Good morning, and welcome to the CBIZ Second Quarter and First Half 2024 Results and the Marcum Acquisition Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I would like to turn the floor over to Lori Novickis, Director of Corporate Relations. Ma'am, you may begin.

Good morning, everyone, and thank you for joining us on today's conference call to discuss CBIZ's second quarter and first half 2024 results and the Marcum acquisition, which was also announced this morning. As a reminder, this call is being webcast and a link to the live webcast can be found on our Investor Relations page of our website cbiz.com. A replay and transcript will also be made available after the call. The press releases and investor presentations for both our second quarter and first half results, and the Marcum acquisition have been posted to the Investor Relations page of our website. We will begin with our prepared remarks of our financial results and then discuss the Marcum acquisition, followed by Q&A. The presentation for the Marcum acquisition will be referenced during this call and again, is posted on our website. 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 releases 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 as well as with respect to the Marcum transaction. 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 haven’t yet occurred, these statements are materially 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 today's press releases and our filings with the Securities and Exchange Commission. Finally, we would also like to refer you to important information in today's press releases related to the Marcum acquisition and the related proxy solicitation that we will be undertaking. Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; Ware Grove, Chief Financial Officer; and Chris Spurio, President of our Financial Services Division. I will now turn the call over to Jerry.

Thank you, Lori. Good morning, everyone. Earlier today, we announced our agreement to acquire Marcum, the 13th largest accounting firm in the country. When this transaction closes, our combined businesses will have revenues of approximately $2.8 billion, comprised of a team of over 10,000 professionals and serving more than 135,000 clients. Together, we will solidify our position as a leading provider of professional advisory services to middle-market clients and become the seventh-largest accounting services provider in the nation. We plan to devote a considerable amount of our time this morning walking through some of the specific details around this transaction. But before I do that, I want to first outline our financial performance for the second quarter, and then we'll ask Ware Grove, our CFO, to provide additional details on our results. So let's begin with our financial results. We are pleased to report that our second quarter results were generally in line with our expectations, and that the overall health of our business remains strong. For the second quarter, total revenue was up 5.4%, with total revenue up to 7.2% for the first half of the year. To better understand our performance to date and some of the factors impacting our results, I want to start by unpacking some of the unique headwinds we faced this quarter. As a reminder, we typically caution against comparing any given quarter in the year to the same period in the prior year, as we occasionally experience more volatility in our financial results quarter-over-quarter. I want to start by describing a specific event within our property and casualty insurance business. Our results for the second quarter and first half include the impact of the exit of a small team of producers and support personnel within this business, and the loss of a number of clients served by this group. Fortunately, this type of event is very rare for CBIZ, and we have contractual agreements in place to mitigate these scenarios. We are currently pursuing our legal remedies relating to this matter. That said, the impact of this event equates to $0.03 adjusted EPS for the second quarter and for the first half of the year. In addition to the business impact, we also saw an increase in related legal expenses. Next, we incurred approximately $6.7 million in expenses in the second quarter relating to the Marcum transaction. And finally, while the business climate has remained fairly stable through the first half of the year, we did experience some delays for our more project-based discretionary services and did see some businesses shift timelines for investments in systems and implementations in areas like payroll. In our experience, any client concerns around economic uncertainty and the potential for regulatory changes are only amplified during a major election year like the one we are facing. As a reminder, our business model includes a significant number of variable and discretionary expenses and other levers that we can pull to mitigate the impact on the bottom line if revenue for the remainder of the year comes in lower than expected. Now, I would like to briefly touch on the performance of our two major divisions. For Financial Services division, we were pleased to experience continued steady demand for our core accounting and tax services. However, our revenue in this division was impacted as a result of a significant amount of project revenue, realized in the second quarter of last year and did not recur to the same degree in the same period this year. Also, within our Advisory services, we experienced the impact of a more subdued M&A market than expected, with transaction volume being mainly smaller bolt-in deals compared with larger platform deals. That said, we continue to see strong demand for services that support the private equity industry, including strategic FD&A and officer of the CFO services, as well as our valuation services. Our government health care consulting business continued its rebound, demonstrating strong momentum with growth in new projects compared to the same period last year. Looking ahead, this group enters into the second half of the year with a healthy pipeline of new opportunities. Now turning to our Benefits and Insurance division, after we adjusted the impact of the P&C event, we achieved total revenue growth across each of our major service lines. The quarter-over-quarter comparison margin and earnings contribution was negatively impacted by staffing investments that we made within this division in the second half of 2023 to support the growth that we've experienced over the past several years. In summary, our quarter-over-quarter earnings were impacted by the items discussed earlier, but the underlying health of the business remains strong, and we are optimistic about the prospects for the business for the remainder of the year. I will now turn it over to Ware to discuss more details on our performance for the second quarter and the first half of the year.

Thank you, Jerry, and good morning, everyone. Of course, the big news today is the announcement that we have reached a definitive agreement to acquire Marcum with revenue of approximately $1.2 billion. This transaction is a major step forward for CBIZ. In a moment, Chris Spurio, President of our Financial Services division, along with Jerry and I will review the highlights of this transaction. But first, let me make a few brief comments on the second quarter and year-to-date numbers we released this morning. Second quarter and year-to-date results include approximately $6.7 million of costs associated with diligence and other professional fees related to the Marcum transaction. Those costs and other acquisition-related costs have been eliminated to present adjusted earnings per share. You will see those costs outlined in the schedules included in the release that reconcile GAAP EPS to adjusted EPS. There are a number of items included in the second quarter this year that resulted in unusual year-over-year comparisons. We do not provide guidance on a quarterly basis, but because of those items, we expected the quarter this year to be relatively flat compared to the second quarter a year ago. Let me unpack the highlights. A year ago, in 2023, we did a considerable number of employee retention tax credit filings for strategically important CBIZ clients. Second quarter this year, we generated $2.6 million less of nonrecurring project revenue net in connection with those filings. This activity was highly profitable with the majority dropping to the bottom line. The lower level of this nonrecurring tax project work presents the second quarter headwind this year impacting adjusted earnings per share by $0.04 per share. In addition, we have talked about our intentional migration from client relationships that do not meet minimum thresholds of profitability. In 2023, late in the year, we made intentional decisions to resign or exit certain client relationships. Of course, over time, replacing those marginally profitable clients is a very positive move. But in the short run, we may experience temporary shortfalls until new or attractive business ramps up, and this impacted quarterly revenue by approximately $2.3 million this year compared to last year. As Jerry mentioned, there was an incident where six CBIZ personnel within our Property & Casualty insurance Southeast region left CBIZ and joined a competitor. This incident involved a loss of client relationships that would have otherwise generated revenue planned in 2024. There is litigation underway addressing the breach of restrictive covenants. We are not at liberty to comment on further details, but I can share with you that second quarter revenue was impacted by approximately $2.5 million with an earnings per share impact of approximately $0.03 per share. At the end of the first quarter, I commented that our self-insured health benefits program was incurring higher than normal claims cost. This tends to be somewhat unpredictable and this higher level of claims cost has continued into the second quarter with an incremental $0.02 per share impact in the second quarter and then a year-to-date impact of $0.05 per share. And finally, as we are achieving higher growth rates in recent years for our Benefits and Insurance business, we increased client service staffing levels in the second half of last year to support our growth. As a result, comparisons to the first half this year are headwinds and impact earnings per share by approximately $0.02 per share, and impact year-to-date results by $0.03 per share. Same unit revenue in the second quarter was up by 2.8%, with acquisitions contributing an additional 2.6% growth compared with last year. For the six months this year, same-unit revenue grew by 4.4%, with acquisitions contributing another 2.7% to revenue growth this year compared with last year. Within Financial Services, for the second quarter, total revenue was up 6.3%, and same unit revenue for the second quarter was up 3.0%. For the six months, total revenue within Financial Services was up 7.5%, and same unit revenue for the six months was up 4.1%. Within Benefits and Insurance, for the second quarter, total revenue was up 1.6%, impacted by the property and casualty incident that I referenced earlier, same-unit revenue was up 0.7%. Absent the impact of the second quarter incident, same-unit revenue would have grown approximately 3.8%. For the six months, same unit revenue grew by 4.2%. Absent the P&C incident, same-unit growth for the six months would have been 5.7%. During the first half of 2024, we completed three acquisitions: EBK, CompuData, and EIIA. We are extremely pleased to have these people and those teams on board this year. They are performing in line with our expectations. Now, turning to the cash flow and the balance sheet. On June 30, 2024, the balance outstanding on the $600 million unsecured facility was $381 million with about $210 million of unused capacity. With leverage of approximately 1.7 times adjusted EBITDA, this provides plenty of cash flow. For the upcoming Marcum acquisition, we have financing commitments in place. And in a moment, I will share details of the financing plan for the Marcum acquisition. In the first half of this year, we used approximately $68 million for acquisitions, including earn-out payments on previously closed transactions. For earn-out payments, we expect to use approximately $16.6 million over the remainder of this year, approximately $40.2 million next year in 2025, approximately $15.9 million in 2026, and then another $7.5 million in 2027. Since the end of 2019, we have closed 23 acquisitions, and we have deployed approximately $457 million of capital for acquisition purposes, including the earn-out payments over that time. Beyond using capital for acquisitions, we have the flexibility and the desire to use capital for share repurchases. Because the Marcum transaction has been under consideration for most of this year, we have not been actively repurchasing shares to date in 2024. Since the end of 2019, we have repurchased approximately 9.4 million shares in the open market, and that represents slightly more than 17% of the shares outstanding compared to the end of 2019. Approximately $342 million of capital has been used towards this open market repurchase activity over that time period. Days sales outstanding on June 30 was 95 days compared with 94 days a year ago. Bad debt expense for the first half was 14 basis points of revenue compared to 9 basis points a year ago. Depreciation and amortization expense for the second quarter was $9.5 million compared with $9.2 million last year. Year-to-date, depreciation and amortization is $19 million compared with $17.8 million last year. For the full year, we expect depreciation and amortization of approximately $37.6 million this year, compared with approximately $36.3 million last year. For those of you who want to highlight the amortization expense, which is primarily driven by the amortization of intangible assets derived from the acquisitions, for the first half, amortization expense was $12 million, and for the full year, this may be approximately $24 million. Capital spending for the first half this year was $7 million, and for the full year, we're expecting capital spending within our normal range of approximately $12 million to $14 million. The effective tax rate for the six months this year was 26.9%, slightly lower than 27.6% from a year ago. For the full year, we continue to project a tax rate of approximately 28%. We expect the Marcum transaction to close in the fourth quarter this year. When the transaction closes, this will give us an opportunity to talk in more detail about guidance for 2025, at that time. Looking at the core business, we saw a number of nonrecurring items impact second quarter and first half growth. We think second half results will reflect stronger year-over-year growth. The property and casualty that I described earlier is expected to have an impact on full-year results. We are projecting a full-year 2024 adjusted earnings per share impact of approximately $0.06 per share from this lost business. This leads us to reduce full-year earnings per share growth from 12% to 14% to 10% to 12% over the $2.41 reported for 2023, which essentially reflects property and casualty-driven reduction of $0.06 per share. Absent this impact, the balance of the business is performing well and is in line with our expectations. So considering this property and casualty-related adjustment and excluding any future impact of the Marcum transaction, I can recap full-year guidance for 2024 as follows. We expect total revenue to increase within a range of 7% to 9% for the year. GAAP reported earnings per share is expected to increase within a range of 6% to 8% over the $2.39 reported for 2023. On an adjusted basis, we expect 2024 adjusted earnings per share to increase within a range of 10% to 12% over the adjusted earnings per share of $2.41 that was reported in 2023. The effective tax rate for the full year this year is expected at approximately 28%. This rate could be impacted either up or down by a number of unpredictable factors. And lastly, the fully diluted weighted average share count is expected within a range of 50 million to 50.5 million shares for the full year in 2024. So with those comments, let's turn our attention and discussion to the Marcum acquisition announcement. Jerry, I'll turn it back over to you.

Thank you, Ware. We want to use our remaining time to walk through the details of the transaction, the largest in our history, and to answer any questions you may have. We anticipate the transaction to close during the fourth quarter. And until that time, we will continue to operate as separate entities. Throughout our presentation today, we'll be referring to our objective of being stronger together, which has been our theme for this transaction, as well as our long history of other successful acquisitions. I kicked off today's call by outlining what the combined organization will be, including revenue of approximately $2.8 billion, more than 10,000 team members serving over 135,000 clients with a strong focus on the middle market and positioning us as the seventh-largest provider of accounting services nationwide. But more than that, our announcement today is a significant milestone in our nearly 30-year journey to solidify our position as a leading provider of professional advisory services to middle-market businesses by offering a breadth of service and depth of expertise unmatched in our industries. This acquisition provides us with the scale to exponentially accelerate our growth strategy and to focus our collective resources on areas that will bring even greater value to our team, our clients, and other key stakeholders. By joining forces, the new organization will be better able to attract and retain the best and brightest talent in our industries by investing in their growth and development, equipping them with the latest and most effective tools and technology to help them perform at their best by providing meaningful work in helping clients in their most important opportunities and challenges. It will also offer unmatched breadth of services and depth of expertise to our clients, including our ability to develop new, innovative and actionable solutions. It will enable us to access new sectors and to expand our presence in target industries and to invest in technology to support data-driven insights and solutions, while driving innovation, increasing efficiency, and enhancing performance. Some of the key transaction terms and features include an enterprise value of approximately $2.3 billion, which is a multiple of 12 times adjusted EBITDA, or 10.1 times including the value of the tax asset that was a feature of the transaction. The consideration will be paid approximately 50% in cash and 50% in CBIZ shares, which creates strong alignment with our shareholders and stakeholder group. Pro forma net debt, as Ware indicated, will be about 3.25 times at close, and we expect to delever quickly over time. The expected earnings impact will include about a 10% adjusted EPS accretion in year one and growing over a number of years. And the estimated close date, as we indicated, will be the fourth quarter of this year. At this point, I'll turn it over to Chris Spurio, President of our Financial Services division, to talk about our go-to-market strategy.

Thank you, Jerry. Marcum is a highly regarded accounting firm whose roots date back to 1951. The firm is headquartered in New York City and has a long successful track record of organic growth coupled with acquisitions. Speaking of acquisitions, they completed 45 since 2008. Today, Marcum is the 13th largest accounting firm in the U.S. with $1.2 billion in revenue. They have over 3,500 employees and 35,000 clients. Marcum serves their clients through 43 offices, which are primarily located in New England, New York, Philadelphia, Florida, and California. Like CBIZ, they deliver exceptional accounting, tax, and advisory services to the middle market. And while there is a lot of alignment in what we do, they also provide unique services through different industries than ours, all of which we are excited about and have plans to leverage. Together with CBIZ, we will leverage our collective national resources and expertise, along with our local relationships and delivery through 21 major markets, 10,000 team members, and 135,000 clients. As Jerry mentioned, this acquisition will make us the seventh largest accounting service provider in the US. Also, our size and resources in several key markets will increase exponentially. Our New York Metro and New England geographic presence will instantly double. Actually, I believe we will be the fifth-largest organization in New York. Our Mid-Atlantic market in Pennsylvania and Maryland will quadruple. We will be the fourth largest organization in Philadelphia. In our Southeast market and West Coast practices, we scale up considerably. The way we manage our businesses is very similar. The way they manage their business is very similar to ours. We both manage our accounting and tax practices through regional structures and complement those groups with a suite of national advisory services. As it relates to the specific services and solutions we provide to our clients, that too will expand. Specifically, our tax practice will more than double. Our accounting practice will grow by almost 260% and our advisory practice will almost double. In addition, we are excited about combining their technology practice with ours and leveraging our collective innovation teams and resources. The attributes that make this so unique, including strong historic growth, recurring revenue, pipeline retention rates, and consistent cash flows will not change. Actually, this acquisition only amplifies those attractive attributes, as Marcum shares many, if not all, of the same. Along those same lines, both organizations provide essential services that are highly recurring in nature. On a combined basis, an even greater percentage of our revenue, or 77%, is recurring versus project-based. With that, I will turn it back to Jerry.

Thank you, Chris. Well, the work to-date has been largely around due diligence and structuring the transaction. Immediately starting today through closing, we'll be focused on the integration. Our combined focus will be on first people, making sure that we understand the talent that we're acquiring and ensure that they're properly onboarded and integrated with our teams. Our approach to client service and aligning that, as well as elevating our brand will also be key. Also, beginning quickly following the closing and continuing for the first 18 months, our focus will be on common systems and processes making sure that we have an approach going forward that will create a common, consistent, and aligned approach to the CBIZ methodology. In 2026 and beyond, we would expect to see the full value of the approximately $25 million in anticipated cost synergies and fully aligned processes and systems. As Chris mentioned, we have a strong alignment in historic M&A. We have combined 120 acquisitions since 2008. We've developed an integration roadmap. And again, the starting point for that will be a strong focus on our workforce and ensuring that they have the tools they need to continue to be successful moving forward. So with that, I will turn it over to Ware to talk about the financial summary.

Thanks, Jerry. For those of you who are on audio only. I'm on Page 19 of the deck, if you have that in front of you, and if it's not on your screen. But the combination of CBIZ and Marcum really combines two very similarly managed businesses, as Chris outlined, and that gives us the opportunity to continue building on the attributes that you've seen with CBIZ with our track record of revenue growth, margin expansion, and then a higher level of bottom line growth versus top line growth. So the scale that we're achieving here, I think, will enhance our ability to do that. With respect to the revenue growth, clearly, we're jumping ahead at a good pace here, but I think the future beyond that can be even further enhanced. And then when you get to value drivers like adjusted EBITDA and adjusted earnings per share, as I commented earlier, we've got the same margin enhancement and operating leverage tools in place only with greater scale and greater opportunity ahead. So you're going to see, I believe, a very similar management approach to running the business with respect to growing revenue, achieving some operating leverage, and then growing the bottom line at a quicker pace. Now to that, as we combine and integrate after the first year or so because we're going to focus highly on integration activities and stabilize the combined businesses within the first 12 months or so, there are some modest level of synergies built into our model. Just be assured that the model and that the projections we're sharing with you are highly dependent upon synergies, so I think the fundamental attributes of business can achieve the kinds of results we've achieved in the past only on an enhanced basis. With respect to the initial leverage of the business, we are leveraging up into a 3.25 to 3.5 times EBITDA basis, but the same solid, repeatable, predictable cash flow attributes of the business that we enjoy today, we believe we will enjoy post-close. And so that will lead to rapid deleveraging. Within 18 months or so, I think you're going to see very rapid deleveraging after we get the integration activities addressed in that first year. So just turning to the next page, the synergies, without going deeply into that, the sources are what you would expect. Basically, we have, given the size of the transaction at a very modest level synergies built into our financial projections, perhaps they're more than that. But we just need to align the operating and current organizational structures. We need to reduce the duplicative and overlapping marketing efforts and sponsorships in local markets. We also have some overlap in IT infrastructure today that we need to reduce the redundancies on that and enhance our purchasing power, where we can exercise more leverage with our vendors. And of course, with facilities, that leads us down the road to co-locate and reduce the facilities' footprint where feasible; this could potentially lead us to share space and achieve efficiencies as well. The transaction funding: We have a commitment from Bank of America to provide $2 billion of funding in two tranches. The first tranche is a $600 million five-year revolver, and the second tranche is a $1.4 billion term loan A facility, also a five-year facility. So half of the consideration that we're paying for Marcum will be in cash and half in shares. So as we look at the cash funding and requirements, the commitment we just got from Bank of America, we think we will draw down close to $1.4 billion to $1.5 billion initially. Now, understand that will take care of refinancing existing debt including the debt on the Marcum facility. So we're not inheriting or assuming any debt on behalf of the Marcum facility. With respect to the $1.4 billion to the $1.5 billion estimate, then leave us with about $500 million of additional capacity, and that will serve us well as we go into seasonal working capital needs and post-close integration costs and things like that in the first year. We've got plenty of cushion and plenty of liquidity. And of course, after the first year, we begin to rapidly delever, and we think that can start to resume what I'll call ordinary course or strategic acquisitions within the first 1.5 years to two years after close, and of course, also have the flexibility to deploy capital for share repurchases at that point in time too. So the shares that go out, now that I've attended to the cash and liquidity, the shares that go out are based on a 30-day VWAP right before the signing here, and that will represent approximately 14 million shares and approximately 22% of the total shares outstanding after giving effect to the combined entity. So approximately 25% of those new shares will be issued fairly immediately upon close, and about 75% of the shares will be issued on a 36-month installment basis over the next three years. And then of those two portions, about 5% of those shares will be reserved for what we'll call performance shares, and these shares will be issued as a retention tool with a retention service requirement of four years with cliff vesting for that to target retention of very valuable and highly valued new partners with Marcum. So the clear path to leverage on the next slide shows you what I just talked about; even beyond 24 months post-close, absent acquisitions and absent share repurchases, the deleveraging is fairly rapid. So the signal we're getting is that after a year one focus on integration activities and making sure we get the business operating as intended and stabilized, we're back to business in terms of acquisition activity and share repurchase, capital deployment, and those things that we have done in the past. So with that, let's just conclude, and we'll turn to the next slide, which Jerry highlighted earlier. It's the strategic rationale and all the bullet points there. So with that, I'll conclude, and we'll turn it back over to Jerry and maybe we go into discussion.

Yes. Thank you, Ware. Just before we go into Q&A, I just want to say that this acquisition is going to position our company for accelerating growth, not only today but into our future. And when we think about the advantages and why we're so excited about this, I think it's around the opportunities that it provides for us to bring even more valuable innovative solutions to our clients. The value, obviously, that will bring to our shareholders as a result of some of the attributes that were mentioned. But most importantly, the opportunities it's going to provide for our team members. When we think about the work for talent and we think about what's important to our team members, it's all about supporting them and their growth and their development, their career opportunities. It's about providing them with the tools and the equipment that are best-in-class to be able to apply their trade, and it's about showing appreciation to them through competitive compensation and benefits and allowing them to come up the value chain to the clients and provide even more interesting work and more consultative work. And we're on a journey to do all of those things, and this accelerates that journey. So we're particularly excited about the opportunity that this presents to our workforce. And with that, I will turn it over for Q&A.

Ladies and gentlemen, at this time we’ll begin our question-and-answer session. Our first question today comes from Chris Moore from CJS Securities. Please go ahead with your question.

Good morning everyone. What's happening? Congratulations, this looks intriguing. Let's start with Q2, and then we can perhaps ask a few questions regarding Marcum. Our EPS was about $0.18 below what the market was expecting. The impact from the P&C issue is approximately $0.06, so your guidance has been adjusted down by about $0.06. We discussed some of the breakdown, and it seems some areas may not improve in the second half of the year, while others may. Could you elaborate on your decision to lower the guidance by $0.06? Were our expectations for the quarter misaligned, or is timing a factor?

Yes, Chris, this is Ware. I'll address the timing. Unfortunately, in the second quarter, we faced several issues that negatively affected our quarter-over-quarter comparisons. Some of these were anticipated, as we mentioned that we did not expect to meet certain targets. We discussed the seasonality at the end of the first quarter and advised caution. We had expected the quarter to be fairly stable compared to last year, but we encountered a few unexpected challenges, including property and casualty issues. Moving forward, once we compare year-over-year, we see potential for improvement, especially as the staffing for benefits and insurance will be an easier comparison in the second half. Some project work that was concentrated in the first half of last year might still present a challenge, but not as much in the second half. Other areas of the business are looking at a strong second half as we project. We are confident in maintaining the $0.06 impact from property and casualty, and we will keep the rest of the business guidance consistent with our previous outlook.

Got it. That's helpful. I know it's a tough question regarding the quarterly cadence. Do you expect some of that improvement to build throughout the second half? I’m looking for any insights you might have regarding the strength in Q2, Q3, and Q4.

I can just give you a little color. It's not uncommon when we make acquisitions that after the first year, when we've implemented some of the new systems and basically integrated, there's a bit of a slump until people regain traction. And to the extent that, that happened with the Indianapolis acquisition last year when they were very, very strong in the first half, the cost or the effect of some of the integration activities has weighed them down a little bit, slowing down a little bit, but we expect a good second half from them and they should regain the momentum. So that's just one example of why we're more optimistic about the second half.

Got it. I appreciate that. Maybe a couple on Marcum, you've started to go into a little bit, besides scale, geography. Are there one or two areas specifically of expertise at Marcum that will be readily and easily transferable to CBIZ clients?

Chris, do you want to take that one?

There are several areas of expertise at Marcum that we find very appealing. For instance, they have a strong outsourced IT, HR, and finance practice specifically catering to not-for-profits, which aligns well with our own operations. We believe this is a segment where we can create synergies. Additionally, their technology practice offers significant outsourced IT services and system implementations, which is another area we are excited about. Furthermore, the industries they specialize in, such as alternative investments, digital assets, and food and beverage, are sectors we are eager to enter. We look forward to leveraging these aspects as part of the transaction. These are just a few examples; there are many more.

Got it. That's a good start. Just to clarify, the stock component will be 25% at the close and 75% over three years. That 75% is not performance-related, correct? It will be distributed smoothly over three years, or is there anything else you can share about that?

It does, Chris. That's a great question. The share count will reflect all of those shares right away. They are paid out over a 36-month period, which I would describe as a tax-friendly structure for the seller.

Got it. I don't know Marcum well. In terms of who is actually receiving the stock, is it just hundreds or thousands of partners? I'm trying to understand that a little better.

Hey Chris, this is Jerry. So Marcum has a traditional partnership. The partners who are, in essence, owners of that firm will be receiving the shares.

Got it. And last one for me. If a partner left after one year, they would still get their remaining years two and year three shares, correct?

That's correct.

The only caveat there is that performance share pool, they would forfeit the right to that because that's a four-year cliff vesting, and that's a tool to encourage people to stay in the course through the full four years.

Got it. I will jump back in line. Appreciate it, guys.

Thanks, Chris.

And our next question comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Good morning. Thank you for taking my questions. I will focus on the second quarter first and then address Marcum afterwards. Specifically, I’m interested in the revenue guidance, particularly the organic growth outlook. I am trying to understand what occurred in the second quarter that aligned or didn’t align with your initial expectations. It seems like the producer issue was one factor, contributing $2.5 million in revenue. I can project that for the remainder of the year. Are there any other aspects you can quantify for both the second quarter and the rest of the year that have caused delays? I believe you mentioned client delays and some issues with payroll or implementation work. A bit more clarification would help, as the outlook for the second half still appears quite strong, which seems contrary to what we observed in the second quarter.

Yes. There were a couple of unusual things in the second quarter. I think the headwinds that we talked about with the project work were foreseeable and they were planned, and so that's not a surprise. And that's one reason why we, ourselves, had we provided quarterly guidance, we would have definitely moderated the expectation for the second quarter. Clearly, the property and casualty item was a surprise, and I kind of gave you some details kind of before and after of what the impact that was. The migration of clients, and we've talked about this often as we migrate and basically coal clients that are underperforming vis-à-vis profitability thresholds and things like that, that's a bumpier process and it's harder to predict. So, we did make some intentional decisions to call clients, and we have other more profitable clients, staged employees to ramp up, but it's not always a perfect smooth, predictable process. So, that contributed a little bit to the first half. Also, I think the headwinds experienced by the Indianapolis operation were foreseeable, but maybe a little stronger than we thought they would be, and we're looking for a second half stronger performance out of the Indianapolis operation. I can tell you that the government health care consulting business and that segment continues to be very strong, and they have a very strong second half predicted as well for forecasting.

Got it, that's helpful. And then I guess I'll switch over to Marcum. What can you tell us in terms of the business's historical growth? I think if you look at some of the data that's out there publicly, the growth is exceptionally strong, but hard to figure out how much of that is the M&A that you referenced versus organic growth?

Yes, Andrew, that's a great question. We examined that closely during our due diligence. Their growth has primarily been fueled by their aggressive acquisition strategy, which has proven successful. However, when we analyze the growth without the influence of those acquisitions and focus on the organic growth during that same timeframe, we see a robust higher-single-digit growth rate. This gave us significant reassurance as we reviewed their historical performance. That was our conclusion.

Got it. That's encouraging. And then I guess a similar question on the margin profile. Obviously, we can get to some implied margin percentage based on the information you have. But just kind of curious how their operating margins or EBITDA margin, whatever you think is most helpful compares to yours? And maybe where Marcum sits relative to CBIZ on kind of operational efficiency, automation, use of technology, maybe even offshoring, anything that is markedly different in terms of the profitability profile for Marcum versus CBIZ?

Yes, that's a great question. Marcum is a bit more advanced in certain areas, particularly offshoring, where they have more depth than we do. We are eager to learn from their experience in offshoring. They also utilize a strong set of metrics on a monthly or even weekly basis to assess and monitor performance, indicating they run an effective business. However, it’s challenging to make direct comparisons of their margin profile to ours due to the differences in our partnership structures. After the first year, these structures will merge, and we believe we present a similar opportunity in terms of compensation and rewards for the new partners joining us from Marcum. The operating leverage primarily comes from our corporate structure, facilities, and infrastructure, and we see opportunities to enhance pricing and efficiency in client service delivery, which remains a significant focus for us.

Yes. Andrew, this is Jerry Grisko. Just to add a little bit more color. We have said that it's hard to compare kind of the profitability apples-to-apples, but as best we can, they appear to be a very profitable firm. And we think that our margins will expand even greater as a result of some of the efficiency we'll get from the combination.

Awesome. And maybe one more if I could squeeze it in. Just on the synergies, actually, maybe the accretion math, you said $25 million of cost synergies. I think it was by 2026. I didn't catch what you said in terms of what might be baked in on that front in the 2025 accretion number. And then also the 10% earnings accretion in 2025, does that include or exclude purchase price amortization from the Marcum deal?

Yes, that's a great question. First of all, the synergies in the first year are very minimal. Our primary focus during that time is on integrating the businesses and eliminating some of the duplicate costs, but we won't see significant benefits until the second and third years. When you make a direct comparison, you are correct that if we exclude the effects of the acquisition-related earnings increase and the associated amortization, we can see the growth both before and after. Additionally, the earnings increase will improve as synergies are realized, the company reduces its debt, interest rates decline, and we enhance our operating margins in years two, three, and four, which will elevate the initial 10% annual earnings increase.

I'm sorry, you are adding that back to get to the 10% or you're not?

Yes. In fact, to be clear, we are adding that back as an adjustment. That's a non-cash acquisition-driven amortization expense that would be driven by the amortization of the intangible asset, the client list, and other intangible assets that are a result in an amortization expense, that's a gap amortization expense.

Understood. Thank you very much.

Our next question comes from Marc Riddick from Sidoti. Please go ahead with your question.

Hi. Good morning.

Good morning, Marc.

So I wanted to, I guess, maybe you have a similar sort of cadence here as far as we'll start with the quarter and commentary for year first and then move over to Marcum. I was sort of curious, it seems as though from your answers on the prior questions. I wanted to talk a little bit about with the full year guide relative to the 2Q results, it seems as though some of the project work or some of the things that were delayed since you had, I guess, maybe some level of visibility. With the EPS guide, it certainly seems as though you're taking into account the opportunity to adjust expenses, not necessarily that all revenue is just going to shift to the back half of the year. Is that a reasonable way of looking at the full-year guide relative to the second quarter results?

Yeah, Mark, I'm glad you asked that question. We do have a number of variable expenses where we can pull levers as appropriate as needed. So yes, in terms of the full year guidance, we'll do what we need to do in terms of managing the variable components of the expense for sure.

Okay. Great. Can you share what specific types of projects clients are delaying or postponing? Is there a common trend among these projects, or is it more about the clients themselves who are causing the delays? Or is it a general situation?

Before every call, we reach out to our offices, regions, and service lines to gather insights on market experiences. As expected and as reported in the news, small to mid-sized businesses remain generally optimistic. However, in the first half of the year, we noticed that some of their discretionary spending decisions were somewhat hesitant for the second half. This included investments in areas like systems and payroll, where they opted to postpone decisions in order to maintain their operations. We did observe this trend, and that formed the basis of our comments. The overall message is that our clients, as a group, continue to be largely optimistic about their prospects for the rest of the year.

That's helpful, and I appreciate your comments. Now shifting over to Marcum, I was wondering if you could share more about how this transaction came to be. I appreciate all the detail and the dual slide decks you've provided; it's clear you put significant effort into sharing this information. Could you discuss the backstory of this transaction, including when it started and how it came about? Additionally, in your prepared remarks, you mentioned some decisions regarding cash use that may have factored into share repurchase.

Certainly. This transaction has been in the works for quite some time. We have a history of making acquisitions and are experienced in successfully onboarding and integrating them. We anticipated that we would eventually pursue a large-scale opportunity, and this one aligned perfectly with our strategic goals. The reason we’re targeting something of this scale is due to the significant changes in the industry, particularly the competition for talent. To excel in this area, we need the capacity to invest in our workforce, equipping them with cutting-edge tools and enabling them to deliver more innovative solutions for our clients. We believe we are now more prepared than ever to compete successfully for talent. Additionally, we are making critical investments in areas such as artificial intelligence, which will enhance back-office efficiency and combine human intelligence with data. These investments are vital for providing clients with innovative, high-value solutions. Achieving scale allows us to distribute these investments across a larger organization, making it possible for us to pursue opportunities like this. When this particular opportunity arose, we were impressed by the alignment it presented. The other party has a proven history of growth, much like ours, and shares our commitment to serving the middle market. This acquisition will strengthen our geographic presence and target attractive industries. Their strong leadership and expertise will complement our own, and crucially, their vision for the future aligns with ours regarding talent development and investment strategy. We firmly believe in the mantra of being stronger together, and as we progressed through the due diligence process, our conviction grew that together we could accelerate our growth significantly.

I appreciate it. Thank you very much, and congratulations.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Jerry Grisko for closing remarks.

Great, ladies and gentlemen. But thank you, as I always do, I want to end today's call by thanking our shareholders and analysts for your continued support. I also want to thank our team. Today, as you can imagine, is a monumental day in our history and in many ways, the beginning of not only an exciting time today but a new chapter of opportunities for growth, growth for you, growth for our business, growth for our clients. The announcement is also a testament to the collective dedication and resilience of our team and our shared commitment to excellence at CBIZ. I'm both immensely proud and grateful for the extraordinary efforts by our team members that made this milestone a reality, and this extends to our future market team members who we've gotten to know very well over the past several months. Together, we will expand our horizon of possibilities, strengthen our overall capabilities, and reach new heights that we truly feel will break away from others within our industry. As we move forward, we will continue to embrace our core values at the foundation of our culture, which includes a focus on our people and our clients. Today is the reminder of the power of many coming together around the shared vision and a common goal, and our future has never looked brighter. Thank you all, and we look forward to continuing our conversations. Have a great day.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.