CBIZ (NYSE:CBZ) Q4 2025 Earnings call February 25, 2026 05:00 PM ET Company ParticipantsBrad Lakhia - CFOChris Sikora - VP of Investor Relations and Corporate FinanceFaiza Alwy - Managing DirectorJerry Grisko - President and CEOPeter Scavuzzo - Chief Strategy Officer and Technology LeaderConference Call ParticipantsAndrew Nicholas - Research AnalystChris Moore - Senior Research AnalystOperatorGood day, welcome to the CBIZ Fourth Quarter 2025 Results Conference Call. All participants will be in listen-only m ...

Financial Data and Key Metrics Changes - For Q4 2025, revenue was $543 million, an 18% increase year-over-year, primarily driven by acquisitions [23] - Full-year revenue grew 52% compared to the previous year, with an estimated organic growth of approximately 2% [24] - Adjusted EBITDA for the full year was $447 million, with a margin increase of approximately 530 basis points year-over-year [25] - Full-year free cash flow increased by $65 million to $176 million, with a conversion rate of approximately 40% [27] Business Line Data and Key Metrics Changes - Financial Services revenue for Q4 was $439 million, up 23% year-over-year, with full-year revenue at $2.3 billion, a 70% increase [27][28] - Benefits and Insurance (BNI) revenue for 2025 was $410 million, representing a 2% growth year-over-year, driven by employee benefits and payroll services [29] Market Data and Key Metrics Changes - The company noted that over 70% of its revenue is recurring, providing resilience across economic cycles [22] - The sentiment in the middle market has improved, with clients showing increased comfort in the business environment heading into 2026 [20][21] Company Strategy and Development Direction - The strategic focus for 2026 includes attracting and retaining top talent, elevating brand visibility, and deepening industry specialization [9][12] - The company aims to leverage AI and automation to enhance service delivery and operational efficiency [15][19] - CBIZ is positioned to capitalize on the growing demand for professional services in the middle market, driven by increased complexity and a shortage of accounting talent [4][5] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving market conditions and client sentiment, expecting continued growth in advisory work [41][44] - The company anticipates organic revenue growth of 2%-5% for 2026, with a focus on project-based work and macroeconomic conditions influencing performance [31][32] Other Important Information - The company completed significant integration work following the acquisition of Marcum, which is expected to drive long-term growth [6][8] - CBIZ plans to increase offshore hours from approximately 6% in 2025 to 10% in 2026, aiming for over 20% in the coming years [20][19] Q&A Session Summary Question: Impact of soft market conditions on revenue growth - Management noted that soft market conditions in the first half of 2025 affected revenue growth, but sentiment improved as the year progressed, leading to increased advisory work [40][41] Question: Role of AI in the business - Management emphasized that while AI will augment efficiency, the role of trusted advisors remains critical, as clients seek deep industry knowledge and holistic guidance [45][50] Question: Pricing expectations for 2026 - Management confirmed that pricing is expected to remain in the mid-single-digit range for 2026, consistent with 2025 [54][58] Question: Performance of SEC capital markets business - Management indicated that the capital markets work was softer in 2025 due to market conditions, but expressed optimism for improvement in 2026 [63][65] Question: Growth expectations across different business segments - Management highlighted that core accounting and tax services are more predictable, while advisory services are more susceptible to market conditions, with expectations for growth in 2026 [73][75]

Core Viewpoint - Baker Tilly International has appointed Ian Halligan as its global head of tax, effective immediately, to enhance its international tax services and strategy [1][2][3] Group 1: Appointment Details - Ian Halligan has over 30 years of experience in international tax matters and will be based in Washington, DC [1][2] - Halligan is dual-qualified in the UK and US and currently leads international tax services for Baker Tilly in the US [2] - The appointment is seen as timely for both Baker Tilly and the international tax profession [2] Group 2: Leadership and Strategy - Francesca Lagerberg, CEO of Baker Tilly International, expressed delight in Halligan's appointment, emphasizing the importance of a strong global tax capability [3] - Halligan's expertise in international tax and knowledge of the network positions him well to execute the global tax strategy effectively [3] - The appointment follows Baker Tilly International's announcement of record global revenues of $6.8 billion for FY25, representing a 21% increase from the previous year [3]

Core Insights - GruntWorx has partnered with K1x to develop a new tax data processing product called GruntWorx K-1 ADVANCED, which utilizes K1x's AI technology to automate the handling of complex Schedule K-1 documents [1][2]. Group 1: Partnership and Product Development - The partnership aims to provide an innovative solution that meets the evolving needs of accounting practices and tax professionals [2]. - GruntWorx K-1 ADVANCED is designed to streamline the extraction, validation, and delivery of K-1 documents, reducing manual entry and allowing tax professionals to focus on more complex tasks [2][3]. Group 2: Automation and Efficiency - The tool is positioned as an end-to-end system that automates the entire K-1 workflow, from document intake to analysis, which is expected to reduce errors and increase operational capacity [3]. - The collaboration is expected to enable firms to expand their services and manage additional client work more effectively [3]. Group 3: Industry Context - K1x has also partnered with Juno to enhance tax automation solutions, indicating a trend towards integrating advanced technology in tax processing [3].

Core Insights - S&W has appointed Graham Charlton as a partner in its private client tax services team, enhancing its service offerings in Bristol and surrounding areas [1][4] - Charlton brings over two decades of experience from KPMG, PwC, and Bishop Fleming, specializing in personal and capital taxes, particularly for private equity-backed businesses [2][3] - The appointment aims to provide clients with strategic tax planning and guidance through complex transactions, thereby increasing the value delivered to clients [2][3] Company Expansion - S&W recently expanded its business by acquiring Haines Watts Scotland, which has offices in Edinburgh, Kirkcaldy, and Stirling, further strengthening its presence in the UK [3][4] - This acquisition follows previous purchases of Haines Watts companies in Manchester, Leeds, and Newcastle, indicating a strategic northern expansion [4]

Core Insights - CBIZ, Inc. has released its 2026 Tax Planning Guide to assist businesses and individuals in navigating the changes brought by the One Big Beautiful Bill Act (OBBBA) [1][2] Group 1: Key Changes and Provisions - The OBBBA introduces significant tax policy changes, including immediate deductibility of domestic research and experimental expenses, restoration of 100% bonus depreciation, permanent expansion of Section 179 expensing, and increases to estate and gift tax exemptions [3] - New tax incentives under the OBBBA affect both C corporations and pass-through entities, prompting businesses to reconsider their entity selection [4] Group 2: Tax Planning Strategies - The guide emphasizes tax planning as a growth driver rather than a year-end checklist, encouraging decision-makers to transform complexity into clarity and strategy into savings [3] - The guide includes a sector-by-sector analysis to help organizations identify opportunities and compliance priorities in light of the new provisions [8] Group 3: Additional Provisions - Manufacturers can now claim a 100% deduction for new qualified production property, with construction starting after January 19, 2025, and before 2029 [8] - Expanded Qualified Opportunity Zones provide new avenues for capital-gain deferral and reinvestment for both business and individual investors [8] - New individual tax-advantaged provisions include higher state and local tax caps, new deductions for tip income and overtime pay, and temporary bonus deductions for seniors [8] Group 4: Upcoming Events - CBIZ is hosting a webinar on November 13, 2025, to discuss insights from the guide and the implications of tax changes for businesses and personal finances [5]

Core Insights - Accordance has launched with $13 million in funding to provide AI-powered accounting and tax solutions [1] - The funding includes $10 million in seed funding led by Khosla Ventures and $3 million in pre-seed funding led by General Catalyst [1] - The startup aims to assist professionals in navigating complex tax and accounting regulations, enhancing their capabilities [2] Funding and Investment - The funding round was led by prominent investors including Khosla Ventures, General Catalyst, Anthropic, NEA, Bain Capital Ventures, and Sequoia Capital [1] - The total funding raised is $13 million, which positions Accordance for growth in the AI accounting sector [1] Product and Technology - Accordance's platform is designed to provide insights into complex tax and accounting scenarios, leveraging AI to enhance professional expertise [4] - The multi-agent system is trained on a comprehensive library of authoritative regulations, outperforming major foundation models in specialized tasks [5] - Research partnerships with OpenAI, Anthropic, and Stanford ensure that Accordance remains at the forefront of AI advancements [5] Market Positioning - The startup targets boutique practices, nationwide firms, and in-house teams, indicating a broad market appeal [5] - The CEO, David Yue, emphasizes that the platform empowers professionals, transforming junior staff into experts and enhancing the capabilities of seasoned professionals [2][3]

Financial Data and Key Metrics Changes - For Q2 2025, consolidated revenue was $684 million, and first half revenue was $1.5 billion, reflecting a 6366% increase, largely driven by the Marcom acquisition [15] - Adjusted EBITDA for Q2 increased by 128% to $66 million, and more than doubled to $356 million for the first half [16] - Adjusted EBITDA margin was 17% for the quarter and 23% year to date, an increase of nearly 500 basis points compared to last year [17] - Adjusted diluted earnings per share for Q2 increased by 64% to $0.95, and for the first half, it increased by 47% to $3.26 [19] Business Line Data and Key Metrics Changes - Financial Services segment revenue for Q2 was $570 million, up approximately 84%, with adjusted EBITDA more than doubling to $111 million, a margin of 20% [20] - Benefits and Insurance segment revenue was $102 million in Q2, up approximately 5%, with adjusted EBITDA of $20 million, a 21% increase [21] Market Data and Key Metrics Changes - Year-to-date organic revenue for core services in Benefits and Insurance and Accounting and Tax Services grew by low single digits, while the National Practice segment grew by 13% [6] - Year-to-date rate increases averaged about 4%, which is 200 to 300 basis points below expectations, creating a headwind of about $75 million for the full year [9] Company Strategy and Development Direction - The Marcom acquisition is viewed as a significant strategic decision, enhancing the company's position in key U.S. markets and expanding its client base [12] - The company aims to maintain a disciplined approach to capital allocation, focusing on deleveraging to 2.5 times or below by 2026 [22][23] Management's Comments on Operating Environment and Future Outlook - The current economic climate has impacted market-sensitive areas, with clients prioritizing cost controls and waiting for more stable conditions before investing in discretionary services [6][8] - Management expects continued steady demand for core recurring essential businesses, despite ongoing headwinds in nonrecurring services [10] Other Important Information - The company ended the quarter with approximately $1.6 billion in net debt, representing 3.7 times leverage, and approximately $400 million of available liquidity [23] - The company has repurchased approximately 1 million shares at a value of approximately $71 million during the second quarter [24] Q&A Session Summary Question: Advisory business performance and guidance - Management indicated that the guidance for the rest of the year suggests the second half will look much like the first half, with clients remaining cautious in a challenging environment [31][32] Question: Pricing pushback and structural limits - Management believes the pricing pushback is market-driven and not indicative of reaching structural limits, with optimism for future pricing improvements as market conditions stabilize [38][39] Question: Integration costs and synergies - Integration costs are expected to remain around $75 million for the year, with ongoing efforts to realize synergies exceeding initial expectations [50][45] Question: Free cash flow and leverage targets - The company anticipates a similar cash flow profile moving forward, with a notable use of working capital in the first quarter and aims to achieve 2.5x leverage by 2026 [54][55] Question: Client feedback on the Markham transaction - Management reported positive feedback regarding team quality and collaboration, with adjustments made to improve client experiences during the integration process [57][66]

Financial Data and Key Metrics Changes - Consolidated first quarter revenue increased 70% from $494 million to $838 million, primarily due to the acquisition of Marcum [23] - Adjusted EBITDA doubled from $119 million to $238 million, reflecting strong margin and scale attributes [24] - Pretax income was $173 million, up $69 million or 66% [25] - Adjusted diluted EPS increased approximately 40% from $1.63 to $2.29 per share [25] - Interest expense increased by $21 million due to higher borrowing and rates from acquisition funding [26] Business Line Data and Key Metrics Changes - Financial Services segment revenue was $714 million, up $341 million or approximately 92% [27] - Financial Services adjusted EBITDA doubled to $230 million, maintaining an adjusted EBITDA margin of 32% [27] - Benefits and Insurance segment revenue was $113 million, up $5 million or approximately 4%, with adjusted EBITDA of $30 million, up $3 million or 10% [28] Market Data and Key Metrics Changes - Nonrecurring services now represent approximately 23% of total revenue, with expected softness due to economic conditions [32] - The government healthcare consulting business posted strong revenue growth in Q1 and is expected to continue performing well [14][60] Company Strategy and Development Direction - The company is focused on integrating technology systems to enhance operational improvements and streamline processes [37] - There is an increased interest in CBIZ as an acquirer of choice following the successful completion of the Marcum transaction [39] - The company aims to maintain its adjusted EBITDA and adjusted EPS guidance while widening revenue guidance due to economic uncertainties [31][32] Management's Comments on Operating Environment and Future Outlook - The management acknowledges the challenging economic and geopolitical environment impacting client industries, particularly capital markets and advisory services [12][14] - Despite revenue pressures, the company is optimistic about its core recurring business performance and integration progress [108][112] - The management emphasizes the importance of maintaining profitability through variable cost adjustments and operational efficiencies [78][82] Other Important Information - The company expects approximately $60 million in payments related to prior acquisitions in 2025, with $30 million already paid in Q1 [33] - Total debt at the end of the quarter was approximately $1.5 billion, with a leverage ratio of about 4x [30] - Approximately 4.4 million shares will be eligible for resale effective May 1, 2025, with a share repurchase program in place [34] Q&A Session Summary Question: What conditions would the bottom end of the new revenue range assume? - The bottom end of the new range reflects ongoing headwinds from the SEC audit practice and transactional pressures in the private equity business [68][70] Question: What operational measures are being taken to offset revenue pressures? - The company is leveraging variable compensation structures and reducing headcount to manage costs effectively [78][82] Question: Can you provide an update on capital allocation priorities? - The company is focused on reducing leverage while remaining opportunistic for strategic acquisitions and share repurchases [87][89] Question: How are client conflicts being managed post-acquisition? - The company anticipated some client conflicts due to the merger, particularly in healthcare, but these impacts are within expected ranges [94][96] Question: What is the outlook for pricing trends in the current environment? - The company has seen positive pricing trends but acknowledges potential downward pressure if the market remains challenging [103][104]