Good day and welcome to the CBIZ Third Quarter 2021 Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lori Novickis. Please go ahead.

Good morning everyone and thank you for joining us for the CBIZ Third Quarter and Nine-Month 2021 Results Conference Call. In connection with this call, today's press release and the quarterly presentation have 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 the 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, and CBIZ assumes no obligation to update forward-looking statements. A more detailed description of such factors can be found in the 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.

Thank you, Lori, and good morning everyone. With the release of our third-quarter results, I am extremely proud of our performance to date. Our results in the third quarter and throughout this year continue to demonstrate the strength and resilience of our business. We started this year with a good deal of optimism, especially given the performance of the business since the onset of the pandemic, the steadily increasing demand for our services that we experienced through the second half of last year, and the level of confidence about the business climate that we're hearing from many of our clients. Even with our optimistic outlook, our performance to date has exceeded our expectations. While we oftentimes experience some seasonal slowness in the third quarter, that has not been the case this year. The strong demand for our core essential services that we experienced through the first half of this year has continued through the third quarter, and our results have been bolstered by very strong performance from many of our more project-oriented advisory services that are often viewed by our clients as being more discretionary. And perhaps most encouraging, the strong performance reflected in our year-to-date results is coming from both of our major practice groups and across nearly all major service lines of our business. Within our Financial Services group, we continue to experience strong performance from our core accounting, tax, and advisory businesses. In addition, during the third quarter, we saw steady demand for our tax consulting services and robust demand across the board for our advisory services. These results reflect the strength of our current business climate and the overall confidence and optimism of our clients. As our clients take steps to capitalize on opportunities to accelerate growth in the future, these actions should translate into additional project-based advisory work for us. Within our government healthcare consulting business, we are experiencing a rate of growth in the mid-single digits. While this growth is consistent with our experience since the onset of the pandemic, we would expect to see accelerated growth in the months ahead as more states fully reopen and some delayed work resumes. A complementary acquisition that provides actuarial services that we made this past summer is creating additional opportunities for us to bring even greater value to our government clients in the administration of complex healthcare programs. Now turning to our benefits and insurance group. We are also experiencing the continuation of the strong performance that we saw for the first half of the year. We continue to see steady demand for our core employee benefits, property and casualty, and retirement plan advisory businesses. As we've discussed on prior calls, we've made substantial investments over the past several years to accelerate organic growth within our employee benefits business by adding to the number of producers. We are very pleased with the results that we are seeing in this area and the impact of our efforts are evidenced in our results today. Within these results, I also want to emphasize the importance of client retention. We continue to see retention rates of over 90% with our employee benefits business and for many of our other businesses within our benefits and insurance group. These levels of client retention speak to the value that our clients receive from our team and our commitment to bring them solutions that are unmatched in our industries. Within our property and casualty business, we continue to see steady demand and production for both the commercial and program components of the business. We've described in the past earnings call how some industries like hospitality, lodging, and adventure sports were disproportionately impacted during the pandemic. We are seeing the return of these businesses and while some are not yet back to pre-pandemic levels, the trend is positive. The strength of the market is also providing additional lift to our retirement investment services business and an increase in demand for more project-based work, such as our executive recruitment and compensation consulting services. Our payroll business is the one area where we continue to experience some softness. As we've mentioned on previous calls, this business serves a larger number of smaller employers that continue to be disproportionately impacted by current business conditions, including labor shortages. Overall, we couldn't be more pleased with our year-to-date results and the performance of our business. I will remind you that during our last earnings call, we raised our full year revenue guidance. Today, we are pleased to be in a position to raise our revenue guidance and our adjusted earnings per share guidance for the remainder of 2021 and Ware will walk through what we expect in his comments. With that, I will turn it over to Ware.

Thank you, Jerry, and good morning everyone. Our results for the third quarter and for the nine months ended September 30th continued to be very strong. I want to take a few minutes to talk about the highlights. With revenue up by 18.6% in the third quarter and up by 14.5% for the nine months, demand for our core services continues to be stable and strong. Same unit revenue for the third quarter grew by 8.3% compared with last year and for the nine months, same unit revenue grew by 7.3% compared with last year. We are seeing growth in both our Financial Services group as well as the benefits and insurance group. In the third quarter, total revenue in the Financial Services Group grew by 20.4%, and for the nine months, revenue grew by 16%. Same unit revenue in the Financial Services Group was up by 9.2% in the third quarter, and for the nine months, same unit revenue was up by 8.7%. We are seeing growth across all major service lines, with particularly strong growth within our advisory business services. Within our Benefits and Insurance Group, total revenue grew by 16.1% in the third quarter and for the nine months, total revenue grew by 12.4%. Same unit revenue within benefits and insurance grew by 6.6% in the third quarter, and for the nine months, same unit revenue grew by 4.4%. With the exception of our payroll services, where we are experiencing some slight softness, we are seeing growth in all service lines. The investment in producers that has been underway for some time now is continuing to show positive results. The acquisitions we made last year and through the first nine months this year are performing well. These newly acquired operations contributed 10.3% to total revenue growth in the third quarter and contributed 7.3% to total revenue growth for the nine months. As we presented second quarter earnings earlier this year, we made an adjustment to eliminate the impact of the $30.5 million non-recurring UPMC settlement that was announced on June 30th, plus an adjustment to eliminate the impact of the $6.4 million non-recurring gain on sale from a divestiture that occurred in the second quarter. As required, GAAP numbers are reported in our financial statements, and the earnings release includes a reconciliation schedule from GAAP numbers to the adjusted numbers. On an adjusted basis for the nine months, adjusted earnings per share was $1.84 compared with $1.41 a year earlier, this was up 30.5%. In the third quarter, earnings per share was $0.41 compared with $0.36 a year ago. In line with our comments during the second quarter call earlier this year, as we began to restore discretionary expenses such as marketing, travel, or as other healthcare benefit costs began to normalize from abnormally low COVID-influenced levels from a year ago, we cautioned that expense headwinds would impact margin in the second half this year. As a result, margin on income before tax declined in the third quarter from 11.4% a year ago to 10.3% this year. This is not a reflection on the health of the business. This is simply a reflection of the year-over-year pandemic-influenced impact on these costs, which reflect abnormally low levels a year ago. On an adjusted basis, eliminating the non-recurring items I mentioned, we are very pleased that the margin on income before tax for the nine months has improved by 120 basis points, up to 15.2% versus 14% a year ago. To date this year, we have closed five acquisition transactions that will contribute approximately $72 million of annualized revenue. Through September 30th, we have used $74.8 million for acquisition purposes, including earn-out payments on acquisitions closed in prior years. Future earn-out payments are estimated at approximately $6.6 million for the balance of this year, $26.7 million in 2022, $19.3 million in 2023, $22.9 million in 2024, and approximately $6 million in 2025. Our continuing priority is to utilize capital to enhance growth through strategic acquisitions, and we continue to have a very active pipeline of potential acquisitions. With our strong cash flow, we also have the flexibility to repurchase shares. Through September 30th, we utilized approximately $85 million to repurchase 2.7 million shares and since that time, through October 26th, we have repurchased an additional 258,000 shares. As a result of these share repurchases, we expect full year share count within a range of 53.5 million to 54 million shares. With strong revenue growth and expansion of margin, cash flow has continued to be strong. At September 30th, debt outstanding on our unsecured $400 million credit line was $190.2 million with $201.6 million of unused capacity. Leverage under the credit facility was 1.2 times adjusted EBITDA at September 30th. As a reflection of cash flow, adjusted EBITDA for the nine months this year was $153.5 million, up 21% from $126.9 million a year ago. Focused primarily on facility and office improvements, capital spending through September 30th was $6.5 million, with $3.2 million spent in the third quarter. Full year spending may come in between $8 million to $10 million. Day sales outstanding on receivables were 88 days at September 30th, and this continues to reflect improvements that were gained over the past 12 to 18 months. Bad debt expense through September 30th this year was approximately 10 basis points of revenue compared with 41 basis points a year ago. Our effective tax rate for nine months was approximately 24.5%. There are a number of unpredictable factors that can impact the tax rate either up or down, but we expect the effective rate for the full year within a range of 24% to 24.5%. As we look at the remainder of the year and update guidance on our full year outlook and as you begin to compare our expectations to last year, be aware of the year-over-year anomalies to the items that I mentioned earlier. Headwinds with higher expense levels compared to last year on the same items we experienced in the third quarter, such as healthcare and benefits, travel, and marketing are expected to persist for the remainder of the year. In addition, consider that we closed several significant business acquisitions in the financial services space in midyear this year. These operations will have a very positive full-year impact on both revenue growth and contribution to earnings, and this will provide a significant tailwind for us in 2022. However, recognizing the typical seasonality of these businesses with higher first half revenue and profitability, we are projecting a slight operating loss in these newly acquired operations in the fourth quarter this year. One other non-operating item to point out is the impact of the timing of vacation expense accruals. In a normal year, vacation expense accruals are relieved throughout the year. Last year, as we worked with clients to maintain high levels of service throughout the pandemic conditions, a higher portion of vacation time was delayed into the fourth quarter. As a result, there was a larger than normal fourth-quarter favorable adjustment last year as vacation expense accrual was relieved. This year, vacation accruals have followed a more normal pattern, so there is no significant favorable adjustment projected in the fourth quarter. Of course, there is no full year impact, and this is purely a COVID-influenced accounting anomaly that will be unique to the comparison of fourth quarter this year compared to fourth quarter a year ago. With revenue up 14.5% and adjusted earnings per share up 30.5%, the health of our business is very strong. As we consider the unique items described above that are projected to impact the balance of the year-over-year comparisons, our expectations for the full year are as follows: Total revenue growth in 2021 is expected within a range of 12% to 15% over 2020. Adjusted earnings per share growth is expected within a range of 20% to 24% over the $1.42 earnings per share recorded in 2020. We expect a full year weighted average share count within a range of 53.5 million to 54 million shares. And unpredictable factors can impact the tax rate either up or down, but we expect a full-year effective tax rate within a range of 24% to 24.5%. Again, we are extremely pleased with the performance of the business this year. Despite the several headwinds I described that impact the second half comparisons this year, the business is very healthy, and there are considerable growth opportunities as we look ahead. So with these comments, let me conclude, and I'll turn it back over to Jerry.

Thank you, Ware. I'd like to touch on our M&A activity before we turn it over for Q&A. As I discussed last quarter, we started this year with the strongest M&A pipeline that we've seen in our recent history. The annualized revenue contribution from the five transactions that we've already closed this year will provide nice momentum going into 2022. In addition, we continue to have a very strong pipeline, including some larger deals, and there's still opportunity for us to close one or more of these transactions before year-end. While we are always looking ahead, I'd like to take a moment to talk about the most recent group to join our team. In early September, we completed the acquisition of Shea Labagh Dobberstein, an accounting, tax, and advisory services firm based in the San Francisco Bay Area. SLD serves privately held businesses, individuals, and nonprofit organizations across the West Coast and has offices in San Francisco, San Mateo, and Walnut Creek, California. This acquisition is part of our long-term growth strategy on the West Coast. SLD complements our existing geographic footprint and increases the visibility of our brand while adding valuable capacity and scale in this growing market. Moreover, we always seek to find partners that share our commitment to client service and demonstrate a strong cultural fit and alignment on core values. SLD checked all of these boxes and more, and we look forward to working together to bring even greater value to our teams, our clients, and to accelerate growth. With this, I will turn it over for Q&A.

The first question will come from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning guys. Thanks for taking a couple of questions. So same-store growth for the nine months, 7.3%; financial services, up 8.7%, B&I, up 4.4%, do you expect the relative contribution to same-store growth to become more balanced over the next few years or is financial services likely to be the key driver there?

So Chris, this is Jerry, how are you today? What I would say is they're both benefiting; both types of our business are benefiting from a very favorable business climate for small and middle market businesses generally. And that's really what we're experiencing today. As to the rate of growth between those two organizations, I wouldn't say that we would expect one to be stronger than the other—we would expect for both of them to continue to be reasonably strong, of course, subject to the business environment that they're facing. The growth is coming in a couple of different areas. Part of the reason that the growth in financial services is a little stronger year-to-date and through the third quarter is really as a result of the extraordinary amount of activity that we're seeing in our advisory practice. And if that continues, largely driven by transactions and the favorable outlook of our clients, we would continue to see stronger growth. But it's hard to predict those things.

Got it. I appreciate that. So obviously, lower COVID expenses in 2020 kind of impacts the comparison. We did a good job talking about the catch-up in the second half of 2021. And while I recognize you're not providing 2022 guidance, still trying to understand the adjusted EPS range of $1.70 to $1.76 this year. What should we be considering for 2022 versus just the normal growth of the following year? Is there still a meaningful amount of catch up that's going to happen in 2022 on the expense side?

Hi Chris. Yeah, this is kind of a—and I think you nailed it. It's a bit of a complicated analysis when you look at 2020 versus 2021 and then flip to 2022. We had lower first half expenses this year, but they're normalizing in the second half. So yet again, in 2022 you should see a year-over-year comparison to some of these expenses that should be slightly higher than the full year run rate this year. Having said all of that, the lessons learned for us as we've transitioned more to a virtual service model that the travel and entertainment component will probably settle in, historically, that's been about 2.5% of revenue, and we think it's going to settle in closer to 1.5% of revenue, and that's a sustainable, I think, long-term beneficial trend. The other expenses of marketing will probably stabilize at historic rates and of course, healthcare and benefits will probably stabilize at historic rates as well.

That's very helpful. And last one for me, just in terms of kind of bigger picture, how do you view the growth prospects of recent acquisitions versus the core business? I mean, for example, you got $72 million full year revenue acquired in 2021. Given cross-selling and other opportunities, is it reasonable to think that revenue kind of grows more quickly than core revenue? I guess the real question is trying to understand if the relatively high level of acquisitions in 2020 and 2021 create a little bit of potential, I don't know, revenue leverage for a lack of a better term?

Yes, Chris, it is Jerry. It’s, as you know, it's hard to predict, right. Our longer-term projection for that is that we will continue to grow in the 8% to 10% range and that about half of that will come in the form of organic growth and about half will come from acquisitions. We were in those ranges historically, but in any given year, it's difficult to predict how much of that comes from organic versus acquired. As I've mentioned throughout this year and really the end of last year, we're really encouraged by the size of our pipeline and the size of the transactions that are in our pipeline, and that could lead to acquired revenue being at the higher end of those ranges in any given period of time, but it's very, very difficult to predict.

Got it. All right. I'll leave it there. I appreciate it, guys.

Our next question will come from Marc Reddick with Sidoti & Company. Please go ahead.

Good morning, everyone.

Hi Marc.

So I wondered if you could talk a little bit about—first of all, I want to thank you for all the commentary and everything that came from the Investor Day event, which was really great. Thank you for that. I wanted to ask a little bit about what you're looking at with the acquisition pipeline and maybe if there's a way to sort of compare what you're seeing today and the opportunity that you're seeing today versus maybe historically. Because you've always been quite active in the acquisition marketplace, is there a way to sort of compare and contrast maybe what that environment is like today versus maybe some historical precedents?

Yeah, Marc, this is Jerry. What I would say is the pipeline today compared to prior to COVID is fuller, and we would attribute that to a couple of things. First of all, certainly, within the accounting and tax side, that environment is changing somewhat and that over time, the traditional accounting firms are recognizing that it's important for them to offer a breadth and depth of services and expertise that are going to require some investments back into the business, particularly on the advisory side. We've been making those investments for several years. Others are now seeing the importance of doing that. So their decision is, do they make those investments themselves or do they join a firm like ours, who's committed to making those investments and have already begun that process. So our story is resonating very well with many of the firms in the accounting space. The other thing that the pandemic kind of shined a light on is the uniqueness of CBIZ. It's the strength of our balance sheet, it's the strength of our financials that allowed us, I think, to weather that storm in different ways, in many ways better than many of the other firms, and not the least of which is how we supported our team members and kept our staff throughout that period of time. And so they understand the value that, that would bring to them going forward. Lastly, is just kind of the long-standing steady performance of our business and our culture and the values that we have, all of which resonate with those firms. And so as a result of getting out, telling that story more, we've had a very receptive audience, and that's led to a much fuller pipeline today than we've seen in many years prior to this. On the other side of the business, I don't think the landscape has changed much; that's the benefits and insurance side. There remain opportunities certainly on the payroll side, certainly on the retirement plan services side, and some opportunities as well within benefits and insurance and property and casualty, although that's a very competitive landscape has been, is, and will continue to be, given all the private equity activity in that space. So that's really what's leading to the pipeline that we have today.

Okay. Thank you for the color there. Then I was wondering if you could switch gears a little bit. I wanted to go back to—in your prepared remarks, making a mention on the retention being as high as it is or about 90% or so, I believe, is what was stated. I was wondering if you could talk a little bit about what you're seeing there in a sort of post-pandemic activity-wise, if you're getting a sense of how that's creating cross-selling opportunities, maybe are you getting a sense that some of those folks that have maybe worked with you in one area are now expanding. How should we think about the level of that level of retention and how clients are seeing you coming out of the pandemic? Thank you.

Yes, thanks, Marc. The question really goes to two things: it goes to the retention of the clients we have and our ability to attract new clients. What we learned through the pandemic is that we have, I think, a unique value proposition to our clients and through prospects that allow us to do both. I think our clients, we were uniquely positioned to be able to help them understand some of the challenges that they were facing and some of the opportunities in front of them as a result of the breadth of our services and the depth of our expertise, which is really unmatched, I think, in our industries. And so we were able to bring them solutions, thought processes, and analysis that brought great value to those clients. Likewise, when many of others who aren't clients, prospects of ours were searching for solutions, we were able to reach those clients or those prospects through our thought leadership, through our webinars, and in many ways through digital channels that we had previously not really explored as much. But we had great success really beginning in the early stages of the pandemic. We continue to have great success in our digital outreach to prospects into the market, and that also is allowing us to help fuel growth for us. So not only is it a retention tool, but it's also a growth opportunity for us.

And that covers what would have been my next question. So I will leave it there. 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. Please go ahead.

Thank you. This month is significant for CBIZ as we celebrate our 25th anniversary. Over these years, we have established ourselves as a leading provider of financial, insurance, and advisory services to clients and businesses nationwide. We now have a team of more than 5,000 professionals with a network of over 100 offices across 31 states. For those who attended our Virtual Investor Day presentation last month, we shared a brief video that highlights our company's founding and evolution. If you haven't seen it yet, you can find it in the Investor Relations section of our website, cbiz.com, and I encourage you to take a moment to learn more about our history and future plans. I want to conclude today by expressing my gratitude to our analysts and investors for your ongoing support. Our achievements this year and the results we are attaining are due to our exceptional team. Reflecting on the past 18 months since the pandemic began and the adjustments we've made, I am inspired by how our team members have consistently met challenges. The growth we discussed today is a result of their unwavering dedication and commitment. I am very proud of what we have achieved together, and I want to thank our team. Thank you, and have a great day.

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