Conference Transcript - CBZ 2026-06-02

Andrew Nicholas, Analyst — William Blair

Great. Thank you, everyone. My name is Andrew Nicholas. I'm the business services analyst here at William Blair. Before getting started, I am required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that out of the way, I'm very pleased to welcome CBiz here to the 46th annual William Blair Growth Stock Conference. I have with me CEO Jerry Grisco and CFO Brad lakia here to present for you today i'm going to hand it over to jerry to tell you about the

Jerry Grisko, CEO

business thank you thank you andrew and thank you everybody for joining us this afternoon for those of you who are not as familiar with us cbus is the leading professional services provider of our kind to middle market businesses across the country what makes us unique relative to our competitors is the combination of our size and scale that being nearly $2.8 million revenue, 9,500 members, 2020 major markets coast-to-coast. We really go to market with two prime divisions, one being our financial services division, so really anything that a finance department or a CFO or a chief accounting officer will turn to an outside accounting firm for, we can provide those services, and we also have of a set of services around the HR department. So health insurance, 401k, payroll, and related services. So when I say we're unique of our kind, it's that breadth of services and our ability to bring those into the middle market that make us unique relative to our competitors. The other attribute that makes us very attractive from an investment standpoint is that we provide highly recurring services. So about 70% of our services are essential. So our clients are going to turn to an outside service provider for their tax, for their assurance services, for their payroll, for their insurance services, etc. So highly recurring revenue base, and it's a combination of that highly recurring revenue base, high client retention rates at over 90%, strong and consistent cash flow. That allows us to perform strong in any really market conditions, favorable market conditions and less favorable market conditions, not to go forward. I mentioned that middle market client distinct from the big four who really serve a fortune 500 fortune 1000 or some of the local market providers who really serve a small come or startup client we like that middle market space why do we like that middle market space first of all it's a very large total addressable market we view that as clients between 10 million dollars in a billion dollars that's on a domestic basis ten trillion dollars in annualized revenue so lots of clients lots of opportunities the characteristics of the clients are that they're large enough to be able to pay for our services and yet not so large that they have big back office support groups that can help them grow as a result of that they turn to see biz in in our competitors to help them with their most critical decisions of course their compliance needs that they have on tax audit assurance all those services but also as they grow as they expand as they go overseas as they make acquisitions as they go out for financing they turn to us for all of those critical decisions keep going backwards here sorry um our revenue really drivers we have three one is pricing and we've shown kind of year over year over year that we're able to get mid single digits pricing increases kind of year over year kind of regardless of business conditions that's what the market generally allows us as a result of our size and scale and the way that we go to market we should also be able to get greater share of wallet within our clients so expanding that relationship by bringing new products and services into that client relationship and then of course as a result of all that we can do that differentiates ourselves certainly from the smaller middle market businesses our ability to win new logos clients come to us oftentimes because they've outgrown their local or regional service provider and when they do that they're looking for someone with deep subject matter expertise they're looking for a firm with that breadth of services that can continue to support them in the way that they need to be supported and they're looking for someone with deep industry expertise we have 12 of those industries and what that allows us to do is to take our deep subject matter expertise that full array of products and services that we offer and create bespoke solutions specialized highly tailored solutions that look different for a food and beverage client than they do for a financial services client than they do for a consumer and industrial client again that allows us to expand that share of wallet within that client base and attract a new client into that client base that that is looking for that combination of deep subject matter expertise breadth of services and now their industry expertise of course everyone's asking the question how will how we use artificial intelligence or ai within your business and we really look at this in two different through two different lenses One is kind of table stakes, and it's true in the industry, it's true of many of our competitors, is to create efficiency. We're already seeing those within our organization. We have started out with generative AI. We put that into our enterprise about 18 months ago and actively used generative AI throughout that period of time. We recently also incorporated agentic AI. and and our agentic ai kind of approach is not specific to a particular functional area specific tasks within the organization we've put it in top to bottom so of our 9 500 team members all of them either have been or will be trained up on agentic ai and they're already creating agents within the organization to make the workflow that we do more efficient the other thing that we have is we have a team of 60 people, that's six zero people, that are devoted exclusively to automation and innovation. So as they're observing the activities that are happening as people create these agents to help them with their workflow, those that are most scalable are being incorporated, grabbed by that 60-person team, brought over and leveraged throughout the organization. So this is a very leverageable approach that we have, enterprise-wide approach and a leverageable approach that is quickly scaling throughout our organization and creating efficiencies within what we do like i said that's kind of the table stakes when we talk to people about ai everybody has access to the tools it's how they're using those tools to create efficiencies we think that the differentiator is the revenue opportunity how using ai within an organization like cbiz will allow us to enhance our revenues i'll give two examples one is that we oftentimes in certain portions of our practice the way that we generate new clients is through rfps those rfps come in different forms they're very time consuming they require a lot of information so prior to ai we had to be very selective about those that we would respond to and those that we weren't and it was highly manual through ai and through the great the data that we have and the ability to leverage into ai and and extract data we are now able to to respond to far more of those ais through an automated process and and again by doing that when when a higher percentage of those shares and accelerate growth the other opportunity for ai with us is if you think about that middle market client again that client that is 10 million or 50 million in revenue up to a couple hundred million dollars in revenue they don't have the back office resources to be able to fully implement ai so we've taken our approach to ai which is identifying the tools that are out there creating the strategy around it identifying the governance that needs to be put in place and then upskilling the workplace and we are packaging that now and bringing that out into that underserved middle market business to be able to help them with their AI journey as well and that's just one example of the of the revenue opportunities that we have of course when you talk about AI what you have to appreciate is it's not going to displace the people it will augment the work we do it will make it more efficient it will create opportunities for us to generate greater revenue within our clients, but it's never going to replace the relationship. They call the accountant the trusted advisor to the client. That trust is built on long-standing relationships. It's built on context around the client relationships. It's built around understanding the client's priorities, applying judgment to those decisions, and accountability right those things are uniquely human they will never be replaced by automation and so we have to stay focused on our on our workforce we have as i mentioned earlier 9 500 people we work hard to establish a culture that they're all proud of we win many of the best places to work awards within our industry and within our markets we commit a significant amount of resources more than many of our peers to the growth and development of our people training upskilling giving them the tools and career pathing of course we have to be competitive with benefits but when you look at the people part of our business we're proud of what we've created and we are able to now attract talent from many of our competitors from the big four and others that are seeing what we're doing the investments we're making not only in the technology but in their growth and development and we're winning the war for that talent with that I'll turn it over to Brad you can do some overview financial overview and we'll we'll then open it up the Q&A thank you thanks Jerry thank you everyone

Brad Lakhia, CFO

for being here good afternoon I'm just going to give you a little bit of an overview a financial overview and then I think Andrew will will have an opportunity to take some questions as well and I'll start let's see if I got the right page up here first I'll start on a little bit of a recap on terms of of how we started the year. Really, really pleased with the year in terms of where we started, where we started out. Is that microphone okay? And from a revenue perspective, we reported organic growth of 1.3%. And candidly, when we look at that, we're really pleased with it despite it being somewhat of a low number, a headline number. When we look at that and we look at where we've come with the integration of Markham, the transaction, and some of the work that we've done around there, we made some choices around clients, right? We have gone through some client transitory work where we moved some clients out for risk purposes, for profitability purposes, and really we feel like the client base that now we have to run with going forward is one that's really, really strong. So adjusting for some of the client impacts, the transitory client impacts that we had in Q1, our organic revenue growth would have been closer to 3.5%. percent. We commented on that on our first quarter earnings call. So really pleased with our first quarter revenue growth. From a margin perspective, talked a little bit about synergies over the course of our time. When we announced the transaction, we targeted about 25 million of synergies. Pleads report we've exceeded that. Now we're above 50 million. All of those synergies are essentially baked into our current run rate now that we've exited Q1. Really, really pleased with what that's doing from a margin perspective and as we've now transitioned into 2026 we're also also experiencing some incentive compensation impacts year-over-year so net-net pleased with the margin performance on on the whole and then from an adjusted EPS perspective lower share count is benefiting primarily our improvement in EPS but also the strength of our earnings and from a free cash flow perspective in Q1 we benefited from the final settlement of the the purchase price with on the Markham transaction we were able to leverage that cash flow in Q1 all the way through the end of April to drive share repurchases but then also drive some improvement in our leverage which I'll talk about here in a moment so overall you know growing revenue increasing profitability really really strong cash flow profile our business model again seventy percent recurring revenues highly you know high attrition sorry high retention rates in our client base strong talent retention drives a really strong business model which drives cash flow and margin turning to the balance sheet in our cash flow profile really pleased also with our net leverage progress last year in q1 we exited q1 at about 3.9 times net leverage our leverage as a company is higher than it historically has been Again, largely attributable, entirely attributable to the transaction. We were able to increase or lower our leverage by a half a turn year over year in Q1, and that's after having delivered a lot in the way of share repurchases, not only in 2025, but also as we started this year, as you'll see on the chart here, we delivered about 63 million in share repurchases through the end of April. So, again, reflecting the strong nature of our business model and also the strong cash flow generation that that business model churns out. Our net leverage target remains below two and a half times. We feel confident we're on the path to deliver that net leverage target as we move and exit 2027 and also remain opportunistic at the same time on share repurchases as we feel like currently highly accretive opportunities to do some share repurchases. And with that, I'll just say from a capital allocation framework, pretty straightforward here. Obviously, we're focused on investing in the business first, so we'll make sure that we're funding the business, funding some of these investments that Jerry talked about around technology, technology transformation, AI, talent, right? That's really, really important to us. So we're going to be investing in the business. Beyond that, near term, I would say pretty balanced view of debt reduction and share repurchases, particularly as I said here a moment ago, highly accretive opportunities that we see in terms of being able to return cash to shareholders. So we'll continue to be opportunistic and balance and discipline on that front long term you know our growth algorithm i'll start there is largely consistent you know we've historically said eight to ten percent revenue growth that's 50 percent typically about we talked about 50 organic growth 50 inorganic growth so we'll be you know we'll be turning our attention as we move into 27 and beyond to getting back into m a while it's still investing in the business we're going to continue to you know be focused on share repurchases and then from a target debt perspective we feel like two and a half times is uh is the right level like target kind of foundational uh level of debt force going forward so just to just to summarize our our comments here today really coming back to the business model strong recurring revenue base um you know and you know coupled with a very diversified as jerry explained the total addressable market targeting that middle market large client base large number of companies 10 trillion dollars or more in revenue underserved market you know generally and an opportunity to take all of that from an operating leverage perspective with our enhanced size and scale enhance our free cash flow and really drive our margin improvements so really feel like our our business model remains very very strong where we're positioned and to to be able to grow and drive growth initiatives feeling really really good about that so that that concludes my remarks thank you again for being here and I'll turn it

Andrew Nicholas, Analyst — William Blair

over to Andrew all right great thanks Brad thanks Jerry so as this is you know generalist conference I want to kind of spend some time first kind of walking back and talking through the Markham transaction obviously that's been a huge undertaking for for the firm over the last year and a half now so just for the audience if you could kind of remind us on the rationale for that deal how it's going the major kind of takeaways from the at this point that that you've gotten out of it and kind of where where that's trending i think you're now probably wrapping up first first big busy season as a combined organization so any any learnings from that too i know that was a multi-part

Jerry Grisko, CEO

question yeah listen um what i would say is when i think about why we did the deal and where we sit today the timing couldn't have been better um the the original premise for the transaction was that the size and the scale mattered in this business the work the work that we do is increasingly complex for the clients that we need to provide to the clients we needed to have scale in order to be able to do that work to be able to make investments in the business we needed to have scale to be able to win the war for talent this is still at its core a people business and we've we've established that when we think about today the people that are joining our company it's a different profile than the people that were joining our company two years ago and before that right attracting talent out of the big four attracting talent from our competitors really pleased with what we're seeing there being able to make the investments in the business we talked about ai we now have and i mentioned this earlier we have 60 people that are devoted to this transformation innovation things like think of it as our r d team they're out in the market they're looking at the tools that are in the market they're testing those tools they're bringing those tools into our environment they're working with the data that we have organizing that data extracting the data bringing it back to our teams and or to our clients in a way that brings greater insight into their businesses um and then our ability just to go win new clients and and the value that we bring for our clients all of those things are performing at or above expectations when we did the deal and that's why we did the deal and so really pleased with that said it's a lot of work and when you bring two groups together of like size there's two ways to do that you either integrate them over some period of time two or three years or you try to do as much as you can as quick as you can get it out of the way and then start really leveraging the value and that's what we did so last year in 2025 if you think about our business we got through busy season that concluded at April 15th we really started the work of full-on integration May 1 so we're just a year into it and a year into it we have about 80% of the tasks the integration tasks behind us now that was unsettling and there's lot of change involved in that and you know we put our organization through that but we're already now seeing people kind of come out of that and say okay now the change is behind us and i see the value in what we can bring the value of the tools that we have the value that we can bring to our clients and and kind of moving forward so really pleased with what we're seeing quality of the people and and and the benefits of the transaction and you'd say absent some of the

Andrew Nicholas, Analyst — William Blair

client pruning that you did for risk and profitability purposes largely in line in terms of like customer retention across the last year exactly right very pleased with our client

Jerry Grisko, CEO

retention as brad indicated 90 it's probably 90 plus i think even more favorable than 90 and our and our in employee retention and i think that speaks volumes as well right so we look at employee retention in two kind of through two lenses one is just overall and i would say our retention rates are actually more favorable today than they were two years ago now the markets changed a little bit and the market's a little bit more favorable but our retention rates we also look at what we call key regrettable losses so people who you know otherwise weren't kind of of retirement aids that have left very few of those so very pleased with kind of the retention rates of not only our overall workforce but but key influencers within the within the organization yeah i would

Brad Lakhia, CFO

just emphasize the ability to recruit our size our scale our brand our market position the ability to draw in a different level of talent that the two organizations separately would not would have been more challenged to do has been

Andrew Nicholas, Analyst — William Blair

very very notable I'm gonna I have a few other questions but I want to stick with the hiring and talent piece because I think it's something that I get asked quite a bit about in terms of the staffing pyramid so it sounds like you're you're hiring a lot externally i would assume that's at a lateral level if not more senior level is in this new kind of ai paradigm is there any adjustment to how you're thinking about hiring velocity at each level is it going to be more uh tower like or square like as opposed to mere pyramid or just kind of any thoughts on on hiring obviously it's great that that you're finding new talent at that senior level but does that offset or replace any junior level hiring at this point

Jerry Grisko, CEO

i i i would say compliments right so to your point when we talk about attracting a different level of talent in the organization that's really we're referencing a more senior level kind of talent we have people within each of those 12 industry groups we've charged each of the leaders and each of the participants within that group of identifying identifying their most highly regarded competitors and having discussions we have a full pipeline by industry group of people who are kind of the rock stars within each of our competitors that we're in active conversations about joining cbiz so so that's the level of talent they they see what we're building their interest in joining us functionally we have our head of ai was the head of ai incubation for one the big four the data person we talked to was head of what was on the the leadership team of data for one of the big four so to be able to track that level of talent so so that's the senior level as far as the pyramid you know if you think about again i'll just reference accounting firms historically there was a pyramid right so you hire a whole bunch of people at the bottom and they work their way up as a result of ai and a result of offshoring that looks more like a house right with that the roof is still there but the walls get flattened where we pick up you know kind of efficiency on either end offshoring or ai that's that that used to be kind of the edges of the pyramid but we we need to have a full funnel at the bottom in order to develop people give them experiences and bring them up the curve so it'll never look like a diamond i don't even understand what that model might look like because there's not enough people at the bottom we have to make sure that we still have the opportunity to bring people in train them up give them experiences and bring them up the value chain one of the questions i have written

Andrew Nicholas, Analyst — William Blair

down here that i wanted to ask was about kind of the interplay between ai and offshore maybe brad you could speak to the offshoring initiative maybe what some of the targets are but how do you think about that next to some of the productivity improvements that you would potentially get from

Brad Lakhia, CFO

technology and automation yeah sure I mean I'll start with the target portion of this and we put this out you know publicly we're targeting to get to ten percent trickle you're within our accounting and tax practices ten percent this year with a glide but the path to twenty percent call it over the next two to five years hopefully two well really two to three years so that's kind of how we're thinking about the the global resources kind of offshoring initiative and making a lot of traction on that. We have some things that we'll share, I think, yet this year publicly around the traction that we're getting there. In terms of the model, our approach here is, first and foremost, where we see a resource need, Andrew, we first ask ourselves, can we do this without a human, right? Forget about whether it's onshore or offshore, right? Can it be done through technology, through automation, or through some other alternative, right, around existing resources somehow. And then the second step is if it does require a person, like, you know, with some talent and skill set, we do then look at the profile, what we're looking to fill, and then we say, can we do that, should we do that domestically, do we do that, you know, with global resources, and we make that decision. And if it's domestic, then it's really kind of come back to some of the things that Jerry just spoke about. is it client-facing? And if it's client-facing, where are we going? Are we making sure these client-facing roles fit within our go-to-market, our industry strategy, or fit within the growth trajectory that we want to pursue? And if it's non-client-related and it's something more functional, functional excellence or operational excellence, we almost sometimes revert back to then why not global resources? So it can be a bit of a circular reference.

Andrew Nicholas, Analyst — William Blair

Great. Switching gears a little bit, and I think we have maybe time for one or two more questions. Just on pricing, I think that's obviously a huge, maybe partly related to the AI discussion, but just a general conversation about the accounting services industry. You mentioned in your comments mid-single-digit pricing. Has there been any change to kind of the nature of those conversations or the pricing conversations with clients? Anything kind of notable that's different maybe this time versus, or right now versus this time last year when we were kind of in the aftermath? of of some of the the tariff uncertainty anything that you could say on price it would be yeah no

Jerry Grisko, CEO

listen um pricing i would say mid single digits is kind of what the market gives us license for right we've we've seen that mid single digit pricing kind of for the past probably 10 years and and and we're seeing that still the difference was in certain market environments we actually can get greater pricing in a more inflationary environment so we had that inflationary environment environment in 23 and 24 we were more kind of seven eight percent pricing um we came into 25 expecting that we'd have that same inflationary pricing um 25 played out different we were still able to get mid single digits it just wasn't at the high so so mid single digits is what you should expect from from us and and we continue to see that going forward perfect um

Andrew Nicholas, Analyst — William Blair

Maybe just last one for me, I know the capital allocation priorities right now are a little bit more balanced between debt repayment, maybe some share repurchases. Can you talk to 27, 28 on the M&A front specifically, once you feel like you're at a good spot from an integration perspective with Markham, how quickly can you get back into the M&A game, if you will, and what are the types of assets that you'd be interested in? is it a geographic expansion service line or some mixture of both yeah so so let me kind of first

Jerry Grisko, CEO

give you our growth algorithm right historically we've said eight to ten percent top line and that gives us leverage we can do one one and a half or one and a half times out on the bottom line if we get you know the top line growth that eight to ten percent we typically have said half organic half inorganic right so if you count on four or five percent organic four to five percent inorganic on roughly three billion dollars that means 150 million dollars annually in inorganic we know there's opportunities out there we could be doing those deals today we just really wanted to make sure that we land the the acquisition and the integration of markham we expect that going into 27 certainly by mid-year we're back in the market for that and we believe those opportunities are there and to answer your question where would it be i would say it really falls into two buckets It's the right platform acquisition geographically. So, you know, if you look at Texas, for example, we don't have the right platform in Texas. If we could find the right firm there, we'd love to be there. Atlanta, Charlotte, Nashville, right? So there's really strong demographic markets. If we find the right platform firm, we'd like to do that. And then there's a host of advisory services that our clients are, that are in high demand by our clients. And I see us expanding into those services as well.

Andrew Nicholas, Analyst — William Blair

Maybe with, I'll try to squeeze one more in. And just on the advisory market, obviously part of the, one of the great aspects about accounting services and audit and tax in particular is high recurring revenue, very strong retention. Advisory can be a little bit more cyclical, not altogether cyclical, but can you speak to kind of the development of the advisory business over the past couple of years? It seems like it's accelerated in the back half of last year and has remained strong to start this year, but just kind of paint the picture on some of that part of the business.

Jerry Grisko, CEO

yeah so we talked about the the kind of essential nature of what we do right 70 30 and so in in favorable less favorable business climates our clients turn to us for that 70. we like that mix because it's it it creates a lot of certainty in our revenue profile but the 30 bring greater value to the client relationship it's more than just compliance it's more than just the essential services so our clients need us for um for they're going to go out and make an acquisition they'll turn to us help for quality of earnings and due diligence on that transaction and then to bring financing to the table and all of those services those are all the advisory services in less favorable business climate i would say less certain business climates um there's left demand for that and in more certain business climates there's more we saw that last year at the beginning of 25 you know liberation day all the discretionary work or a good deal of it kind of went to the sidelines until the dust settled we saw that work pick up in the back half of 25 and continue strong through 26 so through the first quarter 26 and kind of continue strong right so in most business climates that is kind of the differentiator for us we can provide a broader array of solutions to our clients they don't have to go to an outside firm to get those things they can turn to us they bring greater value they typically are higher margin and they give us nice a nice nice growth trajectory uh in most business climates great thanks to you both for being here thanks

Andrew Nicholas, Analyst — William Blair

to everyone in in the room we'll wrap up there and head to adler uh for the breakout session thank you thank you thanks andrew