, Lori, and good morning, everyone. With the release of our second quarter results, I'm proud to report another quarter of exceptional performance with strong growth across nearly every major service line. But before I comment on our most recent results, I'd like to discuss the legal settlement that was announced at the end of June. The settlement related to a lawsuit pertaining to actuarial services provided eight years ago, by a former employee regarding the valuation of pension plan liabilities. This suit was unusual in a number of ways, including the complex and technical nature of both the claims and defenses by each of the parties. There was also very little legal precedent related to many of the claims that guided the jury in their deliberations. These facts created unique risks, including that the claims by the plaintiff could have resulted in large jury verdict of up to several hundred million dollars if the jury elected to award punitive damages. We were in the midst of the trial when the parties reached an agreement. Given the complexity of the facts, the risk of substantial loss, and the uncertainty inherent in jury trials, especially this one in particular, we believe that settling the case for the amount previously disclosed was the most responsible decision for the company and our shareholders. Moreover, this settlement does not materially increase our debt, and our steady cash flow, strong balance sheet, and access to capital allows us to continue to make investments to grow our business, complete strategic acquisitions, buy back stock, and fully fund our operations. It's also worth noting that this is the first legal settlement in our 25-year history relating to an errors and omissions claim that substantially exceeded the limits of our insurance coverage. While we do not disclose the limits of our insurance coverages, we have considerably increased the amount of our coverage for E&O claims over the past eight years. It's also important to view the impact of the settlement in context as a non-recurring event, and not allow it to overshadow the exceptional performance and results that we are seeing in our business. With that, I want to turn to our performance for the first half of 2021. I am pleased to report that through the first six months of this year, we are seeing improved performance from nearly every major service line, resulting in the strongest year-to-date organic revenue growth that we've experienced in over a decade. Within our Financial Services group, we continue to experience very strong demand for our core accounting and tax services. We are also seeing a return of demand for our more project-oriented advisory services, particularly those related to helping our clients with acquisitions and divestitures. In addition, over the last several years we've made substantial investments in tools and systems that assist our leaders to improve revenue and profitability and accelerate the time it takes to collect accounts receivables. Our most recent results within our Financial Services division reflect the outcome of those investments. Our government health care consulting business has also continued to enjoy solid growth although that business has been somewhat impacted by delays as some states are holding off on certain work until they are more fully reopened and resume more normal operations. Even with these potential delays, the work is required and will be completed at some time in the future, but we are monitoring how timing may impact the rate of growth for this business through the remainder of the year. Turning to our benefits and insurance group, the trend continues to follow what we saw in the second half of last year with high demand in our Employee Benefits, Property & Casualty, and Retirement plan advisory businesses. Within our property and casualty business, our commercial side of the business is fueling very strong growth. While we are also seeing steady improvement on the program side, throughout last year we talked about some areas of our P&C program business being more impacted by the COVID-19 pandemic than others. For example, the reduction in leisure travel and related spending we experienced early in the pandemic impacted parts of that business like adventure sports. These areas are starting to come back as these industries continue to recover. In our payroll business, last year specifically during the second quarter, we saw a drop in the number of pays as our clients reduced their workforce. While this trend eventually leveled off later in 2020, we are now seeing the number of pays trend upwards again which points to recovery among our clients and creates additional opportunities for this business. While the number of pays has not returned to pre-pandemic levels, there are reasons for optimism given the current trends. Client retention within our benefits and insurance business remains strong. Similar to our financial services business, we are also experiencing increasing demand for many of our project-based services. For example, the improving economy is driving new sales and growth within our executive recruitment and compensation consulting practices, as many businesses look to add talent and fill critical roles. One additional area I want to highlight is our investment in producers. Our ability to attract, retain and develop our producers is essential to accelerate organic growth, and I am pleased to report that we continue to make good progress in this area. The new producers we brought on in recent years in our employee benefits business continue to outperform our projections. We have also added to the number of producers in our retirement plan services and our property and casualty businesses. We have also added to the capacity within our recruiting team to be more targeted in our outreach and accelerate our efforts to secure talent. With that, I will turn it over to Ware for his comments.

Thank you, Jerry, and good morning, everyone. I want to take a few minutes to highlight the numbers we released this morning and discuss our full-year expectations. The results for the second quarter and first half include the effects of two significant nonrecurring items. As required, the reported GAAP numbers reflect the impact of these items. To provide clearer insights into our ongoing operations, we have also presented adjusted numbers excluding these effects. Jerry mentioned the settlement on the UPMC matter and the second quarter charge of $30.5 million, net of insurance coverage. Additionally, we divested a small non-core wholesale insurance operation during the second quarter, recording a gain of $6.4 million from that transaction. The earnings release includes a reconciliation of the nonrecurring items from the GAAP presentation to arrive at adjusted earnings per share. We welcome any further questions about these items during the Q&A session following our remarks. I'll focus my comments on the adjusted numbers, which we believe are most useful for assessing the health and performance of our ongoing business. We're pleased to report total revenue growth of 17.6% in the second quarter and 12.6% for the six months ending June 30. Revenue growth is fueled by strong same-unit growth of 10.5% in the second quarter and 6.8% over the six months. Last year's acquisitions contributed 7.1% to growth in the second quarter and 5.9% for the six months. Business service lines that were more affected by COVID and saw declines in 2020 have now started recovering, recording growth in the first half of this year. At the end of 2020, I noted that these businesses represented about 16% of total revenue and collectively declined by 12.8% for the full year compared to 2019. For the first half of this year, these businesses have recorded growth of 6.7%, aligning with consolidated first half same-unit revenue growth. The core businesses that experienced growth in 2020 continue to perform very well in the first half of this year, evidenced by a strong same-unit consolidated revenue growth of 6.8%. Acquisitions remain a crucial element of our growth strategy. Last year, we announced seven acquisitions that are expected to yield $45 million in annualized revenue. In the first six months of this year, we made four additional acquisitions planned to contribute $42 million in annualized revenue. The newly acquired businesses are performing excellently, and we are actively evaluating a number of potential acquisitions with a strong pipeline under review. Our Financial Services group reported a total revenue increase of 21.1% in the second quarter, with same-unit revenue up by 13.3% year-over-year. For the six months, total revenue grew by 14.0%, with same-unit revenue rising by 8.5%. In the Benefits and Insurance group, second quarter total revenue grew by 11.7%, with same-unit revenue up by 5.3%. For the six months, total revenue increased by 10.6%, and same-unit revenue rose by 3.4%. This revenue growth is backed by strategic investments we've made in recent years. Significant investments have helped build stronger producer teams and develop tools to optimize client profitability in financial services. Our enhanced focus on digital marketing has strengthened our pipeline of potential new business. Additionally, we have allocated resources to boost acquisition activity, and all of these initiatives are gaining momentum, reflecting our concerted effort to enhance revenue growth while achieving improved margins over time. Excluding the nonrecurring items, pre-tax income margin stood at 12.7% in the second quarter, an increase of 90 basis points compared to 11.8% a year ago. For the six months, the pre-tax income margin was 17.5%, up 230 basis points from 15.2% last year. The early seasonal tax work compared to last year provided tailwinds in the first half. However, the second half of the year is typically more reliant on project work, making revenue growth less certain. Our lower cost structure in the first half reflects lessons learned during the pandemic, contributing to higher margins. As noted at the end of the first quarter, we are selectively restoring some discretionary items, which may present headwinds and margin pressure in the second half. As we re-engage with clients and prospects, travel and entertainment expenses may rise from the current exceptionally low levels. After suspending all marketing programs last year, we ran a media campaign in the second quarter and are considering another campaign later this year. Healthcare costs have remained lower than anticipated through the first half, but they are not easily controllable in the short term. We expect second-half challenges as medical visits and elective procedures return to pre-pandemic activity levels after significantly low levels in 2020 that persisted into the first half of 2021. Excluding the impact of nonrecurring items, we are pleased to report adjusted earnings per share of $0.50 for the second quarter, reflecting a 28.2% increase from $0.39 last year. For the six months, adjusted earnings per share was $1.43, up 36.2% from last year's $1.05. Our cash flow and liquidity remain strong, with $163.3 million outstanding on our $400 million credit facility as of June 30, resulting in a leverage measure of 1.0 times EBITDA with about $230 million of unused capacity. After accounting for the upcoming UPMC settlement payment, leverage will rise to approximately 1.25 times EBITDA with just over $200 million remaining in unused capacity. In the first six months, we closed four new acquisitions, utilizing $51.2 million for acquisitions, including earn-out payments for previous years. We have also actively repurchased shares, spending $63.4 million to buy back approximately two million shares by June 30. Regarding future earn-out payment obligations, we estimate about $5.5 million for this year, $20.8 million in 2022, $14.4 million in 2023, and $17.7 million in 2024, along with around $800,000 in 2025. Our robust cash flow and strong balance sheet provide significant flexibility to strategically deploy capital for acquisitions and share repurchases. Over the past 18 months, from January 2020 to June 30 of this year, we have completed 11 acquisitions, using about $140 million in cash for acquisitions. In the same period, we spent roughly $120 million to repurchase 4.3 million shares, which accounts for nearly 8% of shares outstanding. Capital spending in the first half was $3.3 million, with $2.1 million in the second quarter. This figure is lower than in recent years due to a deliberate deferral of spending for facility-related decisions in 2020. Under normal conditions, we anticipate capital spending of about $12 million, but we expect it to come in around $8 million for 2021. Day sales outstanding on receivables improved, standing at 84 days as of June 30, compared to 87 days a year prior. Our diverse client base, with no concentration in high-risk industries like hospitality and travel, has kept our receivables performing well. Recall that we recorded a $2 million provision for bad debt in the first quarter last year, with first half bad debt expense at 62 basis points of revenue. For the first six months of this year, bad debt expense was only five basis points. Adjusted EBITDA for the first half was $116.2 million, or 20.1% of revenue, marking a 25% increase from $92.9 million in the same period last year. The effective tax rate for the first half was 24.01%. Looking ahead to the full year of 2021, various unpredictable factors may affect the effective tax rate either way, but we still expect an approximate full-year effective tax rate of around 25%. Considering the share repurchase activity through the first half, we anticipate a full-year 2021 weighted average fully diluted share count of about 54 million shares. Due to the acquisition activity in the first half, we are raising our full-year revenue guidance, now expecting total revenue growth to be in the range of 10% to 12% compared to the previous year's figures, an increase from our earlier range of 8% to 10%. First half growth in adjusted earnings per share shows that the business remains healthy. While setting our full-year expectations for adjusted earnings per share, we are mindful of the uncertainty surrounding potential higher healthcare costs in the second half, alongside our intention to selectively restore some level of marketing and other client-related activities aimed at boosting revenue. Consequently, the margin improvement seen in the first half may not be sustainable for the rest of the year. We also recognize the ongoing potential volatility and uncertainty in the environment. At this moment, we expect full-year 2021 adjusted earnings per share to grow near the higher end of a range of 12% to 15% over the $1.42 EPS reported for 2020. We will have the opportunity to review this guidance again at the end of the third quarter. With these remarks, I'll conclude and turn it back to Jerry.

Thank you, Ware. I'd like to touch on our M&A activity before we turn it over to Q&A. As I discussed last quarter, we started this year with the strongest M&A pipeline we've seen in our recent history. M&A continues to be a key component of CBIZ's growth strategy and will remain a top priority for us in 2021 and beyond, especially as we see increasing interest in CBIZ as a potential partner. Our performance over the last year on the backdrop of the pandemic demonstrates the value and stability of our business model. We also continue to emphasize our unique position in the market given the breadth and depth of our expertise and our services. Moreover, our steady cash flow, strong balance sheet and access to capital allows us to continue to make investments in the business that many of our competitors simply cannot fund. We know that these messages resonate with firms in each of our various businesses and we are eager to explore these opportunities. So far this year, we've completed four acquisitions with three of those coming in the second quarter. During the second quarter, we completed one acquisition to support our retirement plan services business and another, the acquisition of Berntson Porter, a core accounting firm located in the Pacific Northwest, which I discussed in our last earnings call. Most recently at the beginning of June, we completed the acquisition of Optumas, a firm based in Scottsdale, Arizona, that specializes in providing actuarial and consulting services to government health care agencies to assist in the administration of Medicaid programs. Optumas has a long history of partnering with CBIZ and this acquisition will allow us to expand our relationship with existing clients and enable opportunities to scale these services through our national infrastructure. With this, I will turn it over for Q&A.

Thank you. We will now begin the question-and-answer session. The first question today will come from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning guys. Thanks for taking a couple of questions. Same-store growth was up, I think, 6.8% in the first half. I'm just trying to get a better sense in terms of how pricing increases work in that. Can you maybe talk a little bit about the mix between price increases and increased volume from cross-selling, share gains, etc.?

Yes, hi Chris, this is Ware. We experienced some higher yields and price increases related to our efforts to enhance efficiencies and engagement in financial services. Additionally, the market conditions in property and casualty insurance are strong, contributing to further increases. Typically, we find that for the first half of the year, about half of the increase is driven by volume and increased activity, while the other half comes from pricing increases. I believe this applies to our results for the first half of this year as well.

Got it. Very helpful. How much revenue did the divested wholesale insurance business generate on a trailing 12-month basis?

Yes Chris, this is Ware again. Slightly less than $3 million. It's actually a pretty small non-core piece of our business.

Got it. And just last one for me. On the University of Pittsburgh settlement. So, I know there's one other active case out there, Zotec Partners. I’m wondering if maybe you could kind of compare and contrast that to the University of Pittsburgh. For example, you talked about no real legal precedent which was a big risk factor on University of Pittsburgh, very complicated. Kind of any thoughts on the Zotec side?

Hey, Chris, this is Jerry. How are you? Yes, I'll provide a couple of comments on that. What I would say are very different facts and circumstances relating to UPMC compared to Zotec. The UPMC claim was at its core an errors and omissions claim relating to work that we did – very complex actuarial work we did on a pension plan. The Zotec case actually is a claim by the purchaser of, if you recall, our medical billing business some years ago. And again, very different claims, very different facts and circumstances and we believe we have, as we've announced, strong defenses to that claim and we will vigorously pursue those defenses.

Got it. I will leave it there and turn back in the line. Thanks guys.

Next question will come from Marc Riddick with Sidoti & Company. Please go ahead. Mr. Riddick, you are now on the podium; perhaps your line is muted.

Hi, good morning.

Good morning, Marc.

So, I was wondering if you could discuss a little bit around the announcements around the new headquarters and maybe some of the things that are going into that and from a time frame and sort of how that might flow. I know that the pressures talked about next September. But I was wondering if you could sort of give a little bit of color around that and what we can expect there?

We have been working on this for some time now. We have been in our current facilities for approximately 18 years, and honestly, the way we operate, how our workforce arrives at work, and how we collaborate has evolved during that time. While we appreciate our current location and the time we've spent here, we are genuinely excited about the chance to be the anchor tenant in a brand-new, state-of-the-art facility. We are involved in the design of that facility as the anchor tenant, which will prepare us for the next 20 years. This new environment will enhance how our workforce engages in the office, how we work together, and how we interact with our clients, incorporating advanced technology and efficient workflows in the design and workspaces. Overall, this presents a wonderful opportunity for us. We are also grateful for the substantial support we've received from the State of Ohio and local governments, which has played a crucial role in making this possible. We are looking forward to what this development means for our future.

We are looking at the fall of next year for timing. If I remember correctly, we are targeting this seasonally. It will definitely be after tax season, but I wanted to consider any potential disruptions or anything we should keep in mind for next year.

Yes, Marc, you are correct about the timing. It is set for the fall of next year. While we don't have a specific move-in date yet, it will indeed be in the fall. The only potential disruption we foresee is minor, especially considering what we've learned over the past year. There will be a gap between vacating our current space and the availability of the new one. However, we are addressing this by utilizing flexible space in our local market and allowing for some remote work to help bridge that gap. Overall, we don't anticipate this move having a significant impact on the business.

I would like to know if you can elaborate on the progress you're making, as your previous comments suggested positive developments. Are you seeing benefits from your marketing initiatives, such as the increased digital outreach during the pandemic, and are these contributing to the advancements in your new contracts? Additionally, could you share insights on how your local market share has changed amidst the pandemic challenges? Thank you.

Sure. Thanks, Marc. We see this, like many businesses, we learned a lot over the past 16 months, right? One of the things I think that has been most beneficial to us is our ability to provide really our value, our unique value proposition, which is breadth of services and depth of expertise in a way that candidly we haven't experienced before COVID. An example of that is when we sit with a client and our clients have multidisciplinary needs. Pre-pandemic, oftentimes we would have to fly people in from around the country: the experts, the subject matter experts, to sit with our clients and sit with our team to solve whatever challenges or opportunities the client was working on. Today, through the virtual tools that we've all learned to adopt, that's much easier to do. Our clients are far more receptive to that, and we're far more comfortable providing services in that way. As far as digital is concerned, we reached out to our clients outside of the pandemic with, as we talked about in earlier calls, very frequent webinar programs, trying to anticipate what was front-of-mind for them, what their greatest needs were, in putting programs in front of them. That effort has continued. We've also learned to follow up with our clients using those digital channels and digital outreach in ways during that pandemic, and that effort has continued as well. As a result of that, the top of the funnel for our sales pipeline has not been this full in many, many, many years. So, not only have we learned to identify opportunities and put them in the top of the funnel, but also to convert those opportunities to sales in a hybrid approach, some face-to-face, but certainly some more virtual. We're learning to close those opportunities as well. We’ve learned a lot. We continue to learn, but the future looks very promising in all those regards.

Very encouraging. Thank you very much.

At this time, there are no further questions in the question queue. This will conclude today's question-and-answer session. I would like to turn the conference back over to Jerry Grisko for any closing remarks.

Thank you, Sean. Before I conclude the call today, I want to put our performance for the first half of this year in the context of our business model and what we believe these results mean for the rest of the year and beyond. Over the last several quarters, I've emphasized the fundamental attributes of our business model, including the essential and recurring nature of our services, our high level of client retention year-over-year, the diversity of our client base in terms of size and industry, and our broad geographic footprint. As we've demonstrated over the last 16 months, these attributes allow us to perform well even in uncertain economic conditions. Moreover, the breadth and depth of our services puts us in a unique position to be responsive to our clients' needs, especially when they require a coordinated multidisciplinary approach. I've talked about the importance of our model because of the strength and stability it offers in both good and less favorable economic conditions. The extraordinary results we reported today are a testament to this model, but also demonstrate the potential of our business moving forward. For the first half of 2021, nearly all of our service lines are growing, many at the rate we have not experienced in years. In these results, we are seeing the return on our long-term investments we've made in our people, tools, and systems. We're also seeing the value we bring to our clients in both new ways and in the services and solutions they rely on year-over-year. Of course, our team continues to be the driving force behind these results. The energy and commitment of our team and their willingness to go above and beyond for our clients and each other is evident in our performance. I'm incredibly proud of what we've accomplished in the first half and even more excited about what is possible as we look ahead. Based on our strong performance year-to-date, we increased our revenue guidance today and we are guiding adjusted EPS growth to the high end of the 12% to 15% range that we previously announced. For the reasons, we outlined earlier, we are not yet prepared to increase our adjusted EPS guidance, but remain optimistic given the momentum in our business, and we look forward to revisiting this at the end of the third quarter. I want to close by thanking our analysts and our investors as we always do for your continued support. I'd also like to take this opportunity to invite our analysts and shareholders to participate in our virtual investor conference to be held in September. That will include deeper dives into our business operations and culture in addition to Q&A with Ware and I and some of our business leaders. You’ll be receiving an invitation and more information in the coming weeks. Thank you for your time, and have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.