CBIZ, Inc. Aktie

Good afternoon, everyone, and welcome to the CBIZ First Quarter 2026 Results Conference Call.

[Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the floor over to Chris Sikora, VP of IR and Corporate Finance. Please go ahead.

Good afternoon, and thank you for joining us on today's call to discuss CBIZ's first quarter 2026 results. We posted an investor presentation that tracks to our prepared remarks, and it is available on our Investor Relations website.

Before we start, I'll remind all participants that you will hear forward-looking statements during this call. These statements reflect the expectations and beliefs of our management team at the time of the call, but are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's filings with the SEC. Participants should be mindful that subsequent events may render this information to be out of date.

We will also discuss certain non-GAAP financial measures on today's call. As noted on Slide 3, a reconciliation between GAAP and non-GAAP financial measures can be found in the supplemental schedules of the presentation.

Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; Brad Lakhia, Chief Financial Officer; and Peter Scavuzzo, Chief Information and Technology Officer.

I will now turn the call over to Jerry, who will start on Slide 5.

Thanks, Chris. Good afternoon, everyone, and thank you for joining us. We entered 2026 with a clear plan, and our overall first quarter performance was in line with our expectations. We delivered year-over-year growth in revenue, profitability and free cash flow while returning value to shareholders through highly accretive share repurchases. Our organic growth improved throughout the quarter and is up sequentially compared to the fourth quarter. We remain confident that we will exit the year growing at our mid-single-digit organic growth target rate and be in a position to return to our long-term growth algorithm.

As we will discuss on the call, we also advanced our strategic growth priorities and made meaningful progress on our efficiency initiatives while continuing to invest in our AI capabilities, and we believe that we're positioned to be the clear leader in the middle market.

I want to thank our CBIZ team members for their exceptional performance as we completed our first busy season as an integrated company, a significant milestone for our organization. Our teams delivered strong results for clients, coordinated effectively across the platform and maintained solid utilization during our most critical period. We are operating fully as one company with unified teams, aligned culture and vision, common systems and a strengthened go-to-market approach, and our scaled operating model is beginning to work as intended.

In the fourth quarter of 2025, organic revenue growth was flat as we completed a year of significant transformation and integration. As we moved into 2026, we are beginning to realize the benefits of the foundation we put in place. Combined with a more favorable market backdrop, organic revenue growth improved as we progressed through the first quarter.

Our Q1 growth in Financial Services was still impacted by headwinds related to prior client exits tied to our risk and profitability standards and residual integration-related productivity impacts that shifted some tax revenue into the back half of the year, as previously discussed and contemplated in our full year guidance. We estimate that these temporary factors reduced reported organic revenue growth by approximately 200 basis points in the first quarter. We continue to expect these impacts to abate by the second half.

With our solid start to the year, we are reaffirming our revenue, adjusted EBITDA and free cash flow targets while increasing our adjusted EPS outlook, reflecting confidence in our underlying earnings power and the impact of our accretive share repurchase activity.

Now moving to Slide 6. We are advancing our 4 strategic priorities to drive growth. These priorities will strengthen our ability to win new business, retain and expand client relationships and enhance pricing.

First, CBIZ continues to attract, retain and elevate top talent. We are proud to have been recently named a Top Workplace in the nation by USA TODAY for the sixth consecutive year and see that reflected in our strong employee retention performance across the company. Also, we are capitalizing on the greater scale and investment opportunity of our new platform by bringing in high-caliber talent to CBIZ. Within Financial Services, our lateral hiring initiative is identifying and advancing high-impact, high-producing MDs with several new hires recently completed and a robust pipeline of senior candidates who are drawn to CBIZ.

Within Benefits and Insurance, we have added a variety of net new quality producers in the quarter and expect high momentum to carry to the second quarter as we work towards our full year target of approximately 15% increase in producers.

I'm also pleased to have Peter on the call today. With Peter's appointment as Chief Information and Technology Officer and President of CBIZ Technology, we're making a deliberate convergence, one leader, one platform, one road map. Peter brings close to 20 years of industry experience and is widely regarded as one of the leading voices in technology and AI in our profession.

Second, we recently launched our spring national brand campaign, featuring targeted national televised ads across our key markets. This year, our focus remains on translating increased visibility into stronger engagement for our services and reinforcing our position as a trusted partner during transformational events. Our brand and marketing investments are a key complement to both our go-to-market and talent recruitment strategies. We have already seen these investments paying dividends with early traction reinforcing brand awareness and strengthening our connection with clients and talent.

Our 12 industry verticals are an increasingly important driver to how we go to market and serve our clients. This structure was designed to lead with insights, anticipate client needs and deliver coordinated, tailored solutions that drive stronger retention, accelerated growth and reinforce our value-based pricing. We are making meaningful progress implementing this strategy, including the development of new industry-focused managed services that bring together capabilities across tax, advisory and benefits to address specific client needs.

We are seeing positive results from the greater connectivity these industry verticals provide for our national experts. In Alternative Investments and Real Estate, collaboration between our national experts is enabling us to secure a variety of new engagements in areas where clients were unaware of our capabilities. As we continue to strengthen our industry practices, we are seeing increased new client pipeline activity across several key verticals, including Consumer and Industrial Products, Capital Markets, Alternative Investments and Construction.

Finally, we are delivering a more coordinated client experience across our service offerings. With our highly recurring revenue base and strong client retention, our most immediate growth opportunity is expanding relationships with existing clients. We are already seeing good progress as we take a more systemic approach to cross-selling across services and geographies. We are systematically increasing the number of clients using multiple services, and we expect these efforts to contribute to organic growth over time. Taken together, we believe strong execution against these 4 priorities positions us to drive attractive levels of growth in 2026 and beyond.

Now moving to Slide 7. I've asked Peter to join us today to provide you with a more detailed walk-through of how we're advancing our AI road map. But first, let me briefly reiterate how we're thinking about AI and why we believe our strategic approach to AI will be a catalyst for CBIZ breaking away from many of our competitors.

Our business is built on long-standing client relationships and services, often delivered in regulated environments that require licensed professionals to take accountability for outcomes. These engagements serve as a critical third-party validation for lenders, investors and regulators, which creates a high bar for substitution and reinforces client stickiness.

Further, our middle market clients rely on us for judgment, context, expertise, intuition and ethics and typically do not have the scale or capital to build and govern AI-driven solutions themselves. The combination of our trusted relationship with our clients and our continuing investment in improved tools, processes and systems, including AI, create a defendable moat around our position with our middle market clients.

We have also largely transitioned to a value-based pricing model, which positions us to benefit from the AI-driven efficiencies. As we adopt AI, we expect it to enhance our ability to deliver insights, expand wallet share and improve margins while reinforcing and not replacing the valued role we play for our clients.

With that, I will turn it over to Peter to share more detail on what we're delivering.

Thanks, Jerry. We spent the last several quarters building the foundation for how we deploy AI across the organization, and we're now entering the next phase of that work.

Let me share what that will look like internally and externally and how we see it creating shareholder value. Just last week, we began the full rollout of our latest internal capabilities company-wide, moving from primarily AI-assisted workflows to more advanced agentic-based AI solutions. We intentionally timed this rollout following busy season to ensure our teams could remain fully focused on client delivery during our most critical period. The maturity of large language models, combined with the accessibility of advanced features within AI platforms and our own internal talent and execution has brought us to an inflection point where deployment risk is manageable and the productivity and efficiency payoff is measurable.

Building on our commitment for ongoing AI-driven talent development, our latest platform release further strengthens professional growth and retention. Professionals join and stay where they're empowered to do meaningful work. By significantly reducing manual repetitive tasks, our AI initiatives are improving retention and making us a more attractive destination for the next generation of talent. We are already seeing this in our recent lateral hiring discussions.

As it relates to the technology itself, our recent advances in AI-based data extraction and structuring capabilities position us to deliver faster, more insight-driven solutions for clients across a wider range of services. For example, on the work we are performing in one of our [ attest ] services, for year 1, our AI-based data extraction workflow is producing 20% efficiency with our anticipation in subsequent years that this efficiency will grow to 40%.

At the same time, we are also using agentic AI to support revenue growth by enhancing how we generate and pursue revenue opportunities. We are developing AI-driven workflows to improve the speed, quality and consistency of RFP responses and enabling us to pursue opportunities we previously could not due to resource constraints.

Beyond new client wins, AI-driven insights create natural conversation starters with existing clients. For example, enabling us to benchmark client performance and flag opportunities that our professionals can then act on. This is one way in which we will expand our relationship and wallet share. As these capabilities scale, we expect improved win rates, faster time to market and more differentiated offerings that support sustained growth and long-term value creation.

Lastly, a critical part of our AI strategy also includes our partner ecosystem, which is the foundation for the tools we are putting in place. We are leveraging leading technology partners with deep expertise in our industries and combining those capabilities with our new AI platform, proprietary workflows and our domain knowledge. All of this is packaged together to drive productivity and efficiency and provide innovative solutions to our middle market clients, which are historically underserved from a market perspective.

Our approach allows us to move faster, reduce execution risk and build a secure enterprise-grade foundation while remaining focused on what we do best, serving clients and delivering high-quality outcomes. Over time, this model gives us a scalable and flexible platform that can continuously evolve as AI capabilities advance. While still early on, we are making strong progress, and we'll continue to update you as our capabilities develop and we drive results.

Jerry, back to you.

Thanks, Peter, and congratulations on your new role. We believe that companies that successfully implement AI and automation will reap the benefit of significant efficiency gains with the savings following through to the bottom line, resulting in margin expansion. We expect that industry leaders will then take a portion of these savings and redeploy them to capture new revenue opportunities and accelerate organic revenue growth.

By freeing our professionals from manual, time-intensive work, we expect a favorable mix shift towards higher-value, higher-margin advisory project-based services, the deployment of a new AI-enabled offerings where compliance and professional judgment matter most and improved win rates as our scale and technology investments differentiate CBIZ from smaller competitors.

We believe that AI will be a turning point for our industry with several breakout firms that have the scale and ability to invest in and train professionals to use technology to better serve our clients. At the moment, we believe that we are at the forefront of investing in and using these new technologies.

Overall, we believe we are building the right foundation to leverage AI in a disciplined and scalable way, and we're excited about the role we will play in creating long-term value for our clients and our business.

Slide 8 details how offshoring continues to be a meaningful opportunity for CBIZ. We are on track to achieve our target of increasing offshore hours from approximately 6% in 2025 to 10% in 2026. Our partners in the Philippines and in India are delivering high-quality work, and our U.S. teams are better engaging our global teams, which gives us confidence that we can accelerate our initial investment time line to further expand our global capabilities.

Over the next several years, with the benefit of our existing offshore delivery centers, we plan to expand hours completed outside the U.S. to more than 20%. We believe achieving these levels, which are consistent with comparable companies, will drive significant growth and margin opportunities over time.

To wrap up my remarks, I want to comment on the current business climate and our outlook. As I shared last quarter, our assumptions regarding the level of project-based activity largely drive the range of our 2% to 5% organic revenue growth outlook. With that in mind, I'd like to highlight a few encouraging trends we've seen since our last call.

First, the market environment for advisory work has continued to be favorable with notable wins across risk advisory, credit risk, valuation and private equity driving strong pipeline momentum.

Second, we are seeing increased activity in our Capital Markets group with more clients evaluating transactions as market conditions improve.

Third, we are very pleased to have a favorable pipeline of new prospects across both Financial Services and B&I, and we expect our pipeline to continue to grow. It is our expectation that revenue growth should continue to improve each quarter as we move through the year.

Finally, as Brad will discuss in more detail, we are pleased with the strong free cash flow we are generating, and we'll continue to redeploy that into debt repayment and opportunistically repurchasing stock at highly accretive valuations to create value for our shareholders.

Now I'd like to turn the call over to Brad for our financial review.

Thank you, Jerry, and hello, everyone. My comments begin on Slide 10. Our first quarter results represented a solid start to the year and were in line with our overall expectations. Consolidated revenue increased 1.3% year-over-year to $849 million, with organic revenue growth of 1%. Adjusted EBITDA increased $3 million year-over-year to $244 million, and adjusted EBITDA margin increased slightly by 10 basis points. Adjusted diluted earnings per share was $2.50 compared to $2.33 in the first quarter of last year, a 7% increase, reflecting the strength of our business model, synergies we are capturing through enhanced size and scale and a lower share count.

Turning to Slide 11. We remain very pleased with our free cash flow performance, which drives and supports our capital allocation priorities. Free cash flow improved $64 million year-over-year, primarily due to $53 million of proceeds received from the final purchase price adjustment. This improvement balanced our typical peak seasonal working capital use and enabled us to fund approximately $63 million in share repurchases through the end of April.

Net leverage decreased to approximately 3.4x compared to approximately 3.9x at the end of the first quarter of 2025. The improvement was primarily driven by growth in pro forma adjusted EBITDA, along with modestly lower debt levels. Our weighted average fully diluted share count, which includes all future shares to be issued as part of the acquisition, declined by 2.6 million shares year-over-year. April year-to-date, we have repurchased approximately 2 million shares through open market transactions and under our Right of First Refusal Program.

Moving to Slide 12. Please note a presentation update for this quarter. Our Financial Services segment now includes our former National Practices segment, which is now part of our Technology Services business. All figures presented today reflect this change and are on a comparable year-over-year basis.

Turning to performance. Financial Services had a solid start to the year with results in line with our expectations. Revenue increased 2.1%, driven by strength across core accounting, tax and advisory and resulted in reported organic growth of 1.8%.

As Jerry noted, results continue to reflect elevated but transitory client attrition related to the integration. We estimate this reduced first quarter Financial Services revenue by approximately 200 basis points versus last year. Excluding this impact, first quarter organic growth would have been approximately 4%.

Looking ahead, we expect organic growth to accelerate as we lap these attrition and integration-related productivity impacts in the first half and benefit from our growth initiatives in the second half. We remain encouraged by year-to-date new wins and a strong pipeline. And in addition, favorable market demand for our advisory businesses continues with clear visibility 60 to 90 days out.

On pricing, we continue to expect mid-single-digit rate increases, which are embedded in our planning assumptions. Our long-term financial services growth algorithm is unchanged, targeting mid-single-digit organic revenue growth and continued adjusted EBITDA margin expansion driven by top line growth and operating efficiencies.

Turning to our Benefits and Insurance results on Slide 13. First quarter revenue was $108 million, representing a 4% decrease year-over-year. Coming into the quarter, we expected revenue to be down in the first quarter due to tough comps on project-related work and contingent commissions. Contingent commission declines are primarily driven by client attrition that occurred in 2025.

The remaining portion of the decline was primarily driven by the unexpected departure of a single producer and his team in February. This was an isolated departure, and we do not anticipate any similar departures. On the contrary, we expect our net number of producers to continue to increase. As a reminder, our producers are subject to certain restrictive covenants, which we have successfully enforced in the past and intend to do so with this departure.

Within the recurring portion of the B&I business, which is consistent with the overall CBIZ split of recurring versus nonrecurring revenue, demand fundamentals were strong and our pipeline remains healthy. In addition, we continue to attract and develop new validated producers, and our industry-focused growth initiatives are gaining traction.

The recurring portion of our business, when normalized for the producer departure, was up approximately 4% in the quarter. B&I adjusted EBITDA in the quarter was primarily impacted by the flow-through impact from the nonrecurring revenue items as well as planned incremental marketing investments to support our growth initiatives. We're confident in our ability to grow at historical growth rates for the remainder of the year with B&I supporting our full year overall growth expectations.

Turning to our 2026 outlook on Slide 14. We continue to expect revenue to be between $2.8 billion and $2.9 billion, representing 2% to 5% year-over-year growth. Our adjusted EBITDA is effectively unchanged, but is updated to a range of $465 million to $475 million to incorporate the comparative stock-based compensation adjustment. We've increased our adjusted EPS to reflect a lower share count driven by our share repurchases through April and our stock-based compensation adjustment.

Adjusted EPS is now expected to be in the range of $4 to $4.10 per share, which assumes a weighted average fully diluted share count of approximately 60.5 million. Free cash flow guidance is unchanged and expected to be in the range of $270 million to $290 million, representing a 60% conversion at the midpoint of our adjusted EBITDA outlook. While our improvement in the first quarter was largely driven by a onetime benefit, we see ample runway in the near term to drive a higher conversion through lower integration-related spend, lower interest and improved DSO.

On Slide 15, our capital allocation priorities are unchanged and are supported by strong free cash flow generation. Our first priority remains funding organic growth and maintenance capital. Second, we remain committed to delevering, targeting a net leverage ratio of less than 2.5x in 2027. And at our current valuation, we view share repurchases as highly accretive and a compelling use of capital and therefore, intend to remain active and opportunistic. The strength and scale of our business model, combined with our meaningful free cash flow gives us confidence in our ability to invest in growth, return capital through repurchases and achieve our leverage targets over time.

With that, I'll turn the call back to Jerry.

Thanks, Brad. Our top priority in 2026 remains reigniting our growth engine and leveraging our scale. We have clear strategic growth priorities and efficiency initiatives that we are confident will drive value creation for all of our clients and our shareholders. We believe we have the building blocks in place to deliver on our long-term growth algorithm.

Now looking forward, we're focused on compounding value through multiple growth engines. We see tremendous opportunity to not only retain business and expand within existing clients, but also to land new clients who seek the multiservice capabilities we now offer. The work completed in 2025 has built a strong foundation for operating margin expansion as we increasingly deploy technology and leverage global resources. And importantly, we remain committed to our high-return capital allocation priorities that are supported by strong and consistent cash flow.

Finally, I want to thank our CBIZ team for your continued hard work and our shareholders for your ongoing support. We look forward to further engagement with you all in the months ahead.

And with that, operator, please let's open the call for Q&A.

[Operator Instructions] Our first question today comes from Jeff Silber from BMO Capital Markets.

Peter, let me start with you. I really appreciate you being on the call. Given the tools that are out there, do you think it's possible that some of your clients might be able to do some of the work that you're doing from an AI perspective on their own, perhaps unbundling some of the services and perhaps putting some pricing pressure on some of the services you're providing?

Thanks for the question. I don't think the tools are able to provide the expertise and knowledge we can offer in the profession. That's a requirement in the regulated environment that we operate in. They could certainly produce some anecdotal information, but the profession requires, especially in the regulated industry, for us to provide all that expertise and know-how that we've created or built over the last several decades, which are critical for delivery. So I don't see that as being a pressing concern.

Okay. That's great. And you gave some examples, one in terms of using AI a bit more efficiently in terms of answering RFPs. Are there other examples maybe from an expense perspective that you might be able to use some of the tools to help improve margins?

I think it's too early for us to speak on all of the things we're working on right now. We just took this next phase moving from an assistive to an agentic AI strategy. I would expect as the quarters unfold in the future, we'll have more examples that we can provide similar to ones that you just brought up.

Our next question comes from Thomas Wendler from Stephens Inc.

Happy to be up to speed on the company finally. I'm going to start off with the Benefits and Insurance. You had a departure there this quarter. Can you maybe remind us of the pace of increase to the producer count there in 2026?

Yes. Tom, this is Jerry. We are planning on having about 15% increase year-over-year. It's a little lumpy from quarter-to-quarter, but we're off to a good start, and we have a very strong pipeline. So we're confident that we'll be able to achieve that 15% target for the full year.

Perfect. And can you maybe speak to the cross-servicing opportunity there as you get some of those Benefits and Insurance hires fully up to speed?

Yes. It's a great question, Tom. It's actually often why producers join us, right? So when you think about our go-to-market through industry, and let's just say you're a construction client, that construction client not only needs the tax work that we do and the attest work that we provide and the valuation work, but they also need surety bonds. And they also need -- they have a workforce and they need payroll and they have to provide them with health insurance.

So what's a very attractive kind of draw to outside producers into CBIZ is that they have all of those arrows in the quiver now and they could bring it to life through those industry groups. So it might be a combination of, like I said, P&C, might be a combination of payroll benefits provider or an employee benefits plan, a 401(k) tax audit, a whole host of services.

Yes. Tom, this is Brad. Thanks, first of all, for initiating coverage. We're certainly glad to have you on board. I appreciate you and the Stephens team. I would just add to what Jerry said, if you look back about a year ago, we formally stood up the 12 industry groups. And so as we think about the last 12 months and not only the work around integration, but bringing these industry teams together, forming them, we are seeing a lot of really, really positive traction across the 2 segments, across all the service lines within the segments. And so we're really encouraged about the pipeline of opportunities that those industry groups are starting to pull together and seeing some early wins as a result of that collaboration.

Perfect. And maybe I'll sneak one more in here quick. You guys are pretty active in the repurchase this quarter. Can you maybe give us some color on how we should be thinking about the pace of repurchases moving forward?

Yes, Tom, thanks. Appreciate the question. First and foremost, I'll restate the priority -- capital allocation priorities that I highlighted earlier. I won't restate them because I think you heard them loud and clear. But we feel right now, our valuation is it's candidly what we feel is quite undervalued. So as we think about current valuation levels, the level of accretiveness of share repurchases is quite compelling, as I commented on.

So we're going to remain active. We still have a lot of flexibility to do that, driven by our strong cash flow supported foundationally by the recurring nature of our business model, the stickiness that comes with our client relationships and the strong retention we have. So we just feel like fundamentally, our business can support being more opportunistic there. But I'd also just say, Tom, we're going to continue to be focused on those opportunities to strengthen free cash flow, the things I mentioned, DSOs. You'll see lower integration spend as we move into 2027 next year. That will help our conversion and also help us accelerate our delevering strategy as well.

Our next question comes from Andrew Nicholas from William Blair.

I want to start off on price. I think you mentioned in your prepared remarks that you continue to expect price increases in the mid-single-digit range. Any color you can add to kind of recent pricing conversations, whether you're supported by kind of the macro backdrop, whether there's any pushback from a technology perspective? I know last year, amidst a choppy macro, there's a little bit more pushback. So just kind of curious for color on how those pricing conversations have gone over the past couple of months.

Yes, Andrew. First of all, we're just coming out of busy season. So we're not having a lot of pricing conversations now. We would have had those kind of at the -- entering into the season and as we firm up our engagement letters. But I will tell you, we're highly confident in our mid-single-digit pricing that we've put into the plan for the year. That is consistent with the pricing that we've achieved kind of historically through CBIZ. It was a little higher maybe in '23, '24, which is part of the conversation in '25. But in '26, at the mid-single-digit level, quite comfortable there and are not hearing really pushback on that pricing.

I will also say around technology and AI and those things, we really value-based price. Our clients expect that we're going to get efficiencies from a number of sources like offshoring, AI, automation, et cetera. So we're really not seeing pricing pressure there either really in a big way.

Yes. And the favorable market conditions within the more nonrecurring advisory pieces of our business, Andrew, have continued, and we have line of sight to that, as I commented here over the next couple of months at least. So we see that as fundamentally pretty strong in terms of pricing within those parts of our business.

Great. And maybe just to kind of follow up on the macro piece. It sounds like the backdrop has continued to improve, understanding that, that's one of the major kind of deltas or factors driving you between the top and bottom end of your top line guide. Just kind of curious as where we sit today, are you a little bit more constructive on those things outside of your control than you were when you gave the initial guide? And just kind of broadly, if you could expand a bit on the comment that organic growth improved as you move through the quarter. Is that predominantly a macro comment? Or are you getting some integration improvements that's helping you on a month-to-month basis as well?

Yes, Jerry and I'll probably team up on this one, Andrew. There's several things maybe to unpack there. I would say in terms of the guide, just like we said a couple of months ago when we put it out, the top end was predicated more on continued favorable market conditions, those conditions that we saw in the second half of last year. We're encouraged by the fact that we see that -- we've seen those continue in the first quarter. We have line of sight here for at least the next few months. So I would say a quarter doesn't make a year. And certainly, as we get here to the second quarter, if the conditions remain the way they are as we look to the second half of the year, that would give us encouragement to the top side.

Also, just as a reminder, we're -- the back half of the year, we'll be lapping some of the integration related -- start lapping some of the integration-related productivity impacts and some client impacts as well. So as you think about the back half growth rates relative to last year and some of the comparability there, I'd ask you to keep that in mind.

And then there was a third part, I think, to your question, Andrew, I'm sorry, I could not...

Yes. I talked about kind of the month-to-month, you said organic growth month-to-month...

Yes. So I think a few things there. One is January started off a little bit more challenging for us than maybe we expected, largely just because of the fact our teams were really working together for the first time in busy season. That includes them using technology during busy season for the first time that for many of them was either new or updated across the entire service line in some cases. So we had some just bumpiness in January. We feel like we fully overcame that and then potentially some as we progress through the quarter.

But then if we just strip that aside and look at some of the real growth as we looked at February of this year versus last year, March of this year versus last year, we're starting to see the improvement, the real more core organic improvement as well. So encouraged by that and gives us some encouragement -- further encouragement around just meeting our overall guidance as well.

Perfect. And if I could just squeeze in a quick modeling question. I think last quarter, you outlined kind of a rough mix between first half and second half on both revenue and EBITDA. I think it was 55-45 on revenue and 70-30 on EBITDA. Is that still a good way to think about how the year plays out or any kind of puts and takes a quarter later?

Yes. No, I still say that applies. There might be some very, very minor tweaks. But overall, that's still what we're expecting.

Our next question comes from Faiza Alwy from Deutsche Bank.

I wanted to follow up on the macro question. So I know this is obviously the busy season for you. 1Q is your highest revenue quarter. And so I'm curious, as we think about the improvement in organic growth from flat to up 2% this quarter, like how much of that is driven by sort of improving market conditions versus maybe better execution on your end in part because it is a busy season. So I just wanted to get a bit more color around that, just given the different mix of business through the course of the year.

Yes. Faiza, it's Jerry. I would say not improved macro conditions, I would say continued favorable macro conditions, right? So as you indicated, this is really kind of a heavy -- we just -- we're exiting a heavy compliance portion of our seasonality of our business. We'll have another one kind of in the third quarter. But in between there, it's a lot of more project-based discretionary advisory type work, which takes the type of climate that we're in to support that work.

We're very comfortable, very pleased actually with the demand that we saw for that type of work in Q1. We're very pleased with the pipeline. We have about a 60-, 90-day visibility into that pipeline. Very pleased with that pipeline that we're seeing now. And so long as those conditions hold kind of constant through the year, we're quite bullish on our ability to hit the guidance that we had laid out earlier.

Yes. And then I'd just add, Faiza, if you weren't covering us this time last year, but the front half of last year had some, I'd say, comparability things I'd just like to highlight. One is market conditions in the front half of last year were more challenging and uncertain, although we came into the year thinking they were going to be better. So there's a year-over-year comparability and that nonrecurring advisory part of our business is very, very strong. So we're encouraged by that. And then just sequentially, because I think you may have been referring to like Q4 versus Q1 growth rates. It does -- we are seeing improved productivity from the integration itself, which is very, very encouraging. We expect that to only get better as the year progresses.

Okay. Great. That all makes sense. And actually, I wanted to follow up on that sort of productivity question. Maybe you can just give us an update on the integration progress. I believe for 2026, you had a couple of remaining items like just the common practice management system and the real estate footprint. And I guess where I'm getting at is you talked about sort of some of the lapping, some of the churn in the business in part due to the acquisition. And so I guess just asking for the level of confidence that you really are lapping that and that there aren't any incremental things to consider there?

Yes, Faiza, what gives us comfort on the churn and the client churn is that we're not seeing the same conditions that we saw last year. So obviously, that churn related to predominantly 2 things. One was some conflicted clients. Of course, those are -- that was transitory, that's out of the system. And the second one was really kind of the profile of the client, the risk profile, profitability profile. We're not seeing those same kind of conditions exist now because we've already kind of addressed that in 2025.

The other thing that gives us confidence is as we look at the strength of our pipeline kind of across the board, just the new clients that we've won, the size, the profile of those clients and the pipeline of new clients on both sides of the business, both Financial Services and Benefits and Insurance, all point very favorable for us. So really encouraged there.

Yes. Let me add. Last year, as we were coming out of busy season and we were looking to obviously kind of go out win clients, address the pipeline that we had. We made some things difficult on our team as we came together, particularly around the attest side of our business, just around our client onboarding processes. So we've addressed that. We addressed that mid- start of last year. That's going very, very well. Our onboarding process for our clients has notably improved. Our teams are giving us that feedback. And as Jerry emphasized, the win rates that we're seeing and the quality of the wins is really strong, backed by a really, really, really strong pipeline. So I just want to reemphasize what he just said.

[Operator Instructions] Our next question comes from Chris Moore from CJS Securities.

Yes. Maybe another one on AI and efficiencies and just perhaps looking at it a little bit differently. So rather than looking at it from can your clients duplicate what you're doing on the AI side, a lot of the conversations that I've been having with investors is just the fear from a competitive standpoint that your clients will be looking for price reductions because there will be alternatives out there driven by AI. So I guess really the question is, from a competitive standpoint within the middle market, generally, you're competing with other firms that don't have the capability to invest what you're investing in AI? Is that the thesis? Or I was just trying to understand a little bit better how you're thinking about that.

Yes, Chris, exactly as you just described it. When we think about how well we're positioned today with our size, our scale, the investments that we're making in this area, the number of resources that we put against it, the tools that we now have, we could never have made those investments 18 months ago.

And so when I think about competing in the market against firms that are substantially smaller than us, I believe that there's a great opportunity to take market share for no reason other than, again, they will not be able to make those investments. They will not be able to upskill their workforce in the same way and really kind of create new products and solutions to bring to the market. We wouldn't have been able to do it without the size and scale, and I'm sure they won't either. That creates a great opportunity for us in 2 ways to take market share kind of from that next level of competitor in the market.

And also, we've had a little bit of kind of comments around others coming down market. It also allows us to go upmarket. So we see great opportunity from a market share perspective, both upmarket and downmarket as a result of the investment we're making in our size and scale in this area.

Peter?

Yes. Just one added comment. I feel that AI and automation is strengthening our position and not weakening, and it's going to increase our ability to be more competitive.

I appreciate that. Maybe just on the project work. So Jerry, you went into that a little bit. But specifically with respect to margins, are there certain buckets that are meaningfully kind of higher margin contribution than others?

I would say, Chris, overall, our advisory work is, in fact, higher margin than the more compliance work. Now it's -- let me remind you of the attributes of the business, 72% recurring, right, essential services. So we like that feature, right? That's a feature that's very stable, allows us to perform kind of regardless of the business climate, et cetera. But we also like the other kind of 28% that tends to be more project for all the reasons we talk about in the environments like we're facing now, like we're having now favorable environment, it allows us to bring greater value to the client relationship. It is, in fact, higher margin. At times, it can be higher growth. So very favorable there, too. And again, overall higher margins, the mix of those margins vary by service.

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

Thank you for joining the call today. If you have any questions, please feel free to reach out to the CBIZ Investor Relations team. Thanks, and have a great rest of your day.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Hello, everyone. Good afternoon. Thank you so much for joining, and thank you to the team at CBIZ for giving us this opportunity to host this session today, really excited about it. So from -- just so you guys don't know me, I'm Faiza Alwy. I head up the research for business information and professional services companies here at Deutsche Bank.

And through the course of this, if you have any questions for management, please do feel free to e-mail me, and I will ask your question through this process. So from CBIZ, we have Jerry Grisko, CEO and President. We have Chris Sikora, who's Head of IR and Corporate Finance. Dan Richards, who's Head of Business Planning and Analysis; Lori Novickis, Director of IR; and Peter Scavuzzo, who's the Chief Strategy Officer and National Leader of Technology Transformation and Innovation. And Brad, unfortunately, the CFO was not able to join, but I think we have a good group from CBIZ.

So I'll get started. Jerry, I'll throw it to you first. Maybe you could just start with a very quick intro on the company for those that may not be familiar.

Happy to do so, Faiza. Thanks for having us today. For those of you who don't know CBIZ as well, we're a leading provider of professional business services to middle market companies. We provide accounting, tax, advisory services, along with a host of other services, including benefits, insurance, payroll, technology and related services to our clients.

We serve principally a middle market client. The attributes of that client are that middle market being a very large total addressable market, some measure that about $400 billion. So very, very large. That client tends to be underserved, oftentimes being served by a local market service provider or maybe a regional service provider. The characteristics of that provider are that they're very talented people, but they oftentimes lack the breadth of services and the depth of subject matter expertise that, that middle market client needs in this increasingly complex environment.

They rely on advisers like CBIZ for their most important decisions that they make, expanding plants, growing overseas, making big capital investments. They turn to us and the services that we provide to them provide a foundation context around being able to help them through those very important decisions. Some of the attributes of the business that are unique relative to others are we provide largely essential services.

Our revenues are generally about 70% of them recur year in and year out. So if you think about the services we provide, our clients need someone to help them with their tax returns and with their assurance services, with their payroll, with their insurance services as well. So those services tend to recur year-over-year. About 30% are more project-based. Those are higher-value services. So when our clients are, in fact, making those very important decisions, they oftentimes need specialized expertise, and we can come in and help them with those things.

We have very high retention rates among our clients, about 90% year-over-year. And CBIZ as an entity produces very strong cash flow year in and year out. So that's some very attractive attributes. About 16 months ago, we completed the largest transaction in our history with the acquisition of Marcum. That allowed us to enhance the breadth of services that we can bring to our collective client base, now over 130,000 clients strong.

It provided critical scale in key geographic markets that are very strong markets for that middle market client. It provided us with the size and the scale to make investments in critical areas, including offshoring, now artificial intelligence and technology and in branding. It allowed us to attract a different level of talent and retain our top talent throughout the organization at levels that were very important to us.

And it provided us with multiple levers to be able to expand the share of wallet and the new logos that we can bring into the organization. So that transaction was transformative for us, and we're really excited about that. As we enter into 2026, also very encouraged by the backdrop for the beginning of the year.

Compared to this time last year, more favorable market conditions. The integration of the Marcum transaction, which largely occurred in the second half of last year, our work around that is largely behind us. A couple of things -- a few things we still need to complete, some real estate integration, some systems integration, but the vast majority of the tasks and the items are largely behind us. And we're beginning to see the value of bringing the transaction to life through our industry groups and through some of the work that we're doing, and we would expect that to start to accelerate into '26 and beyond.

So with that, Faiza, by way of background, I'll turn it over to you for...

Yes, absolutely. Thank you so much, Jerry. I guess I'll actually start with the Marcum acquisition, given that, that has been such a transformative acquisition for you. And now that much of the integration is complete, I guess, reflecting back on the acquisition, what do you think has gone well? What do you think could have gone better? And maybe you can expand a little bit more on some of the opportunities that you're most excited about from here as it relates to Marcum.

Yes. I would say, without question, what we're most excited about is the talent that came and joined us. I mean, top to bottom from the leadership all the way down through the ranks, just really, really talented team of people and how well that they've come together with our groups.

We were, in fact, in New England, in fact, probably 6 weeks ago with a group of leaders. I think there were 40 or 50 people in the room, kind of half from each of organizations. And you couldn't tell what organization they came from. So just the kind of how well those teams have come together, again, the strength of the teams, the strength of the clients that they serve.

And they brought to us some very attractive specialty areas, things like digital assets practice, alternative investments practice, their SEC capital markets practice. So they brought to us some very interesting and growing and complementary service lines and areas that we can go to business -- go to market.

We brought to them depth of services, right? So -- or that breadth of services. So we built -- brought more advisory services, and we brought all the benefits and insurance services. So now that kind of combination of that full breadth of services and that deep subject matter expertise into some of those special areas are very exciting for us.

Yes. Yes. Excellent. Is there anything that you want to highlight as maybe something that could have gone a little bit better? I know at the time of the acquisition, you talked about potentially some new sectors that you would -- you could potentially enter. Maybe talk a little bit about that and put a finer point around some of the revenue synergies that you're contemplating.

Yes. So from the things that we weren't -- didn't fully expect, listen, whenever you bring 2 organizations of almost like size together, there's always some friction in productivity, right? So what was important to us is really as quickly as we could to bring everybody together physically as quickly as we could, and we've done a lot of that, put them on the same systems, the processes, the technology, the workflows.

And so I guess when we look back, I think there was some productivity loss through the second half of '25 that may not have always been anticipated, but it's inevitable when you bring 2 organizations together. You mentioned some service lines. I mentioned those, again, the strength of some of these fastest-growing service lines within CBIZ, this digital assets group that we are very unique in our -- among our peer group with the size and the scale and the deep expertise there we have there. We think there's a real opportunity to accelerate growth.

Again, this SEC Capital Markets practice that they brought over is really exciting, very exciting for us. The technology practice, the scale that we now have coming out of the transaction should provide really exciting growth opportunities for us. And then it's just a combination of bringing these things together, things like the -- our offshoring capabilities now.

They were more built out on the Assurance side in the Philippines. We were more built out in India on the tax side. Together, we can take advantage of all those things. And just the investments we can make in the business. So I'm really, really pleased with what we have and what it presents for us for the future.

All right. Wonderful. I guess let's pivot to your revenue outlook. You talked about the environment being somewhat better starting out the year. I know you've talked about 90% client retention, sort of mid-single-digit pricing, some contribution from existing -- expansion of existing relationships, adding new logos and all of that, and all of that gets you to roughly 2% to 5% revenue growth.

Could you maybe talk about each of those drivers and kind of where you have the most confidence? And more importantly, sort of what you're doing internally to drive this growth?

Yes. I think the 3 levers, really, pricing is pretty much -- we're highly confident with the mid-single-digit pricing. We've historically been able to achieve that pricing. We saw that last year, and our engagement letters really for the work that we're doing in the busy season have gone out in that kind of mid-single-digit range. So we're really comfortable there.

On the next 2 levers, which are really kind of share of wallet and new logos, what's going to bring those to life, really excited about that is the industry groups. When we brought the 2 organizations together, we really segmented our business into 12 industry groups, all of which have sizable scale. And now by being able to bring in a breadth of services into those industry groups. So if you think about a real estate developer to be able to bring for them not only tax and accounting, but also valuation work and cost save work and all the specialty advisory work around that and now even broader some insurance needs, they may need a surety bond.

So what we've done within each of those industry groups is we have a leader in place of all industries and then each of the industry groups has a leader and each of our people are assigned to one of those groups, and we're working now to develop really highly tailored bespoke solutions that we can bring using that breadth of services.

So that will expand wallet share, when we come into that client and be able to talk to them about all the things that we can do for them, that will expand share of wallet. And it also allows us to go out and attract new logos, clients because it's such a unique offering in the market, they can't receive that from any one of our competitors. So we think it will help us in both of those areas.

Yes. So I guess just to put a finer point on this in terms of your visibility as it relates to revenue growth, it sounds like what I'm hearing you say is that you feel very confident about the pricing part of it, which is that mid-single digits and where there may be -- where you're dependent on market performance is where -- whether you get from 2% to 5%.

Yes. I would say, again, 3 levers, right? Pricing, this kind of share of wallet new logos and the last one being kind of the advisory, more kind of project-oriented advisory. And that's the piece that is more market dependent. As you'll recall at the introduction, I mentioned that 70% of our revenues are recurring. So those things kind of come in the door year in and year out regardless of business conditions. But that 30% is highly dependent on market conditions.

And that's really the -- within the range of 2% to 5%. If we see something like the climate that we had in the back half of '25 and what we're beginning to see into '26, we're kind of mid to upper end of that range. And if it was something less favorable, it might be at the lower end of that range.

Got it. And then, Jerry, I really want to get into this. You noted on the call that you're not seeing any impact from AI on demand or pricing at the moment. I do want to ask you about the FT article on KPMG, Grant Thornton, kind of what your perspective is on that? And then we'll talk a little bit more about how you think AI might change the industry.

Yes. Here's what I would say. I can't really comment on the Grant Thornton, KPMG situation other than to say, if you look into that, the total amount of fees on that engagement actually went up, right? So when we looked at it, they may have taken fees down in one area, but they went up. But that's all. I don't know any more detail than that.

What I would say is we're not having that conversation with our clients. Our clients are not coming to us, and I made this comment on our most recent call that we've not seen any impact on demand, and we've not seen any impact on pricing from AI nor would we expect to. It's not the approach that the clients take with us.

Middle market clients are really distinct in this way in that, first of all, the vast majority of our fees are fixed priced -- so well, we do a certain body of work for the client for a certain price. They don't come back to us and ask how much of that was offshoring and did you gain efficiency out of that? Or did you gain efficiency out of automation or other tools. We just generally don't have that conversation.

They are generally resource constrained in the areas of the work that we provide. And what they're really looking for is someone who's taken the time to get to know them, to know their industry, to know their needs, to have context around the advice. And so we're not having pricing discussions with our clients around the fact that we may be gaining some efficiency through offshoring or automation or any other form of efficiency.

Yes. And just -- and I know we have -- this happened last year where it wasn't related to AI. I know you said that, but you kind of assumed somewhat higher pricing at the beginning of the year, and it ended up being lower. I think it would be helpful for you to just give us a little bit of background on that, not to entirely rehash the past, but just for those that may be a little confused and thinking that there was an AI impact last year. I think just...

Yes, definitely not AI impact. What we found last year was we actually -- in the years '23 and '24, I mentioned earlier that we were able to get mid-single digits. In '23 and '24, just because of an inflationary environment, we were actually getting -- able to receive a little bit more than mid-single-digit pricing. And we went into '25 expecting that, that climate would continue and the climate was different, right?

So as it settled out, settled out into the mid-single-digit pricing, that's kind of the baseline for what you would expect in this business kind of in normal business conditions and climates. And that's what we saw more last year as opposed to an inflationary environment. Now if we were in the future to find a more inflationary environment again, then I think our pricing does go more into that kind of 6%, 7%, 8% to match the environment.

Understood. Understood. Okay. Okay. And I guess let's talk a little bit more about the changes the industry might experience from AI. I heard your comments on the call around the need for trust. Maybe you can highlight that point a little bit more for us, give us some examples to really drive home this point, sort of how important is trust in the world of accounting and tax and really all of your advisory business...

Well, specifically as it relates to accounting, they refer to the accountant as the trusted adviser to the business owner, right? And so while we believe that AI, despite the fact that it's not having an impact today, it will change the way we work in certain ways over time. It will make us all more efficient. It will augment the work we do. It will allow us to come up the value chain and the type of work we do for our client.

But it will never take the place of that trusted adviser, that trusted relationship in part because the client relies on us for the judgment that we bring to the engagement, for the deep knowledge that we have of the client and of their industry for our assessment of the risk that we're talking about and the risk tolerance of the client for context around the engagement and for kind of a holistic view of what the client is trying to achieve in a particular situation.

And so yes, while we may be able to do certain portions of the work more efficiently as a result of AI, it is that really kind of intimate trusted relationship we have with our client that technology will never displace.

Yes. And maybe this is a good time to bring Peter into the conversation. Maybe you can talk about some of the initiatives that you have from an automation and offshoring perspective and talk about some of your initiatives right now?

Yes, sure. So to really maximize the value of AI, it really starts with our people and upskilling our people. And if you kind of go back to '25, our primary objective was to introduce assistive AI to our entire population. And we did do that. We provided a unique custom-built product that we deployed to everyone in the CBIZ organization and interface to empower them with assistive AI technologies.

And that started bringing the talent pools skill set up, raising their ability to comprehend AI's value and start applying it to their specific jobs and functions. In '26, our focus is moving from assistive AI to Agentic AI. And in order to do that, we are anchoring in '26, an Agentic operating platform that we'll be putting in place throughout the organization. And with that platform, we'll start introducing discrete agents into our workflow that we can start weaving into the day-to-day jobs of our people.

Those initiatives will really take hold probably in Q3, Q4 of this year, where we'll have really good tangible examples of not only one-off agents, but starting to weave them together to start tackling end-to-end workflow. In addition to that, we're focusing on what we call an intelligent operating system. And our vision there is to create a single cohesive employee intelligence portal that applies CBIZ's context to the agent operating platform and weaving that together to enhance the relationship our people have with AI and our clients working with us have AI.

And the other initiative that is critical going back to our people is we have a commitment in '26 to provide a fundamental AI training across the entire organization with pockets of people getting accelerated advanced training so that they could help be part of us tackling the overall AI initiative. While that's all happening, we also recognize that the standardization of our business, our processes and our data are critical, and we're working on that because we don't believe AI is turnkey.

So by standardizing our processes and procedures and our data, we activate the other piece of this is when we purchase or align with a vendor in the ecosystem that provides softwares to our business. The correct vendor relationship has investments in AI as well that we can then maximize and take advantage of. And an example of that is in our tax practice, where it was very elusive to be able to extract footnotes from K1s.

Now with that technology, with AI in place there, we believe that will help us really accelerate our ability to perform in that particular area. We also believe that our journey that we're doing within CBIZ is going to port over to our middle market client. The middle market client doesn't know where to turn to. They're going to be dealing with the same challenges and the same fears that pretty much everybody is. So we're going to bring that knowledge and that value to help our clients go through that similar journey and to help them in their pursuits of AI.

The last area is we expect AI to introduce complexity in the everyday operating of our organizations that we service, the middle market client. And that complexity now aligns back to that trusted adviser that we're really anchored in with our clients on. And that complexity could be introduced anywhere in the way they're operating, including in their financial operating model. So again, just like our profession -- when we started with auditing financials, we progressed by auditing cyber. We believe that's an opportunity for us to step in and be that trusted adviser in that AI ecosystem that our clients are embarking on.

Okay. That's a very interesting point. Can you talk about like how -- are you starting to see some of this come through yet? Or I imagine it's a bit too early. And when it does come through, like how do you -- I know you mentioned a lot of your contracts are fixed price or outcome-based. Sort of how does that work when you have -- when the job becomes a little bit more complex?

Jerry, did you want to get that? Yes. So the -- it's still early stage, to be honest with you. If you kind of pool the clients we work for, they're middle market clients. They're on a very early stage in playing with AI. But we anticipate on a go-forward basis, as they start incorporating in AI knowingly or unknowingly into their everyday life, it will create the complexity.

And with our team, with the investments of talent that we've been able to bring in and us hopefully being on the front end of this AI journey, we'll be able to very naturally and easily step in there and provide clarity and guidance and really position ourselves to stand out in servicing our middle market client.

Okay. Okay. I guess maybe for you, Jerry, like when you've had these situations historically, like you mentioned cyber, for example, like what -- how does the contract change? Like does that suggest you take higher pricing? Does -- how does the -- how do you benefit from it from a revenue perspective?

Yes, Faiza, that's a great question. So if we know it going in, obviously, it's priced into the engagement, and it's typically premium price because our competitors typically don't have those services. So cyber was a perfect example when cyber really kind of became what it is today, and we were unique in the resources that we had to be able to bring to the market. That just got built into those fixed price contracts and was into our engagement, and we provided those services to our clients.

And they gladly paid the number, the price because, again, others in our competitive set couldn't provide those services. I expect the same thing will happen with AI. If we're already in an engagement, then it really comes in out of scope work, right? So we do have the ability even in a fixed price contract where we identify work that needs to be done that wasn't anticipated in the engagement to expand that pricing as we work through the engagement.

Yes. Okay. Okay. And then just going back to the automation and the productivity. I mean, again, I imagine it's too early, but do you have a sense for like how to think about some of those savings? Does it mean fewer new hires? Or how does that again translate into the financials of the company in your view?

Yes. Well, what we think is -- what we've seen in the past is take offshoring, for example, right? When people -- when our industry started to offshore those savings weren't passed on through to the client. In fact, the discussion with the client is we're able to hold your pricing increase year-to-year at a mid-single-digit level because we're leaning into these efficiency opportunities that we have like offshoring to be able to keep your pricing there.

So we expect that as AI and other automation becomes more available to us, that will expand margins within the organization. And again, with fixed fee pricing, we think that, that's an opportunity for us on the bottom line. We'll see where it goes over the long term, but certainly, in the short midterm, that's what we would expect. As far as resources are concerned, I think we look at it in a couple of different ways.

First of all, over time, we will hire a different profile of person, not just a traditional CPA or traditional certify this or certify that. Things like data scientists, data analytics and prompt writers around AI. So I think the workforce expands. I think it's just the profile of the person may change over time.

And also, I think the days of the very traditional kind of triangle, where a lot of people at the bottom at the entry level and then very few people at the top, I don't see -- you hear people talking about a diamond. I don't think a diamond works because you don't have the people at the top of the funnel to develop over time. But I could see something that more like a house, right, where you have the top of the pyramid, but then kind of flatter walls going down over time.

Yes. Okay. But it's too early for you to make any changes as it relates to new hires, new -- whether it's campus recruiting or entry-level hiring. Is that?

No. We are even today looking at different profiles of people. But as far as the numbers of people, not dramatic changes at this point.

Yes. Okay. And then just to talk about offshoring a little bit. So I know you mentioned Marcum, more offshoring in the Philippines, you guys have had historically more offshoring in India. Just have you been rethinking offshoring just in light of AI and automation? Or just help me think through like what are the tasks that happens from an offshoring perspective versus what are the tasks that can be ordered?

Because in my head, I'm thinking if you're offshoring, that's usually typically repetitive tasks. And I would think that those are the ones that can be automated via AI, but just help me think through, I guess, what roles get offshore and what roles get more automated.

Yes. We think -- basically, first of all, we think of offshoring as access to a global workforce, right, more than just kind of the efficiency element of offshoring, it's really access to a global workforce. So if you -- and I know you track the accounting industry, for years, the discussion has been around kind of resource constraints, right? Fewer students, baby boomers aging out, fewer students coming in. So we really needed to be able to solve that issue, and that was largely solved industry-wide through offshoring and access to a global workforce.

I think what will happen over time is we will still access a global workforce. But the work that we expect from that global workforce will also go up the value chain as work that's kind of the lower end of the value chain, the more kind of highly repetitive compliance-oriented work will be somewhat impacted by AI and other automation tools.

So I don't think it eliminates the need for -- in fact, we don't see it eliminating the need for offshoring. I think what we will do is continue to upskill our offshoring resources to come up the value chain in the work that they do.

Yes. Okay. That makes sense. And again, for everyone who's listening on this call, if you have any questions, want me to address anything with management here, please do send me an e-mail at [email protected].

Okay. I guess maybe we can move into just more broadly, like just the competitive environment. You talked about the overall accounting industry. We know it's the big 4, and then there's -- you obviously focus on the middle market.

Are you seeing -- just talk about the competitive environment. Are you seeing maybe big 4 possibly encroach on your space in the middle market? And alternatively, are you moving up the chain, moving down the chain? Just help us think through the current competitive dynamics.

Let me just say this. The timing of the Marcum transaction could not have come at a more opportune time. The size and the scale that we now have allows us to go both upmarket and the investments that we're going to be able to make in things like AI and automation and offshoring allows us also to go a little bit down market, right?

So we see the environment that we're in now with the size and the scale and the investments that we're making allows us to go upmarket into that middle market client and a little bit down market as well. Think about the down market opportunity, though, because one real kind of differentiator here is we keep talking about AI. We keep talking about the investments that are required to be made there.

There's a very small number of firms that serve that middle market client that can actually afford to make those investments. Invest in the tools, invest in the people, invest in the training. And so I see over time, there's going to be a real separation between the firms that are on that path and are making those investments and are upskilling their workforce and those that simply can't afford to make those investments. And the value that we'll be able to bring to clients will be market changing.

And so when you think about the large TAM in the middle market, we kind of squarely play in the middle. We see there's opportunity to go up to the upper end of that middle market, and we see the ability, if we choose to, to go down because the firms that are below us will not be able to make those investments. So we see it really as a great opportunity for us.

And I guess as we think about some of these tech investments that you're making and the automation, how would you characterize yourself versus the big 4, for example? Are you aligned? Are you making similar types of investments? Or are you doing more or less? What's your -- what...

It's hard to measure. It's really hard to measure. I'm sure that they are investing more dollars into this space than we are. But we don't really typically go head-to-head with the big 4. We typically go -- we call big 4 Tier 1. We're really kind of squarely Tier 2 firms. So if you look at number kind of 5 through 20, excluding the big 4, we're right squarely in that grouping.

And I will tell you, Peter is a leading authority when there's industry conferences. He's usually the one that's on stage leading the way on these topics. We know because we're with our peers at these industry conferences, what they're doing, we feel really good about the amount that we're investing, our commitment to making those investments, how we're -- the talent that we've added to the team in these areas.

I mentioned on our call, we now have -- and again, the size and scale has allowed us to do that. We now have a team of over 60 people or approximately 60 people kind of dedicated just to transformation and innovation, including things like AI and data governance and data extraction, new tools, kind of R&D around new tools that are in the market. The smaller firms can't do that. And most -- candidly, most of our peers don't have that level of resources and those dollars committed into those areas. So we feel really good about how we're positioned in our Tier 2 spot.

Yes. Yes. Okay. Okay. Makes sense. And then I do want to touch on -- you talked about one of your strategic priorities being attracting and retaining talent, how important sort of talent is in your sector. Maybe you can talk about some of your initiatives. I know the Marcum acquisition has likely helped there and provided you with a lot of talent. But talk a bit more about what you do -- what's new and different about, again, in terms of your retention and acquisition of talent?

Yes. So on the attraction side, and we'll talk about the retention side in a moment. But on the attraction side, just our new position, what we now, how we're now positioned in the market has allowed us to attract talent that we've never seen before. And one example, actually, a couple of examples are on Peter's transformation innovation team.

We have the person that's leading AI, our AI initiatives came out of the big 4 was leading those initiatives. For the -- one of the big 4. The person that's leading data within that team came out of one of the big 4 was one of the leading people in data. Those people would not have joined a firm that is half the size. There's just not enough opportunity for them, right? So kind of across the board, the level of talent that we've been able to attract is already noticeable in many areas.

The other thing that we're doing proactively is within each of these 12 industry groups that I talked about, each of those groups, industry groups and the leaders within those groups are charged with identifying their most highly regarded competitors within each of those industries.

And we have a proactive outreach around talking about the organization that we now are, all the abilities that we can bring to the -- to not only them and the tools that we can bring to them, but the services we can bring to their clients. And we have a lot of interest and have already had some really terrific talent join our team just as a result of the platform we now have, how we're going to market, the investments that we're making in these areas and what a differentiator it is compared to other firms.

So it's starting to take hold. Like I said, this is really kind of a second half, back half of '25 and what we've seen so far into '26, but very encouraged by what we're seeing there.

Yes. Yes. And then just, I guess, tying this point on the prior one together, to the extent you do go down market, what does that mean from a talent perspective? Like is there -- do you think there's enough sort of efficiencies in the system where you can do more with fewer people? Or does it mean maybe it means more acquisitions? Or like how do you really build out going down market? What's the cost?

Yes, I think -- I mentioned going both ways, right? So I think our focus is really continuing to go upmarket. But the question that I answered on the last one was really around when these investments in AI and automation and offshoring really take hold, if we are, in fact, seeing our ability to process far more cost effectively and efficiently, it will allow us to go down market.

I will say when we go down market, it will still be squarely within the middle market, but it might be kind of going down from where we are now. I think the greater opportunity is to really kind of go upmarket into the middle market.

Okay. Interesting. Okay. I do want to just touch on some of the modeling points given that you just reported results a few -- just last week. And so look, I think we understand the incentive comp dynamic where there may be $60 million to $70 million of expenses, if you hit the high end of the revenue guide, but not on the low end.

So perhaps we can hash out just the quarterly cadence of revenue growth and EBITDA. I think you said 1Q is likely to be low end of the revenue growth guide. So just starting with that, maybe talk about some of the factors that are driving that and what kind of builds that acceleration?

Yes. Let me give you a little bit of the pacing, and then I'll answer the question around kind of how it ramps up throughout the year. Pacing, we don't give quarterly guide, but just kind of for -- to create the parameters. Revenue -- think about revenue in the first half, so the first 2 quarters is about -- or 55%, about 45% in the second half.

EBITDA -- adjusted EBITDA, about 70% in that first half, about 30% in the back half, right? So those are kind of pretty good parameters for how we expect that to fall out. As far as how the revenue will pace, we believe that it will ramp up over the year for the following reason, right? Why is it not kind of equal through the year?

In Q1 and Q2, the first half of '25, we had some clients in certain of our practices that are -- that we've called. We know the profile of the client really didn't fit the profile that was a CBIZ profile. So we have that revenue in '25. We won't have the revenue in the second half of -- or the first half of '26. But we'll lap that, and we're obviously winning new logos all the time.

And so that's when we expect the revenue to start to accelerate. The other factor that we have in '25 is, as you'll recall, we said we're not going to do any integration work that would interfere with client work through the first half. So that really came into the second half where we put people, we co-located them. We changed the software that they're using. We changed the workflow.

There is inevitably some learning curve and some productivity loss as people adjust to those things. That really kind of comes in the second half of '25 and a little bit into '26. So those are the 2 things that are really kind of impacting the early part of '26 growth rates, but we expect that we'll lap that pretty quickly and then growth will ramp up through the year.

Okay. Okay. And just in terms of the productivity loss, I guess, are you confident that we're kind of past that phase now and we're ready to ramp? And really, as we -- it's really just the clients that you've called that are impacting the first half? Or do you think there's...

There will be some productivity impact in the -- in this quarter and kind of through April 15 because the teams are now kind of feeling the full weight of all of those changes during the busiest time of the year, right? So we still have team members that are learning new systems and working on new processes, right, doing work in a new way through this busy season. But we think -- well, we don't -- that will lap once we kind of get through this busy season, that's behind us and then we're -- that's behind us.

Yes. Okay. And then just if you could help us from the EBITDA side because as you said, you're expecting about 70% of the EBITDA in the first half, 30% in the second half. Usually, that first half EBITDA is a little bit higher.

And so is that just a dynamic of revenue growth being a little bit lower, but maybe help us think through there might be an incentive comp dynamic because that first half EBITDA percentage seems a little bit lower than I would have thought...

If you take the normal -- and I would -- you're right on the incentive comp. But when we go back over the past couple of years, and we take out some anomalies that we know existed in those years, that's where we kind of get that 70-30 split up.

Okay. Okay. Understood. Okay. And then just on the cash flow side, like I think that was a nice positive surprise in terms of your cash flow guide. Maybe you can talk about some of the drivers of the improvement relative to 2025. And then sort of how to think about the sustainable level of cash flow conversion as we look ahead over the medium term?

Well, Daniel is sitting next to me, I could answer the question, but I'll turn it to Daniel, so he has a low airtime there.

Sure. Yes. So as we think about 2026 versus 2025, Faiza, there's really -- there's a couple of items that are causing or not causing, but creating that increase year-over-year. So one of them was we had some integration-related onetime items in 2025, I'll call them, that aren't going to recur in 2026.

And then we also had, as you might have seen in our 10-K that we just released, a subsequent event in January, which was $50 million of cash that we ended up recouping from the final purchase price negotiation on the Marcum acquisition. So those 2 items are creating almost near $100 million of favorability year-over-year.

But I would say on top of that, right, where we still have opportunity, not just in 2026, but even going forward is in our working capital, right? So we're working -- we're targeting our DSOs at a lower level. And then in 2026, we actually have a higher level of capital expense that is related to some of the facility integrations that we're doing.

That is a headwind in 2026. But as we go on beyond 2027, we should get to more of a normalized CapEx level that will -- back to your question on sustaining the cash flow will help us get to that more normalized cash flow level.

Great. Great. And then just last topic I want to touch on. I know we're close to the end of the time is really just on capital allocation. And my question is just given where the stock is, I know that one of your priorities is deleveraging. You want to get back to a lower level of leverage. But how should we think about share buyback versus deleveraging? And then I do want to touch on M&A, but I'll let you answer the share buyback question first.

Yes, I'll turn it to Chris.

Thanks, Faiza, for the question. And I would think about capital allocation, it's really simultaneously taking advantage of some opportunistic share repurchase while still pursuing our longer-term leverage ratios.

As always said, over time, less than 2.5x for a net leverage ratio is what we're moving towards. But I also think that will be balanced against just an opportunistic approach to share repurchase. And I think the free cash flow generation of the company is strong enough, where we can do that simultaneously.

Okay. And then I guess from an acquisition point of view, I know you've been very busy integrating Marcum. It's been a big project for everyone at the company. At what point do you think you're ready to do more acquisitions? I believe you said we shouldn't anticipate anything big, but how do you think about the M&A opportunity in the sector?

Yes. We would be very selective through 2026 on any acquisition opportunities. Just with where the stock is trading currently, we think the greater opportunities would be stock buybacks, certainly balancing against getting our debt down. But we are -- those we're in the people business and these people businesses don't come around again, right?

So where we find a very strategic asset that can help with a very strategic imperative for CBIZ to accelerate growth or give us scale in a certain market, we would certainly look at something, but we wouldn't expect anything of scale or size really in '26. We would expect to resume going into '27 and beyond.

Yes. Yes. And Jerry, do you think just going back to the prior conversation around AI and efficiencies and you having the scale and ability to make those investments, like do you expect to be more acquisitive? And maybe, again, reflecting on your Marcum acquisition, like are there more bigger deals over time that you think would be beneficial for the company?

When you talk about something of the size of Marcum, I don't anticipate another deal of that size for at least the foreseeable future. I could see us in key markets. There are still some geographic markets that are very important to us. And we would -- obviously, scale is important, as I indicated in the space.

So '27 and beyond, we would be very interested in a sizable platform in some key geographic markets. We would also be very interested in acquiring key strategic service lines. You mentioned cyber that was on that list. FP&A, data analytics, things around AI advisory would be very interesting to us. So we will continue to look for those types of business opportunities, tech, IT.

Yes. Yes. Okay. Excellent. Okay. Well, that's -- those were all the topics that I wanted to hit. I don't know if there's anything, Jerry, from your perspective, Peter, really anyone at CBIZ that you want to highlight that we didn't touch on?

I'd just always like to wrap up with -- if you look at CBIZ today and you look at us over a long period of time prior to this and where we're going today, I've really never been better positioned to continue to grow and to expand our margins and generate free cash flow. The size and scale that we have today, the breadth of services across our segment, our deep subject matter expertise, our deep industry expertise, the combination of those things are unmatched by any of our competitors.

The size and scale that we now have allows us to make important and key strategic investments in things like AI and automation, offshoring, branding, technology, give our people the best tools in the industry. And the work that we did in '25 on the integration is kind of largely behind us.

And so '26 kind of in the early part of '26, you'll see the growth that we talked about. But we think by midyear and beyond that, you'll start to see an accelerated growth platform, and we're excited about what the opportunity presents for us. So we thank you for the time today and appreciate you giving us the opportunity to share our CBIZ message.

Yes. No, thank you so much. Really appreciate you giving us the opportunity to have this session. And yes, thank you, and thank you to all the attendees for joining. Really appreciate it.

Thank you, Faiza. Thank you, everybody.

Good day, and welcome to the CBIZ Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Sikora, Vice President of Investor Relations and Corporate Finance. Please go ahead.

Good afternoon, and thank you for joining us on today's call to discuss CBIZ fourth quarter and full Year 2025 results. During this quarter, we posted an earnings presentation that tracks to our prepared remarks. The presentation is available on our Investor Relations website. Before we start, I'll remind all participants that you will be hearing forward-looking statements during this call. .

These statements reflect the expectations and beliefs of our management team at the time of the call, but are subject to risks that could cause actual results to differ materially from these statements. You can find additional information on these factors in the company's filings with the SEC. Participants should be mindful that subsequent events may run in this information to be out of date. We will also discuss certain non-GAAP financial measures on today's call. As noted on Slide 3, a reconciliation between GAAP and non-GAAP financial measures can be found in the supplemental schedules of the presentation.

Joining us for today's call are Jerry Grisko, President and Chief Executive Officer;Brad Lakhia, Chief Financial Officer; and Peter Scavuzzo, Chief Strategy Officer and Technology Leader. I will now turn the call over to Jerry, who will begin on Slide 4.

Thanks, Chris. Good afternoon, everyone, and thank you for joining us. I want to start today by highlighting how CBIZ positioned to win in the middle market. We have nearly doubled in size, enhanced our service offerings and advanced our investments in people, technology and automation. The middle market professional service industry has historically grown above GDP and with a large and growing total addressable market of diverse clients that rely on trusted advisers to help them navigate complex operating environments and grow their business.

The industry benefits from secular growth drivers tied to greater complexity for business leaders a shortage of accounting talent leading to increased outsourcing of accounting services, constant changes to accounting and tax standards as well as the ongoing importance of adapting and modernizing processes with advances in AI and automation. We are now among just a handful of firms that have the scale and capabilities to meet middle market clients growing demand for greater industry expertise, leading technology and a broader range of services delivered by trusted advisers.

Our strategic focus in 2026 and beyond is ensuring that we organize and invest in our capabilities to maximize the value of our scale and competitive position. We expect these investments to further strengthen our value proposition to clients differentiate CBIZ in the market and accelerate our growth. Moving to Slide 5. It is important to recognize that many accomplishments the CBIZ team delivered in 2025.

We made significant progress by completing the vast majority of the Marcum integration priorities. We brought our teams together physically, enhanced their ability to work together through common systems and processes and strengthened our go-to-market capabilities. These steps were necessary to unlock the opportunities associated with the acquisition and position CBIZ for sustainable long-term growth. I want to thank our entire team for their hard work and support and their commitment to our clients, team members and CBIZ during this important year of transformation.

In 2025, we delivered approximately 2% organic revenue growth with solid year-over-year improvement in bottom line profitability. We continue to generate healthy cash flow from operations to support our business and to invest in attractive opportunities. While our revenue growth is impacted in part by soft market conditions that affected the entire industry, there was also a portion related to productivity losses, often experienced in the first year following the combination of 2 organizations of similar size.

We believe these headwinds will abate in 2026 as we have seen improving middle market sentiment, and we're in the process of completing our first busy season as a combined company on common platforms. Now moving to Slide 6, operationally, we've built upon market's investments in transformation and innovation, including AI and data-focused priorities, and we've improved how we deploy our combined offshore teams. Having our teams work on common systems and apply the standardized processes and workflows that were established in 2025 allows us to increase utilization and enhance client experience by matching our best people to the clients most in need of their expertise.

From a people and leadership standpoint, we completed most of our internal reorganization priorities. Over the past year, we strengthened our leadership bench by placing our best leaders intervals that directly drive growth, accelerate the formation of our industry groups and advance the adoption of AI and innovation. Thanks to our team's hard work, key retention metrics around clients and managing directors are in line with expectations and synergies are double our initial expectations. While there remains technology and real estate-related immigration work ahead of us, along with opportunities for further cost synergies, the integration is largely behind us, and we are now focused on how we leverage our scale to accelerate growth.

With that, I'll turn to our 4 strategic priorities guiding our efforts on Slide 7. We are focused on 4 strategic priorities to drive growth and increase our value to our clients, attracting and retaining top talent, elevating our national brand, utilizing industry specialization, and delivering value through our enhanced breadth and depth of service offerings. Together these priorities will strengthen our ability to win the new business, retain and expand client relationships and enhance and realized pricing.

Our first growth priority is to attract and retain top talent. For 2025, we were pleased to fund substantial amounts of incentive compensation to recognize the contributions of our team in this critical year of transition. And in 2026, we plan to return to full incentive program funding tied to delivering on our top line growth objectives. We will also increase our producer count within our Benefits and Insurance group by approximately 15% this year, and we are investing in sales development resources to capture new opportunities. We now have the ability to attract the unique level of talent to CBIZ.

Recent examples include bringing on the head of AI incubation and ahead of data from Big 4 firms. And we have a pipeline of senior professionals who want to join the unique platform that we have now built. Our history tells us is we have a strong track record of high returns on our investments in talent. We're confident that the continued investments in talent will allow us to command better pricing, expand existing relationships and win new logos. We have scaled our brand and marketing approach and our second growth priority is to continue to raise our brand visibility and to ramp up targeted marketing initiatives.

While CBIZ has a strong reputation with existing clients, we need to always be top of mind for new clients and event-driven project-based work. We see a large opportunity to explain the power of our new platform and the ways in which we can help current and potential clients. In 2025, our team generated more than 50,000 net new leads across key markets using targeted TV, digital and out-of-home advertising, leading to improved win rates.

In 2026, our focus will be on translating increased visibility into engagement for our services, supporting new client opportunities and reinforcing our position with companies pursue transformational events. Our branded marketing investments are a key component to both our go-to-market and our talent recruitment strategies. Our third growth priority is deepening and growing our industry specialization. Client on advisers who bring deep industry-specific insights and our expanded scale positioned us to do just that.

We've organized into 12 industry verticals, which allows us to lead with insights, anticipate client needs and deliver coordinated tailwind solutions supporting stronger retention and more consistent growth. The strategy and model has already proven successful. Construction executive recently named CBIZ as the #1 firm on its 2025 list of the top 50 construction accounting firms, reflecting the strength of our position in that industry. We are leveraging national resources while maintaining our local delivery advantage, and we're encouraged by the early progress we're seeing.

All 12 industry verticals now have dedicated leadership that does align national and regional support to drive improved collaboration, cross-serving and industry-focused client engagement. Finally, we are delivering a more coordinated client experience across our services. With our highly recurring essential revenue base, and strong client retention, our most immediate growth opportunity is expanding relationships with our existing clients. We are seeing notably increased collaboration across service lines, early success from cross-serving initiatives and growing interest in bundled solutions.

This strengthens our new business efforts, allowing prospects to see the full breadth of our capabilities. In 2026, our efforts are centered on increasing the number of clients using multiple services. We've built the foundation for this work, and we are expecting the efforts to become a more meaningful contributor to organic growth over time. Paid together, we believe strong execution against these 4 priorities positions us to drive attractive levels of growth.

At the same time, we remain focused on delivering their growth with strong earnings quality. Now turning to Slide 8. An important value driver is our investment in automation, including artificial intelligence. In time, AI will meaningfully change how professional services firms operate. They will increasingly automate routine manual tasks and reshape workflows across our service offerings. We want to be clear about what AI does and does not change. The core role of the trusted adviser applying judgment, advocating for outcomes and leveraging the experience, collaboration in ethics remains indispensable,

Trust is uniquely human our clients trust us as their advisers and look to us to harness these tools on their behalf, and that's exactly what CBIZ is doing. We are positioning CBIZ to lead and view AI as an extension of the automation initiatives we've leveraged for many years to generate a high return on investment. Critically, we are implementing AI as an enterprise-wide capability rather than a series of isolated pilots. This means standardizing workflows, strengthening data discipline and establishing governance, so outputs are reliable, repeatable and audit ready.

Today, we have over 60 dedicated professionals focused on our technology and our AI strategy, and we are collaborating with top-tier cloud and AI providers to accelerate our transformation. We are embedding AI tools in our daily workflows, enabling all of our employees with structured training and scaling proven capabilities already in production. A good example is tax. We currently use tax automation software to streamline 1040 return preparation. In parallel, we are layering in AI capabilities to process more complex data like K-1 footnotes.

Over time, we expect these enhanced capabilities will support margin expansion in our tax business, not by charging less, but by delivering more value with greater efficiency. AI also has the potential to create new revenue opportunities, particularly within our higher growth, higher-margin advisory practice. As the regulatory and operating environment grows more complex, clients need more help interpreting data in making strategic decisions, exactly the kind of judgment intensive work where clients seek out trusted advisers, especially 1 who could leverage AI.

We believe our competitive scale and strategy positions us well to benefit as AI reshapes our industry. Our middle market clients typically do not have the scale, capital or internal expertise to build and govern AI infrastructure themselves. We do. Our size and breadth allows us to invest in and deploy advanced tools across our platform, while pairing them with trusted adviser relationships that clients depend on. Because the majority of our revenue is fixed fee or commission based, we expect a great deal of productivity gains to flow to margins without pressuring our top line.

Lastly, coming to the current demand and pricing we are not seeing AI put pressure on either one. To the contrary, our pipeline remains healthy, retention is strong and clients continue to lean into their advisory relationships. The use of efficiency tools is not without precedent. Over the past decade, our industry has significantly expanded the use of lower-cost offshore labor with full transparency to our clients, reducing the cost to deliver work with accounting firms generating meaningful margin expansion from these activities. We see AI following a similar pattern, delivery costs improved, but the value to the client remains and even grows and pricing reflects that value.

Firms that are prioritizing AI adoption are being rewarded with deeper client relationships and expanded wallet share. We believe we are well positioned on that side of the equation. In summary, our foundational platform work and scale automation initiatives are expected to support more efficient growth, margin expansion and an increasingly favorable revenue mix. We believe that AI deployed with discipline and governance will be a meaningful driver of long-term value creation.

Slide 9 details how offshore continues to be a meaningful opportunity for CBIZ. We are accelerating our use of global resources to improve utilization expand capacity and support margin expansion. Ultimately, we believe offshoring provides a better experience for our U.S.-based team, enabling a higher level of service and responsiveness to our clients. Today, we operate offshore delivery centers in the Philippines and in India with more than 500 professionals supporting our tax in the test services.

We expect to increase offshore hours from approximately 6% in 2025 and to 10% in 2026. Over the next several years, we plan to expand this to more than 20%. We believe achieving these levels which are consistent with comparable firms, will drive significant growth and margin opportunities over time. Now to wrap up my opening remarks, I want to comment on the current business climate and our outlook. While 2025 turned out to be a more cautious operating environment for our clients, our proprietary Pulse survey and ongoing discussion with clients points to a more encouraging backdrop heading into this year.

What we're hearing from clients is greater comfort with the business environment. While clients still recognize the economic and political environment remains highly dynamic, the incremental comfort indicates an increased opportunity for project-based work. We saw this picked up in the second half of last year.

As a reminder, more than 70% of our revenue is recurring and resilient across cycles. The remaining portion is more project-based and our assumptions regarding the level of activity largely drive the rate of our 2% to 5% organic revenue growth outlook. Finally, as Brad will discuss in more detail we are pleased with the strong free cash flow generation we expect in the coming year and [indiscernible] is highly attractive, given our long track record of growing free cash flow.

Now I would like to turn the call over to Brad for our financial review.

Thanks, Jerry, and good afternoon, everyone. My comments begin on Slide 11. Consolidated financial results for the fourth quarter and full year demonstrate the strength and resiliency in the CBIZ model. We delivered strong profitability and free cash flow despite tempered top line growth. Fourth quarter revenue was $543 million, up 18% versus the prior year driven by the acquisition. You will recall our remarks on the third quarter call. Two things had to happen for us to meet our fourth quarter expectations. First, market conditions had to be consistent with the third quarter and we're pleased that assumption held true. The second assumption required we drive above-average utilization by working with our clients to get an early start on the busy season.

This assumption did not come through, as utilization remained at normal historical levels due to client preference to pursue this work in 2026. Fortunately, the work was pushed into 2026, and we are well positioned to convert on this activity during the first half of the year. For the full year, revenue grew 52% versus the prior year as reported, and we estimated we grew approximately 2% organically. As we shared during 2025, this was below our initial expectations due to less favorable market conditions in the first half as well as lower demand in our SEC capital markets practice.

The CBIZ model generates strong recurring essential revenue, and our client retention remains high. As we move past a transformative year, we are excited to execute on our top line growth initiatives in 2026 and beyond. Operating expense declined as a percentage of revenue, reflecting lower incentive compensation tied to our top line performance. and the acceleration of synergies that contributed approximately $35 million of savings in 2025. Together, these 2 items helped drive 250 basis points of year-over-year gross margin expansion.

Roughly 80% of our operating expense is personnel related with incentive compensation as the primary variable component. Incentive compensation programs have historically represented approximately 16% to 17% of our total compensation and benefits. While incentive expense was lower in 2025, we ensured our high-performing teams are recognized and rewarded for their 2025 accomplishments, and we remain committed to investing in the best people in our industry.

For the fourth quarter, adjusted EBITDA was a loss of $29 million. And for the full year, adjusted EBITDA was $447 million. Full year adjusted EBITDA margin increased approximately 530 basis points versus last year with lower incentive compensation expense driving approximately 270 basis points of that improvement. Excluding the impact from incentive compensation and acquisition timing, we believe our margin expansion is consistent with and even exceeds historical performance, representing the benefits of greater scale and higher-than-expected synergies.

Fourth quarter adjusted diluted earnings per share was a loss of $0.70 bringing our full year adjusted EPS to $3.61. This is in line with our original 2025 guidance and is a strong testament to the team's ability to deliver improved profitability and achieve the year 1 accretion we committed to when we announced the Marcum transaction. We repurchased approximately 2.4 million shares totaling $160 million in 2025 under our right of first refusal and through the open market.

In addition, our Board of Directors recently approved the continuation of our share repurchase program, authorizing the repurchase of up to 5 million shares. Full year free cash flow increased $65 million to $176 million and conversion from adjusted EBITDA was approximately 40%. Conversion was tempered in 2025 due to elevated integration-related spend that will begin to abate in 2026. Our business model drives meaningful cash generation under nearly all business climates. This affords us flexibility to support high-return capital allocation priorities that drive top line growth, improve client experience and margin expansion.

Moving into our segment review. Financial Services fourth quarter revenue was $439 million, up 23% year-over-year, benefiting from an additional month of the acquisition compared to last year. Full year 2025 revenue was $2.3 billion, an increase of approximately 70% driven by the acquisition. Adjusting for known items, we estimate we delivered low single-digit growth in our core accounting and tax service lines, which offset headwinds in our SEC related business. In addition, our advisory business grew in the second half, capturing improved market conditions relative to the first half. Financial Services adjusted EBITDA was up $264 million, ending the year at $449 million. Adjusted EBITDA margin expanded 600 basis points, driven by the impact of synergies, lower incentive compensation expense and additional scale benefits.

In terms of pricing, we were pleased to deliver mid-single-digit rate increases for the year. We are competing favorably and realizing rate increases that exceed overall inflation and capture the value we bring to our clients. Our long-term target for financial services is solid mid-single-digit annual organic revenue growth and we expect continued adjusted EBITDA margin expansion driven by top line growth and operating efficiencies. Turning to our benefits and insurance results on Slide 14. Overall, it was another solid year for B&I with year-over-year revenue growth and strong profitability.

2025 revenue was $410 million and represents 2% growth year-over-year primarily driven by growth in our Employee Benefits Group and the payroll and human capital management group. This was partially offset by softness in the property and casualty market as well as producer attrition. For the year, adjusted EBITDA was up $3 million, representing 4% growth and 20 basis points of margin expansion. Growth drivers for B&I in 2026 include enhancing client and key producer retention while driving new business.

We are also tying a larger level of producer incentive compensation to cross-serving targets. We are capturing opportunities for outsourced services and seeing increased interest in our solutions to mitigate rising health care costs and navigate workforce dynamics. Slide 15 provides a look at our quarterly seasonality for revenue, adjusted EBITDA and free cash flow. Seasonality is driven by the accounting in season and the related timing of billing and collections which impacts working capital.

We ended with net debt of approximately $1.45 billion, resulting in a net leverage ratio of 3.3x and we had over $400 million of available liquidity under our revolver as of December 31. Turning to our 2026 outlook on Slide 16 and you could also reference Slides 21 through 23 in the appendix for additional retail. At a high level, we expect to deliver year-over-year growth in revenue, profitability and free cash flow. Revenue is expected to be between $2.8 billion to $2.9 billion, representing 2% to 5% year-over-year growth. The difference between the high end and the low end of the range is largely driven by macroeconomic assumptions, which could impact project-based work.

In terms of seasonality and consistent with historical patterns, Revenue is expected to be weighted at approximately 55% in the first half and 45% in the second half. Adjusted EBITDA is expected to be in the range of $450 million to $460 million. The funding of incentive pools will correlate with our top line performance. At 2% growth, we would expect a little to no headwind compared to 2025 and at 5% growth, we would expect incentive compensation to be refilled at target levels and would therefore, realize the full $65 million headwind.

Investing in talent remains a top priority and it's critical to our long-term success. We're balancing that investment with a disciplined approach to profitability, supported by efficiency initiatives and synergies that will partially offset higher compensation. We expect $70 million to $80 million in integration costs in 2026. Compared to 2025, business-related integration costs will decrease, but will be partially offset by higher facility optimization costs. The first half and the second half split for adjusted EBITDA is expected to be approximately 70% and 30%, respectively.

Adjusted EPS is expected to be in the range of $3.75 to $3.85 per share. And this contemplates a tax rate of approximately 28.5% and a weighted average fully diluted share count of approximately 62 million shares. Free cash flow is expected to be in the range of $270 million to $290 million, representing approximately 60% conversion at the midpoint of our adjusted EBITDA outlook. This is largely driven by lower acquisition-related items and the benefit of approximately $50 million of purchase price adjustment we collected this January.

We are factoring in only modest contributions from working capital efficiency and lower interest payments. Capital expenditures will be higher in 2025 by approximately $20 million to $25 million tied to facility plans. And in 2027 and beyond, we expect capital expenditures will normalize to approximately $20 million to $30 million annually. M&A earn-out payments are expected to be approximately $30 million in 2026. Beyond 2026, we believe we have opportunities to further enhance free cash flow conversion.

And these levers include: driving profitable revenue growth, enhancing working capital management with a focus on DSOs, lowering interest payments and maintaining an asset-light low CapEx model. On Slide 17, we outline our capital allocation priorities as we continue to generate strong free cash flow. Our first priority remains funding organic growth and maintenance capital. Second, we remain committed to delevering, targeting net leverage ratio of 2 to 2.5x. At our current valuation, which implies a high-teens 2026 net free cash flow yield we believe share repurchases are highly accretive and represent a compelling use of capital.

Similar to 2025, we intend to be active and disciplined in executing repurchases balanced with steady debt reduction. The strength and scale of our business model, combined with our consistent free cash flow, gives us confidence that we can simultaneously invest in growth return capital through share repurchases and achieve our leverage targets. Thank you for joining us today, and I'll turn the call back to Jerry.

Thanks, Brad. Our top priority in 2026 is reigniting our growth engine and leveraging our scale. We have clear strategic growth priorities and efficiency enablers that we are confident will drive value creation for shareholders in 2026 and beyond. We believe we have the building blocks to deliver on our long-term growth algorithm. Our diverse client base positions us to cross-serve and drive larger share of wallet. We are finding that our ability to provide specialized industry expertise is enabling us to deepen core client relationships and differentiate ourselves from our competitors.

Looking forward, we are focused on compounding value through multiple growth engines. We see tremendous opportunity to not only retain business and expand within our existing clients, but also to land clients who seek multiservice capabilities we can now offer. Work completed in 2025 has built the foundation for us to realize operating margin expansion as we increasingly deploy technology and leverage our offshore teams. And last but certainly not least, we remain committed to high return capital allocation priorities that are supported by strong consistent cash flow you have come to expect from CBIZ. Thanks again to our CVS team for your hard work and thank you to our shareholders for your continued support. We look forward to your further engagement with you throughout the coming months. And with that, operator, please let's open the call for Q&A.

[Operator Instructions] The first question today comes from Faiza Alwy with Deutsche Bank.

I wanted to ask about, Jerry, your comments around your revenue growth that you said was impacted by soft market conditions and also related to some productivity losses. And I'm curious if you can talk a bit more about that, particularly around the soft market conditions and the improving middle market sentiment that you mentioned, maybe if you have any views around why sentiment was softer last year and what's improving and your confidence around that?

Yes, Faiza, Happy to take the question. As we've talked for years, our client -- that middle market client is a highly resilient client, but what they need in order to invest forward is certainty and stability in the playing field or a business climate. And we saw anything but that certainly in the first half of the year and our market, our competitors, everybody kind of experience the same thing. So that's really what I was referencing when I referred to kind of soft market conditions.

What we did see kind of encouragingly is that as the year progressed, things did settle in a little bit, and our clients did begin to get more comfortable with investing and we benefited from that. We saw more activity in our advisory work, and we're expecting that work to kind of get you through into 2026 for sure. You had a second part of that question that I can't recall.

I guess just around the confidence and the improving sentiment around our customers.

Yes, Faiza, we do a middle market pulse survey. What we're seeing in that survey is that our clients are more comfortable, more confident today than they were at this period at this time last year. And we're seeing that not only in our -- in the sera works, but we're also seeing it in the kind of green shoots that we're seeing on the project side of the business. So everything appears to be holding true. And we're expecting that, again, more of the activity that we saw kind of start to emerge in the second half of the year will continue through the first part of into 2026. .

And then I wanted to ask about your comments around the role of the trusted adviser and -- as you know, there's a lot of concern in the market around AI and all of that, and you certainly addressed a lot of it in your prepared comments. And I'm curious, as you think about that -- the role of the trusted adviser, are there important of your business that are maybe a little bit more formulaic where some of your customers could just with big ease as it relates to new technology advancements. Like are there certain parts of your business where there's potential room for disruption or just would love to hear your perspective on that.

Yes. Again, Faiza, and I'll turn it to Peter Scavuzzo because he's obviously leading this with us, and he's here alongside us today, but let me start with the answer to that. Our client the answer is we see AI over time, definitely augmenting the work that we do for our clients. And there are certainly pieces of the work that we do that will be more automated and therefore, more efficient as a result of the tools that are available in the market. But it's very hard to separate that work from the remainder of the work that we do for them.

And our clients, that middle market client oftentimes turns to that trusted adviser more than just for a tax return more than just for an audit, more than this for payroll or benefit to insurance or the other services we provide but really for deep knowledge of their business, familiarity with them of deep knowledge of their industries and kind of a holistic approach to helping guide them through what is increasingly a complex business environment and some of their most important and impactful events in their lives, whether it be expansion of a plant or making an acquisition, it's very difficult for that client to separate one isolated piece of work that may have been performed more efficiently from the holistic body of work that we do. That's the special relationship that we have, the trusted relationship that we have with that middle market client. Peter, I don't know if you have anything to add.

A couple of items I'd add is they're coming to firms like CBIZ not because the less advised more. Our role is providing human judgment is going to be more critical than ever. The reliance on trust becomes more critical than ever. AI is adding more complexity to the businesses. And the middle market organization is going to depend on seat help them demystify these complexities and help them navigate through of this.

Next question comes from Chris Moore with CJS Securities.

So maybe we can start with pricing. So at Q3, we we had talked about roughly 4% for the year versus 6% or 7% in '23 and '24. You talked about mid-single digits. So that mid-single digits for '25, that's roughly 4%. Is that what we're saying?

Yes. Chris, we didn't specify 4%, 5%. But I will tell you, squarely in the mid-single-digit range for 2026. .

Chris, Brad here. The -- for 2025, listen, we did -- what we said is we were navigating through the second quarter. We did see some listen, it was not a period of uncertainty. And what we saw with some of our clients coming to us, again, as trusted partners, long-standing trusted partners asking us for some assistance as they navigated through the butter world navigate through some uncertainty. But even with that, as we closed out 2025, Chris, we still delivered very consistent mid-single-digit price realization for the full year. So we're pleased with how we exited the year. And as we turn now well into 2026, and we see line of sight into this busy season and beyond. We see that holding up very nicely.

So, so far in '26 -- I mean, so there is an argument to be made that pricing in '26 could be a little bit better than you got in '25.

Yes. We're not -- listen, the guidance we have, the 2% to 5% guidance does not assume any significant year-over-year improvement in the pricing environment. So consistent normal pricing environment year-over-year. Mid-single digits, as Jerry said.

I'll jump maybe to incentive Brad went through this, but I didn't quite get it. So the in '25, I think we talked about roughly 9% of revenue, then we would kind of normalize, but that would depend on where we were in the 2% to 5% growth. So if we got to 5% growth, then we would get back kind of fully baked in closer to a 12% level if we get between the 2% and 5%, it will get somewhere between the 9% and 12%. Is that the way to look at it? .

Yes, that's the way to look at it. What I mentioned in my remarks earlier, Chris, was if we saw a 2% growth to the low end of our guidance range, we would expect and we wouldn't really be seeing any incremental funding of those pools year-over-year. As we move and migrate to the top end of that guidance range we would be funding those pools more at historical targeted levels, and that would kind of result in a headwind of somewhere in the neighborhood of $60 million to $70 million year-over-year. And that's largely what our EBITDA or adjusted EBITDA guidance reflects.

And in terms of the going -- the delta between the 2% and 5% revenue growth. So that is mostly project revenue is the difference between whether or not we're at 2% or 5%. Is that right?

I would say broad market conditions, macro market conditions, right, that really drive more project related to us. .

Can we talk maybe about -- I know SEC Capital Markets is 1 area that was softer in '25. Can we talk about kind of some of the project areas in that were softer and what your thoughts are at this point in time in '26.

Yes. By the way, I appreciate the way you're framing it because the capital markets work that we experienced in '25 is really also market related, right? So we talk about market conditions. It's really all the project work we do and those that work that we're that is more susceptible to market conditions. So I put the capital markets work in that category. But to get to your specific question, we saw work within, for example, more discretionary work. So we do a lot of work around valuation. We do risk and advisory work. We have worked within that category that is IPO-related that was soft during that period of time. So there's a wide range of the -- what would normally be higher growth, higher margin, very attractive advisory services that we provide that in those environments, where our clients are doing less of that work and the markets are less receptive to that work. That revenue slows a little bit for us. But when the markets improve, it's a significant catalyst to our growth in our margin.

And do you have any thoughts in terms of '26, whether that markets are shifting in that direction? .

Yes. Just I would say I would say, more optimistic and more favorable at this time than they were in the first half of 2025. So we're encouraged by the environment that we're entering into '26.

The next question today comes from Andrew Nicholas with William Blair.

I wanted to follow up on that last point and sorry to keep pointing in on it. But in terms of like the bottom and upper end of your guide, it sounds like the private base work is a decent bit better than first half '25. Is that continuation giving you to the midpoint -- and I guess maybe another way to ask the question, you talked about '25 growth between core accounting and advisory. Is there any way to kind of qualitatively speak to the different kind of chunks of your business, core accounting, advisory, BIS and what your expectations are that are embedded in guidance for '26.

Yes, Andrew, there's a couple of parts there. Let me try to take the first part first, which is the -- how we're thinking about the midpoint of the guidance. I just kind of restate what Jerry said, which is really largely -- the range itself reflects kind of a view around macro conditions and how those macro conditions could shape the nonrecurring more advisory parts of our business. And so if you're looking for me to provide you like what is more prescriptively the midpoint of that range. I wouldn't want to do that. But what I would say is, though, to the extent that those market conditions continue to remain supportive as they were in the back half of 2025. And as we see on today, the midpoint of the guidance becomes something we feel is more realistic, more achievable. So I'll pause there and get your reactions to that. I want to come back to the second part of your question.

And then, yes, I guess, the second part of my question was just how to think about core accounting versus advisory versus NIS if there's a way to kind of disaggregate the growth rates there. I think core accounting is obviously less susceptible to the macro than the rest of it.

Yes. So the pieces that you identified, core accounting impacts and benefits in insurance, let me remind everyone that our revenues are largely recurring in essential -- and so those tend to be more predictable and grow at kind of steadier rates. The other pieces of the business are a little less predictable, but when the markets are favorable obviously, they grow faster, and the margins are enhanced. Last year, what we saw is really just as a result of the market -- the way the market just unfolded is slower growth in our advisory practices in the first half of the year, but it picked up in the second half of the year. So net-net, the business was in line with what we experienced on both the accounting and tax side and the benefits and insurance side. It just it just played out a little different as a year ago.

And then just a kind of related question. So this year, revenue guide 2% to 5% the long-term target is still mid-single digits. Can you help us kind of bridge to that target? Is the opportunity in '27, '28, '29 going forward? All centered around the cross-sell opportunity. And it sounds like you're incentivizing E&IS a little bit differently to help augment that? Or is there anything else that we should be thinking about as we bridge that to the medium-term target?

Yes. So Andrew, we really look at our growth opportunities with 3 levers, right? Pricing, and we talk a lot about pricing, and we're really pleased with the mid-single digits that we experienced in 2025. And again, what we're what we expect to see in 2026, where the real opportunity comes as the next 2 levers, which are expanding the client relationship, so breath of services that we can provide to them and new logos. And we think we have an opportunity on both of those fronts, primarily driven by the industry initiatives that we now have in place.

If we think about those industries we are unmatched in the market among our competitors among -- with the breadth of services that we can provide. What we're doing within each of those industry groups is is identifying the profile of the client, their unique needs in bringing really unique bundled services to that client. That will expand the share of wallet that we have with that client and also allowed us to go out and track and we're seeing evidence of this already being able to track very high-profile clients within that industry as a result of that service offering that no 1 else can have.

So we think over time, '27, '28, as these things start to take hold, the real growth opportunity is going to be an expansion of wallet and in our ability to win new logos over time.

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

Good day, and welcome to the CBIZ Third Quarter 2025 results. [Operator Instructions] Note this event is being recorded. I would now like to turn the conference over to Lori Novickis, Director of Corporate Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for today's call to discuss CBIZ's third quarter and year-to-date 2025 results. As a reminder, this call is being webcast and a link to the live webcast, along with today's press release and corresponding investor presentation can be found on the Investor Relations page of our website, cbiz.com.

An archived replay and transcript will also be made available following the call. 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 release 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. Forward-looking statements represent only our expectations, estimates and projections as of the date of this call and are not intended to give any assurance of future results.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause future results to differ materially, and CBIZ assumes no obligation to update these statements, except as required by law.

A more detailed description of such factors can be found in today's press release and in our filings with the Securities and Exchange Commission. Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; and Brad Lakhia, Chief Financial Officer.

I will now turn the call over to Jerry for his opening remarks. Jerry?

Thank you, Lori, and good afternoon, everyone. I'm pleased to have this opportunity to provide you with an update on our performance and our outlook on the business moving forward. This Saturday marks the 1-year anniversary of the Marcum acquisition, and we couldn't be more pleased with first the quality of the market organization and the complementary fit between our 2 great companies.

Next, the progress that we've made on integration, which is [indiscernible] ahead of schedule in most key areas and finally, the opportunities we now have to accelerate growth and break away from our competitors. We knew going into the acquisition that Marcum was an outstanding firm. What we've learned since has even surpassed our initial expectations.

They brought great people, significant scale in key geographic markets and a substantial and attractive mid-market client base that is similar to ours. Also made substantial investments in areas that were strategically important to us and that complemented investments that we had made in other areas of the business.

We are now able to leverage those investments company-wide including go-to-market industry groups, AI and other crucial technologies as well as offshoring resources. Marcum also had very strong leadership throughout the organization. a significant number of whom have assumed key leadership roles in the new CBIZ.

From the outset, we were committed to bringing together the best of both companies. We now have a blend of leaders and are establishing standardized processes, policies and systems that allow our teams to bring the full value of the combined company to our clients. Now turning to integration. To support the ability of our teams to work together with one CBIZ and thereby enhancing collaboration, resource sharing and the pursuit of new business opportunities, we've aligned our collective teams under a common reporting structure.

We've adopted many standardized operating processes and systems that allow our teams to work together in key areas, and we've begun to co-locate team members in cities where we both have offices. To improve operating efficiency, we've made significant investments in our shared resources centers, including by adding technical resources to our national tax office and to our natural assurance quality and support partner, CBIZ CPAs.

We've also invested in transformation and innovation team, which now has over 60 members devoted to developing new products and solutions for our clients and deploying AI and other technologies to improve operating efficiency, and we've increased our offshore resources in both India and in the Philippines.

In addition, to begin unlocking the value of the combined entity to our clients and to accelerate growth, we've identified and stood up 12 industry groups to bring unmatched breadth and depth of services to our clients through solutions that are highly tailored to meet their specific needs. We've streamlined many client-facing processes to improve the client experience, and to allow our client-facing teams to be more responsive.

We've launched CBIZ vertical Vector AI to enable our clients to leverage our proprietary AI platform and capabilities and to improve their business performance and we've launched a new highly visible national brand campaign to promote the new CBIZ and highlight our expanded capabilities to the market. This campaign is already showing signs of improved brand awareness.

Clearly, a lot of work has been successfully completed in a short period of time, and there are still more opportunities ahead. We are pleased with our retention of top talent and key clients through this transitionary period and we're competing favorably on both fronts, which positions us for accelerated top and bottom line growth beginning in 2026 and beyond.

Brad will review more details on our results in a minute. But before I turn it over to him, I wanted to provide you with a few of my own perspective on the third quarter and what we're expecting for the remainder of the year. We were pleased to see that our recurring businesses held steady during the quarter.

Our core accounting and tax business continued to deliver organic revenue growth consistent with the first half of the year and increased demand for our project-based advisory businesses delivered improved growth relative to the first half. Encouragingly, as we look to finish out the year, the combination of our broader service offerings and improving market conditions should lead to increased conversion of our late-stage pipeline opportunities.

We have clear line of sight to achieve our 2025 revenue outlook and the entire leadership team and all our client-facing leaders are laser-focused on capitalizing on these opportunities and trends. With that, let me hand it over to Brad to cover further details on our quarter and our financial outlook. Brad?

Thank you, Jerry, and good afternoon. As Jerry said, we are very pleased with our third quarter results. Revenue and cash flow were in line with our expectations and earnings exceeded. The benefits of greater scale and the resiliency of our business model once again are reflected in our operating and financial performance and leave us well positioned for sustainable, long-term growth.

On a consolidated basis, third quarter revenue was $694 million, and year-to-date revenue stands at $2.2 billion. A 58% and 64% increase, respectively, driven by the acquisition. For the quarter, adjusted EBITDA increased to $120 million and now stands at $476 million year-to-date. Adjusted EBITDA margin was 17.3% in the quarter and 21.5% year-to-date.

Year-to-date adjusted EBITDA margin increased approximately 325 basis points versus last year, with lower incentive compensation expense representing approximately 250 of the 325 basis point improvement. Excluding the impact from lower incentive compensation, we believe our margin expansion is consistent or better than our historical performance, representing the realization of the expected benefits of greater scale.

Third quarter adjusted diluted earnings per share was $1.01 per share, bringing our year-to-date adjusted EPS to $4.27 per share. Third quarter interest expense was $28 million, $23 million higher than last year, driven by higher debt levels incurred to fund the cash portion of the acquisition. Third quarter tax expense was $10 million, approximately $6 million lower than last year, driven by higher tax benefits related to stock-based compensation expense, lower pretax income and lower state tax expense, which resulted from recent tax planning actions.

Our year-to-date tax expense was $76 million or $25 million higher than last year primarily driven by an $88 million increase in pretax income. Our year-to-date effective tax rate was flat compared to prior year. Turning to our Financial Services segment. Third quarter revenue was $579 million, up $256 million or approximately 80%. Financial Services adjusted EBITDA increased 86% to $126 million, a margin of 21.7%.

Revenue growth was largely driven by the acquisition. On an estimated pro forma basis and consistent with the first half, we delivered low single-digit growth in our core accounting and tax service lines, which mitigated headwinds in our SEC related business. In addition, our advisory business captured improved market conditions in relation to the first half, which enables single-digit growth.

Year-to-date, Financial Services revenue increased by 85% to $1.9 billion and adjusted EBITDA for the segment nearly doubled to $463 million. In terms of pricing, we were pleased to deliver strong mid-single-digit rate increases in the quarter and year-to-date. We are competing favorably and realizing rate increases that exceed overall inflation and capture the value of our client -- our clients game from our leading service capability.

Revenue from our Benefits and Insurance or B&I segment was $103 million with adjusted EBITDA of $22 million. Year-to-date, we're pleased with revenue growth of 2.7% and adjusted EBITDA growth of 6.7% for this segment. Turning to the balance sheet and capital allocation. We ended the quarter with net debt at approximately $1.6 billion and leverage largely unchanged from the second quarter. We had approximately $300 million of available liquidity under our revolver on September 30.

In the third quarter, we took the opportunity to repurchase approximately 800,000 shares at a value of approximately $56 million. This includes approximately 400,000 shares repurchased under the terms of our right of first refusal and 400,000 shares in the open market. This brings our year-to-date share repurchases to $120 million or 1.8 million shares.

Our current outstanding share count stands at approximately 54.1 million shares reflecting a net increase of approximately 3.9 million shares since year-end. Since we've had several questions regarding the potential impact of the shares issued and yet to be issued related to the acquisition, we have included a slide on Page 18 of our investor presentation posted today that provides some additional information to help clarify this dynamic.

As a reminder, our U.S. GAAP earnings per share and adjusted earnings per share are reported on a fully diluted basis, which assumes all issued and unissued shares are outstanding. As of September 30 year-to-date, the weighted average fully diluted share count stands at 63.6 million shares. In terms of capital allocation, our long-term priorities are unchanged. On Slide 21 of our investor presentation, we have included a summary of near-term and long-term capital priorities.

You will see our near-term priorities are as follows: our first priority is funding organic growth and maintenance capital. This will include disciplined and targeted investment in client service delivery and operational excellence with a greater focus on technology, including AI, improving our offshore capability and capacity and our ongoing investment in attracting and retaining the very best talent in our industry.

Our second priority is debt repayment. We continue to target allocating a significant portion of our free cash flow to bring our leverage to a target range of 2x to 2.5x over time. When we set this target upon announcement of the acquisition, we assumed the majority of our free cash flow would be allocated to delevering and estimated we could achieve this goal exiting 2026.

Given the opportunity we've had to allocate capital to share repurchases in 2025, the timing for achieving this range may shift to 2027. Our third priority is share repurchases and/or selective strategic high-return M&A. At our current valuation, we believe share repurchases are accretive. Therefore, our approach is to remain balanced opportunistic and disciplined with share repurchases and delevering.

And with regard to M&A, as always and consistent with our history, we will continue to evaluate targeted bolt-on strategic opportunities in high-growth service lines and key geographic areas. The strength and scale of our business model and our ability to generate meaningful free cash flow provides us with continued confidence in our ability to fund investments and high-return growth initiatives while simultaneously achieving our target leverage.

I will wrap up my comments with guidance and modeling. We are maintaining our revenue and earnings guidance for the year. At this time, we continue to have line of sight to the low end of the revenue guidance of $2.8 billion to $2.95 billion we set earlier this year. We're also maintaining our adjusted EBITDA and adjusted EPS guidance, and we look forward to resuming reporting organic growth metrics in 2026.

In terms of our revenue guidance, there are 3 factors that we believe will enable us to deliver the low end of the range. First, the growth rate we have achieved thus far in the year within our core essential recurring accounting and tax businesses has proven resilient and sustainable, and we expect this to remain true in the fourth quarter.

Second, the improved market conditions we witnessed in the third quarter have also continued thus far in the fourth quarter, and this will allow us to capture revenue opportunities in our non-recurring project-based businesses. And finally, we plan to execute on a key operational excellence initiative that we expect will yield improved fourth quarter staff utilization and will allow us to operate more efficiently in future periods.

Our guidance and modeling assumptions are included on Pages 17 of our investor presentation, and there are 2 updates I would like to highlight. First, we have updated our synergy goal from the acquisition to a total of $50 million or more. We expect to -- we expect to realize $35 million in synergies this year and the majority of the balance in 2026.

Slide 20 of our investor presentation provides further information on these synergies. While we've made a great deal of progress on all fronts, key real estate decisions for some of our largest metro markets remain ahead of us. Therefore, we believe there is more opportunity here, and we will provide further updates as we take actions.

Along with updating our synergy goal, we've updated our integration cost estimate for 2025. We've increased our estimated 2025 integration cost by $14 million to $89 million, which is primarily driven by additional severance costs related to streamlining our combined staffing levels.

We do not currently estimate any change to our 2026 integration costs. Second, we provided further modeling information on our operating expenses, including information on total compensation and benefits and our related incentive compensation programs. As you will see on Page 19, historically, our incentive compensation programs represent approximately 16% to 17% of our total compensation and benefits.

For 2025 performance, we've been very careful to ensure our high-performing teams will be appropriately recognized for their 2025 performance during this integration phase. And we believe our remaining incentive pools are adequate to recognize, retain and motivate our teams. As we've highlighted previously, we have a variable pay for performance-based incentive programs designed to reward our team for achieving and exceeding growth, profitability and other operating goals.

When our performance meets or exceeds targets, there's meaningful incremental shared value. Conversely, if goals are not met, the funding and the related expense is adjusted accordingly. While the 2025 incentive pools reflect this reality, we have also preserved appropriate funding to recognize our team members for the many important and meaningful accomplishments that are setting us up for success going forward.

With that, I'll turn the call back to Jerry for some closing remarks before we turn the call over for questions.

Thank you, Brad. To reiterate a few key points, as we celebrate the 1-year anniversary of the Marcum deal, we are extremely pleased with the foundation we have now built that positions us to accelerate long-term value creation. Looking ahead to 2026, we expect increased momentum as we transition to the next phase of growth and are seeing strong evidence that we now have what it takes to break away from our competitors.

Our success will be rooted in our commitment to providing unmatched client experience and operational excellence by investing in our people and state-of-the-art tools, including investments in our industry groups, data, AI and other technology capabilities as well as offshoring capacity.

Together, these investments will deliver valuable client insights and impact and transform what's possible unlocking shared value and driving sustainable long-term growth and profitability. With that, I will open the line to questions.

[Operator Instructions] Our first question comes from Christopher Moore with CJS Securities.

Maybe we could start with pricing. It sounds like you talked about mid-single digits in Q3. And I think prior to this, we were talking about 4% in '25 versus 6% or 7% in '23 and '24. I'm just trying to figure out how to view '26 moving forward, is 4% is that the new normal?

Is there -- do you have much visibility on that at this point in time?

Yes. Chris, we're really not giving guidance into '26. But I will say as it relates to pricing, we're really pleased, first of all, this year to be realizing mid-single digits. I think that's above what we're hearing some of our competitors to be receiving in this market and it reflects the strong relationship we have with our clients.

Second, as we look forward, we've traditionally been able to get at least that kind of mid-single digits and there's nothing structural in the industry that would prevent us from continuing to do that. So I would expect as we look into 2016 and even beyond that, that mid-single-digit range is a pretty good target for us.

Got it. Helpful. I know you guys talked about some initial conflicts of interest with Marcum, but just generally trying to get a sense, have you lost any significant clients as a result of the Marcum acquisition.

Yes. Let me take that question in 2 ways. First of all, we expect to lose some clients, right? We knew that the stack business, for example, was declining going into the transaction as well some of the capital markets work they did.

We sold off some business. We sold off some health care business. And then we had kind of the normal expected kind of conflicted clients, which candidly were below actually what we modeled there. So I'm pleased to see a lot of those things kind of in line with the model that we had put those things aside, we're really pleased with what we've seen as far as client retention rates to date and also staff retention rates.

Got it. This might be a more challenging one. But just in terms of kind of thinking about rainmaking partners that are at CBIZ or now with Marcum in there. Just trying to get a sense to -- has there been much notable loss on that front?

Yes. I would say not notable. I mean we've had some people, of course, as you would expect, that we're near retirement, that retirement. But other than what you would normally expect, I wouldn't say significant notable losses in rate makers.

In fact, I think when I look at some of the wins we've been looking at here there's a significant amount of energy about what we can now bring working together through our industry groups and through the relationships that each brings to the other and the breadth of services and depth of expertise and I have a couple of wins that I've kind of been looking at over the past week that are quite exciting.

So I think there's really a lot of energy around the power of the combined entity organization and what we can bring to the market.

Helpful. And maybe just a last one for me. So Brad talked about, I think, integration costs going to be roughly $89 million this year. Understanding is that '26 will be a little bit less than that, but still very significant. Are there certain types of costs that are expected in '26 that are much different than the ones so far taken in '25 or just kind of trying to understand how we can kind of characterize those one-timers in '26 versus '25.

Yes. Overall, Chris, the nature and the kind of the overall mix of the integration costs will be overall pretty similar next year. Keep in mind, when you look at our integration costs, we have some retention dollars, there are some kind of retention dollars that are flowing through ratably and '25, '26.

We would expect some of the mix to change this year. We already had more in the way of some personnel severance based costs where next year we'll see some acceleration of real estate facilities based costs. So there will be some mix there. But in general, the components are still the same.

Got it. I appreciate it, guys.

And the next question comes from Andrew Nicholas with William Blair.

I'm going to start with a multi parter, so I hope you'll bear with me, but I just want to kind of ask about a few different kind of macro or end market dynamics. So I guess I think there's 3 or 4 here. I guess I'm wondering, first, if you've seen any benefit from the OBBA in terms of your tax practice.

Second, we've seen some market pressures in the insurance brokerage space this earnings season thus far. Just wondering if there's any softness that you've experienced in that part of your business. And then lastly, just from like an M&A market-sensitive project-type work perspective, it sounds like things are getting decent, but better to what you experienced in the first half, but any more color on what you saw in the period or in October today, it would be great.

Yes, Andrew, let me take this. OBBA, I'm glad you asked that question. As we've said many times over the years, whenever there's change in any kind of tax or other regulatory environment, that's always good for us, right?

It gives us an opportunity to bring our collective thought leadership together and to bring that out into our offices and have our client-facing professionals bring those to the clients. And so we've done that. It gives us an opportunity to be in front of our clients. And so yes, there has been a lot of discussions with our clients on that front.

And some increased revenue for sure. I think more to come -- but we did see some lift in the third quarter as a result of kind of being in front of the clients and discussing things like OBBA. So that's been positive for us. Second, turning to the soft market in the insurance industry. You may have seen that our benefits and insurance revenues were a little soft this quarter.

That's exactly what it's tied to. It's really tied to some trends, some lighter trend in this period and some other factors within that P&C business as well as some softness in some of the more discretionary project work in that business, but largely just a soft P&C market compared to what we've seen in prior periods.

And then as far as M&A, very pleased, as we commented, to see increased activity there compared to the first half of the year. And based on what we're seeing and hearing, we would expect that, that activity would continue kind of into the fourth quarter and hopefully into 2026. So all generally positive.

Great. That's very helpful. In terms of the fourth quarter outlook, a lot of what you just described seems supportive of good growth to end the year. And ideally sets you up nicely for next year. But is there anything you could kind of quantify for us on fourth quarter specifically in terms of what's embedded for pro forma growth.

I know it's kind of hard from our vantage point to piece together the right base for Marcum on last year, given it was only with you for a couple of months. But any color on kind of what rate, the pro forma business would need to grow in fourth quarter? Or what you have line of sight into the fourth quarter?

Yes. Andrew, Brad here. Let me try to take the question. I guess I'll restate here a few things I highlighted in my earlier remarks, which is some of the kind of underlying assumptions that we have for the fourth quarter revenue outlook.

First, we expect the kind of that core recurring essential part of our business to continue to grow as we've seen thus far this year. Nothing has told us anything different one month into the quarter. Second, Jerry just highlighted and commented on improved market conditions that are allowing our more nonrecurring discretionary parts of our business to get back to some growth rates that are more encouraging for us.

So we're seeing that still hold true thus far again in Q4, 1 month in. And then the third thing, we do have a kind of an operational excellence initiative underway where we will -- should realize upon successful execution some improved utilization of our staff. So it's going to help us not only in terms of our overall staffing levels through the peaks and troughs of our business where seasonality but it will also allow us to hopefully drive some more improved revenue realization this year relative to last year.

But the last thing I'll say, which I didn't comment on earlier is -- and again, I know it's hard for you to kind of look at this because we only had 2 months of Marcum results in our fourth quarter last year. But we would say that in some respects, the Marcum business last year to this year provides a little bit of an easier comp for us for a multitude of reasons.

So I think those factors give us confidence in the line of sight that we have. Well, I would just say, from a pro forma basis, again, we're not a pro forma adjusted pro forma out there but I have commented on kind of the additional $75 million that we would take off of the pro forma number that we published.

So if you did some of that math and you tried to square it away, Andrew, it's probably going to look like somewhere in the neighborhood of 6% to 8% growth year-over-year on our base Q4 revenue. On a pro forma basis, adjusted for the things that we talked about previously, conflicted client revenue, the lead off in the SEC or capital markets business, those kind of things.

Perfect. No, that's in line with maybe what I would have guessed, but I appreciate that we're on the same page there. Maybe last one before wrapping it up, it's just on the margin puts and takes for next year? Obviously, I appreciate the revised our upwardly revised synergy target.

I guess one point of clarification. The $35 million for those numbers that you outlined that is realized synergies, correct, not actioned.

Sorry, go ahead.

Yes. No, yes. And then the second thing was just -- as we think about kind of the normalization of incentive comp next year, incremental synergies that you're getting from Marcum kind of real estate. It sounds like offshore usage is ramping up pretty nicely. Is there any other kind of things that we should keep in mind as we try to estimate the margin trajectory next year because I understand that this year is pretty unique for a variety of reasons.

Yes. So let me start with the synergy piece first. So yes, we have increased and pleased to have increased the synergy outlook for the acquisition from $25 million to more than $50 million. The $35 million that I mentioned in my remarks, Andrew, is the amount that we expect to fully realize in this year's operating income, right?

So that is not like a run rate number. It is what we expect to realize in 2025. So that's reflected in our outlook and our guidance. And then we'll have an incremental -- we expect most of the majority of the other 50 to come next year. And then I'll just also say, listen, the real estate facility work is still ahead of us. There's a lot of great activities going on there, in particular, in some of our larger metro markets, we haven't made formed kind of decisions and actions there.

So I do expect further updates on that. So we think we're pretty pleased with the $50 million-plus number and may be able to provide you some more updates on that as we move through 2026 and make some of those decisions. In terms of kind of the -- obviously, we're not giving 2026 guidance at this point. But I'd point you to a couple of other things beyond synergies.

One is, and you highlighted it just other operational efficiency initiatives that we have underway, which not only include offshoring, but also include other initiatives, like I said, around utilization of staff and how we're balancing that and then also some investments that we're making that we think will drive other operational efficiencies around technology, and that includes, in some respects, AI as well.

Finally, I would just say, again, without giving guidance here, we do expect our top line to grow next year. And we'll provide more information, more outlook on that in February as we ordinarily would. But the drop-through effect of that top line growth is something that we're certainly driving hard for.

So that's another lever that we have and one will be focused on as we go through our planning cycle here for 2026.

That's great.

The next question comes from Marc Riddick with Sidoti.

And certainly I appreciate there's a lot of work that goes under that. I wanted to sort of maybe shift gears a little bit to maybe some of the big picture issues and questions. Maybe you could sort of bring us up to date on maybe what you're seeing with client feedback and activity related to potential for rate cuts, which you might tie into the M&A conversation, but also the shutdown so far this year if there's anything that you've seen there or if there's sort of a historical landmark that you would sort of use in situations like this?

Yes, Mark, this is Jerry. I'll take them one by one. As far as the rate cuts, obviously, that's very recent news, right? So we really wouldn't have heard much or seen much response to that, although that's just positive, right? I think as we've always said, 72% of our business kind of the recurring essential that's going to -- that work is going to come in the door in more or less favorable times.

It really doesn't matter. But it's the discretionary work that we do that the clients really step back and they need more clarity when there's positive signals in the market like rate cuts, that causes them to have more confidence and then, therefore, causes them to make investments. And when they do that, they turn to us and it frees up those discretionary projects for us.

So all very positive. As far as government shutdown is concerned, we haven't seen a lot there. The only place we've seen a little bit of impact is in our government health care consulting business. As you know, those are long-term contracts with largely state agencies. But those state agencies do get federal funding -- and when there is any kind of slowdown or cutbacks at the federal level from time to time, that will delay contracts.

Those contracts that work has to get done, that work -- that revenue comes back in the contracts staying for us, but it sometimes affects the timing of that revenue stream.

Okay. Great. And then shifting gears, maybe you can talk a little bit about any particular client industry vertical activities during the quarter that stood out either positively or negative? Or was it sort of across the board?

Yes, nothing negative for sure. We had some really nice wins that we were pleased to see coming out of those industry groups. And I'd say those wins kind of fell into a couple of of categories, but one that comes to mind was a very large win within our food industry that was a relationship that one side had but didn't have the industry expertise to win the engagement we brought together people from both sides of the organization.

Very collective and collaborative effort and won a very big engagement that was just announced. So very pleased with that. And then we saw a couple of others, one within energy, 1 within our capital markets that are quite sizable. So the strength of the industry groups is early, but it's starting to come together and you're already seeing some momentum there. So really encouraged by that.

Okay. Great. And then I think in your prepared remarks, there was a commentary around some of the activities that you were engaged in, including co-location and things like that. Maybe you could chip a little bit more light on that and what the time frame on some of those activities might be.

Yes. So Mark, Brad here. So listen, on the -- bringing our people together, obviously, it's a critically important thing as we think about the broader integration work that we're doing, but really, most importantly, how we bring our cultures together.

So we're really pleased with the progress we've made. But a lot of that work is still ahead of us in terms of getting our people in co-located offices, where we also -- and this is probably a little bit more on a virtual basis, where we also made a lot of progress is bringing from a national perspective our groups together. So think about our national tax group, for example.

But they are now and have really been for a number of months working very seamlessly together. So legacy Marcum, legacy CBIZ, tax teams working across the landscape and really seamlessly together. So when we refer to kind of co-locating and bringing freeing our resources together, it's both at the physical location level and then on a virtual level as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Jerry Grisko for any closing remarks.

Yes. Thank you. To wrap up, I'd like to reiterate a few key points. First, we're very pleased with our third quarter results, which were largely in line with our expectations. Next, our core recurring essential businesses continued to perform well and improved market conditions resulted in increased growth within our nonrecurring businesses.

And most important, we're seeing strong validation of the Marcum acquisition, including better-than-expected synergies and we're well positioned to drive sustainable long-term growth as our teams come together, and we bring our unique value proposition to our clients and others in the high-growth middle market.

Thank you for your continued interest, partnership and support and please enjoy the upcoming holiday season. We look forward to providing an update on our full year results and 2026 outlook in February. Thank you so much. Take care.

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

Good day, and welcome to the CBIZ Second Quarter 2025 Results Conference Call.

[Operator Instructions]

Please note this even is being recorded. I would like -- I would now like to turn the conference over to Lori Novickis, Director of Corporate Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us for today's conference call to discuss CBIZ's second quarter and first half 2025 results. As a reminder, this call is being webcast and a link to the live webcast, along with today's press release and investor presentation can be found on the Investor Relations page of our website, cbiz.com. An archived replay and transcript will also be made available following the call.

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 release 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. Forward-looking statements represent only our expectations, estimates and projections as of this date of this call and are not intended to give any assurance of future results.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause future results to differ materially and CBIZ's assumes no obligation to update these statements, except as required by law. A more detailed description of such factors can be found in today's press release and in our financial filings with the Securities and Exchange Commission.

Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; and Brad Lakhia, Chief Financial Officer.

I will now turn the call over to Jerry Grisko for his opening remarks. Jerry?

Thank you, Lori, and good afternoon, everyone. I'm pleased to report that our second quarter results reflect the resiliency of our core and recurring essential business, though the current economic climate continued to impact our more market-sensitive areas. Today, in addition to talking about the second quarter and first half results, I'll address the proactive measures we are taking to drive revenue and control expenses in response to these market conditions.

And I will also discuss why we think the Marcum acquisition is 1 of the most important and value-creating strategic decisions in our history. I'll provide an update on integration and our continued excitement about the strength of our combined team and the opportunities ahead for accelerated growth and profitability.

Year-to-date, organic revenue for our core services within our Benefits and Insurance segment and our core accounting attack services grew by low single digits, and our national practice segment grew by 13%. Likewise, year-to-date adjusted EBITDA more than doubled compared to last year, reflecting both the strength of our business model as well as the accretive nature of the Marcum acquisition. The second quarter business climate was largely unchanged from the first quarter, with continued uncertainty around tariffs, geopolitical unrests and government funding cuts.

Our middle market clients rely on us for essential services like our accounting, tax, benefits and insurance in all economic environments, but they often wait for more stable conditions before investing in discretionary project-based services. The first half of 2025 has been anything but stable and certain. Our second quarter sentiment analysis with responses from nearly 1,400 clients and client-facing professionals substantiated these trends. Nearly 60% expressed a neutral outlook, citing higher operational costs, mixed economic forecasts and challenging tariff and trade policies have stop concerns.

As a result, overall revenue for the nonrecurring project-based portions of our business, when excluding our SEC-related practice, is down low single digits year-over-year. Industry reports and discussions indicate that growth in these areas has been particularly challenging for our competitors as well this year. For the first time in years, we're also seeing pressure on rate increases. Over the past several years, we've achieved net rate increase in the mid- to high single digits. And for the first 6 months, we built clients accordingly. However, in Q2, we saw increased client pushback aligning with our survey data that clients are prioritizing cost controls.

Year-to-date, our rate increases averaged about 4%, which is 200 to 300 basis points below our expectations going into the year and is expected to create a headwind of about $75 million for the full year. Given the current and anticipated economic client, we've accelerated several significant revenue and cost control initiatives. On revenue, each of our nearly 1,000 managing directors has been tasked with identifying new target clients, scheduling meetings to introduce our expanded services, conducting stewardship meetings with top clients and participating in industry groups charged with pursuing top opportunities.

On the cost side, we've expedited a number of integration-related decisions, including workforce integration. With nearly 450 fewer full-time equivalent employees in our core businesses compared to last year. We're seeing enhanced team utilization and improved compensation expenses.

Looking ahead, we expect continued steady demand for our core recurring essential businesses to provide line of sight to the lower end of our revenue guidance, even as nonrecurring services face ongoing headwinds. We believe our revenue and cost initiatives will partially offset these pressures and support the achievement of our adjusted EBITDA and EPS guidance.

Let me reiterate the strategic rationale for the Marcum transaction. We're even more excited about the strength of the team that joined us, the client fit and the opportunities for growth and profitability, neither firm could have achieved on their own. Marcum's business closely resembles CBIZ's legacy core and accounting and tax business. They serve middle market clients, maintain deep client relationships, achieve high retention rates and generate strict -- strong cash flow. They also share a successful track record of organic and inorganic growth and bring operational excellence and complementary capabilities in technology, industry practices and offshore, Marcum also strengthened our presence in key U.S. markets like New York, where we are now the largest accounting service provider outside the Big 4 as well as in New England, the Mid-Atlantic, South Florida and Southern California.

The acquisition expanded our client base and opened new cross-serving opportunities to deliver an even broader array of services and depth of expertise to our combined clients. Our increased size and scale as the largest professional service adviser of our kind to middle market clients, including as the nation's seventh largest accounting firm, strengthens our position as an employer of choice for exceptional talent, allows us to pursue larger and more complex client engagement, enhancing our ability to reach total addressable market that extends to roughly 200,000 middle-market U.S. businesses that collectively generate over $10 trillion in annual revenue and employ approximately 48 million people, and it supports substantial investments in critical areas including AI and other advanced technologies, offshoring, automation and branding, all while leveraging our collective infrastructure to expand margins and enhance profitability.

On integration, as previously shared, we delayed client-facing changes during busy season, instead focusing on back-office opportunities. That work is now in full swing and on schedule. Early results are positive, and when we have faced challenges, we've acted quickly with our primary focus being supporting our team and our clients.

With that, I'll turn it over to Brad for some details.

Thank you, Jerry, and good afternoon, everyone. With 2 full quarters of the Marcum acquisition now reflected in our results, we're seeing the benefits of being stronger together. Our results reflect the benefits of greater scale, the resiliency of our business model, and the advantage of our unique breadth and depth of services, all of which is delivered by our exceptionally talented team.

On a consolidated basis, second quarter revenue was $684 million, and first half revenue was $1.5 billion, a 63% and 66% increase, respectively, largely driven by the acquisition. For the quarter, adjusted EBITDA increased by 128% or $66 million and more than doubled to $356 million in the first half. Adjusted EBITDA margin was 17% in the quarter, and 23% year-to-date, an increase of nearly 500 basis points versus last year.

Lower incentive compensation expense in the quarter and year-to-date contributed to approximately 400 and 300 basis points of margin improvement, respectively. In addition, in the face of uncertainty, we remain disciplined managing other discretionary spending. So normalizing for lower incentive compensation and discretionary expense items, we believe margin expansion was fairly consistent with our historical performance as we begin to realize the benefits of greater scale and the accretive attributes of the acquisition.

Our annual target of 20 to 50 basis points of margin improvement remains intact. Second quarter adjusted diluted earnings per share increased by 64% to $0.95 per share. And first half adjusted diluted earnings per share increased by 47% to $3.26 per share. Second quarter interest expense was higher by $22 million compared to last year and $43 million higher year-to-date driven by higher outstanding debt associated with the acquisition. Second quarter tax expense was $7 million higher than last year, primarily due to the $30 million increase in pretax income. Our effective tax rate for the second quarter was lower by approximately 240 basis points compared to last year due to lower nondeductible expenses and lower state income tax expense.

First half tax expense was $30 million higher than last year due to an increase of approximately $100 million in pretax income. Our first half effective tax rate was approximately 170 basis points higher primarily due to lower tax benefits related to stock-based compensation.

Turning to our Financial Services segment. Second quarter revenue was $570 million, up $261 million or approximately 84%. Financial Services adjusted EBITDA more than doubled to $111 million, a margin of 20%, 250 basis points higher than last year. As expected, revenue growth was primarily driven by the acquisition. And as Jerry highlighted, we continue to see meaningful growth in the Financial Services core accounting and tax service lines, which served to mitigate headwinds in our SEC business and the relatively flat performance in our advisory business.

In addition, year-to-date, the Financial Services segment has realized rate increases in the mid-single digits which is approximately 200 to 300 basis points lower than what we expected coming into the year and also approximately 200 to 300 basis points lower than what we've realized over the past several years.

Our Benefits and Insurance, or B&I segment delivered revenue of $102 million in the second quarter, up nearly $5 million or approximately 5% compared to last year. B&I adjusted EBITDA was $20 million, up $3 million or 21%. B&I adjusted EBITDA margin for the quarter was 20%, up 260 basis points compared to last year. The revenue and profitability improvements in B&I were driven by nearly all service lines. And the team is engaging aggressively to pursue a strong pipeline of cross-serving opportunities, including those related to the acquisition.

Turning to capital allocation and the balance sheet. Our longer-term capital allocation priorities remain unchanged. We will prioritize allocating free cash flow to fund high return, organic and inorganic growth investments while opportunistically returning capital to shareholders. However, as we've discussed, our near-term priority remains focused on delevering to 2.5x or below on a 2026 exit rate basis. In addition, over the near term, we will maintain a financially disciplined and prudent approach to minimizing the impact of the acquisition-related shares.

And as an acquirer of choice, we will continue to pursue appropriate strategic opportunities. Therefore, our path to delevering may not be linear. However, the strength of our business model and our ability to generate meaningful free cash flow provide us confidence we can invest and achieve our target leverage simultaneously.

Our net debt ended the quarter at approximately $1.6 billion, representing 3.7x leverage or 0.2 lower than the end of the first quarter. We ended the quarter with approximately $400 million of available liquidity under the revolver. In the second quarter, we repurchased approximately 1 million shares at a value of approximately $71 million. As I mentioned on our first quarter call, on May 1, nearly 4.4 million shares became eligible for sale by our legacy market partners, and we retain a contractual first right to purchase these shares.

Therefore, our second quarter repurchase activity reflects decisions we exercised under the contractual rate and also reflects our commitment to the prudent financially disciplined principles I mentioned earlier. Normalizing for the $71 million in share repurchases, our leverage would have ended approximately -- at approximately 3.5x, which is slightly better than our expectations.

Turning to guidance. We are maintaining our revenue and earnings guidance. As Jerry discussed, we now expect the market conditions experienced in the first half to persist for the remainder of the year and therefore, anticipate our revenue for the year to be at the low end of our guidance of $2.8 billion to $2.95 billion. This compares to 2024 pro forma revenue of $2.79 billion reported in our 2024 10-K, which, for our internal purposes, we adjust downward by approximately $75 million for the items that we have previously described as known items, which include acquisition-related client conflicts, declines in the SEC related business, including SPAC related revenue and the impact of business divestitures.

Our guidance and modeling support is included on Page 21 of our investor presentation. Please note on Page 9, we have updated our estimated recurring and nonrecurring revenue mix to now include our SEC practice in nonrecurring, given its market-dependent attributes. We now estimate a recurring and nonrecurring mix of 72% and 28%, respectively.

Finally, on Page 20, we have included some new analysis summarizing the value of the cash tax benefit associated with the acquisition-related goodwill amortization.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions]

Our first question comes from Andrew Nicholas of William Blair.

First, I wanted to talk on the advisory business. Obviously, it was part of the reason for the guide down last quarter. It sounds like things haven't really changed a whole lot. But if you could speak a little bit more to kind of what you saw throughout the quarter, did May and June look any better than April. And then tied to that, when you talk about being at the low end of the guidance is the assumption embedded in there that there is no improvement from here? I just want to make sure that's clear.

Yes, Andrew. Thank you. It's Jerry. Let me answer the second part of that question first, which is the guidance for the rest of the year suggests that the second half will look much like the first half. And you're right, the first half, while we're very pleased with relatively flat performance within that business kind of coming off of high watermarks in '24 and in the years before that. So we're really happy to be able to maintain that. In this environment, as you continue to see across the middle market, clients are really kind of sitting on the sideline and in many times, in many instances, just waiting for more stability before they move forward with anything that's discretionary.

So all the headlines say that, our competitors continue to experience that anecdotally when we speak with them, and that's what we're seeing too. But all in all, pleased again that we're able to maintain at least the level of performance that we've seen over the past couple of years. It's just been hard to grow on top of that in this environment.

Andrew, just to add to that, I think you might recall when we discuss Q1 results and we updated the guidance. We -- I think we spoke of them as somewhat unknown things or unknown items that occurred or that came our way in Q1 that we really fully didn't expect, and we quantified that as around $20 million. And I believe I kind of reflected that the low end of the guidance at that point in time, in part was established, assuming that, that Q1 run rate of $21 million would persist for the rest of the year. So it just supports what Jerry says, it's reflected in our remarks.

Got it. Next question I have is just on the pricing commentary. I guess multipart question again, if you don't mind. I guess, is there a particular part of the business where that pushed back on pricing is more pronounced. Do you have any sense of or opinion as to how much of that is cyclical versus maybe having reached some sort of structural limit? And lastly, does it change your optimism or maybe you could speak to your optimism on potential pricing improvements in the Marcum business.

Yes, those are all great questions. So let me address the structural change first. I don't think we've reached the limits of what we're going to be able to do in pricing. I think what we've experienced year-to-date is really market-driven. As I stated in the comments, we were really pleased over the past several years to really be able to see kind of high single-digit rate increases year-over-year-over-year. And we continue to push for those things. We went into this year expecting that we'd see similar pricing. It wasn't until we set those bills in and started to receive kind of comments back and push back from the clients that we made the realization adjustments.

But even at a 4% price increase or kind of mid-single digits, low to mid-single digits in this environment, we're pleased that we're able to get that. And again, it's a testament to the value that we bring to the client relationship. So that's what we're seeing. I think when the market improves, we will be able to resume the same levels of pricing that we've historically seen. The other opportunity and the 1 that you raised is that our pricing discipline, the tools that we have, the reporting we have, the training that we put around it really is not reflected in the mark of numbers. And so we're just beginning that today.

Now with that said, historically, they've just been intuitively good at it. Their pricing has historically reflected very similar trends to ours as far as we can see. But we think that they'll be able to do even better when we bring the reporting, the tools and training the methodology to it. So I think very bullish looking forward, what we're seeing in the first 6 months is just a reflection of market conditions.

Makes sense. And then maybe my last question for me is just sounds like you're pulling back on some spending to manage the bottom line, which is obviously a great part of the model. Just wondering how much of that could be attributed to Marcum synergies? Or are those $25 million plus or more still mostly a '26, '27 event? .

Yes, Andrew, I'll take that question. So I think I'll say a couple of things. I'd just reiterate what I said in my remarks. The -- if you look at our margin, our EBITDA margins that we reported, I commented on the fact that about 400, let's call it, 400 for a year-to-date and about 300 basis points in the quarter of that year-over-year margin improvement is driven by the kind of the management of incentive compensation as well as other discretionary items. Most of that is incentive compensation just to give you a little bit more insight into that.

The discretionary items as we're bringing these organizations together, it becomes a little bit more difficult to kind of narrow in on where we're going to land with those ultimately. But Jerry did mention, we're operating with nearly 450 folks on a combined basis, lower year-over-year. So as a result of that, the nonpersonnel-related costs that come with that, we expect to be able to continue to capture the benefits of that.

On the synergy part of your question, I will just say we're not in a position where we're ready to update our outlook on synergies, but we are getting more and more line of sight to not only the 25, but really clearly surpassing that. And when the time is right, we look forward to providing you and the others in our investment community an update on that. But we're very confident in terms of where we're at with '25 and we're realizing those sooner than 2026 at this point. So that's helping us mitigate some of the headwinds we're seeing in our business as well.

The next question comes from Christopher Moore of CJS Securities.

A couple. So maybe we talk about the integration costs. I know that you're targeting $75 million for the year. I think first half was 34.8 or something like that. Just trying to understand the bigger buckets or certain pieces of this done already? Or just any more granularity you could give on those costs would be helpful.

Yes. So we will -- I would say, Chris, just to say what you said, we still have in our outlook or in our guidance reflected the $75 million on a full year basis. So we remain confident that we'll be at that or below. In terms of year-to-date, the nature of most of what you -- what we are reflecting in integration expenses is really twofold. There's really the brain together of the organization and kind of the people-related costs that come with that.

And then the second piece would largely be adviser-related costs that we experienced, largely more in the first part of the year or the first quarter of the year. So that's really the 2 broader buckets of what's coming through there.

Got it. And are there additional integration costs likely for '26?

Yes. There will be. We'll continue to expect further integration costs next year. We'll give you when the time is right as we roll out guidance for 2026, we'll give you an update on that. But at this point in time, we would estimate them to be about the same levels as what we're experiencing this year. In other words, the $75 million. I can give you more context on that as we're ready to kind of cross that bridge. But that's our guidance. And I think that's pretty consistent with what we laid out when we published the proxy and announce the transaction.

Got it. I appreciate that. In terms of just a little granularity, maybe on free cash flow for '25. Can you give a sense as to -- I know you're talking about trying to get to 2.5x leverage by the end of '26. Just not sure if it's pretty smooth between '25 and '26%, if it's back half loaded, just -- any thoughts on free cash flow?

Yes. I mean, Chris, as you know, our business model, we have a pretty notable use of working capital, particularly in the first quarter, the first -- really the first 4 months of the year. Two drivers of that. One, we end up paying incentive compensation in the first quarter. That can be pretty lumpy, in most years. So there's that. And then as we get into busy season, obviously, we're accumulating pretty significant work in process and accounts receivable. And then we collect on that really the balance of the year. We have a little bit of a second busy season, call it in Q3, but that really isn't as notable as what we experienced in Q1.

So I would say, overall, the profile of our cash flows that you've seen have been accustomed to under legacy CBIZ would be similar going forward. Obviously, you need -- what you have, you have updated for the higher levels of interest expense and then the update in terms of our effective tax rate and what we expect there as well as cash taxes. So those would be the updates versus our historical.

Got it. Maybe just the last 1 for me, a little more qualitative. I mean you closed the Marcum deal, I don't know, 8 or 9 months ago. Biggest surprises, positive or negative, to this point.

Yes. Chris, it's funny. We talk a lot about this internally. I would say, without question, the most pleasant surprise we have is the quality of the team, just exceptionally talented people, exceptionally talented leadership, great clients, great collaboration. Really, you bring 2 organizations together, and you never know how well those teams are going to fit together. But to a person, we form these industry groups. We brought people from both organizations together to lead them and to take them forward. And all of that has been really much better than expected.

We always have bumps along the way some friction in some of our processes and how they translate into client experiences or team member experiences, we've been quick to identify those and get on those and knock those things down. And I think that's also been very positive and very well received by the team. So all in all, very good. But listen, we're not taking anything for granted. We're out in these markets all the time, making sure that we understand how this is translating into the team member experience and the client experience. We're really pleased to date, but we're going to stay at it.

[Operator Instructions]

Our next question comes from Marc Riddick of Sidoti.

I wonder if you could talk a little bit about another quarter in now on the integration. I was wondering if you'd talk a little bit about additional learnings or maybe some of the things that you may have picked up as far as client feedback on the transaction, maybe what you're hearing from them that might be separate from the macro type situation, but maybe you could sort of give a bit of an update as to what you're learning from them and what their feedback on the transaction has been?

Yes. Let me start here, Marc. As we said, we really did very little to really impact client as best we could, client experience kind of through the busy season. We wanted that -- our teams to be unencumbered. We wanted our clients to have an exceptional experience. So we really tried as best we can, not to do anything that would really impact the client relationship. We're just early stages now. If you figure -- you start on that May 1, we're pretty early stages. But all in all, I think we're off to a really good start.

I think you could look at our business in the advisory side and say all is going very well, the tax side all going very well. On the attest side, that was kind of the reference I had before. We took a couple of steps that early on, just well intended, but some of the processes we had in place caused some kind of friction in the client intake and client acceptance procedure, some methodology things. We course corrected all of that. In fact, we've completely restructured along with our partners on the CBIZ CPA side, the way that we operate that business and our focus on really the experience, the team member experience and the client experience. So I think we're in really good shape there, but you learn a lot along the way, and we continue to adjust as we hear those things.

Great. And then I was wondering if you could shift a little bit back to the commentary around the discretionary spend trends and sort of what folks are holding back on around the headlines and the like. So I wondering if you could talk a little bit about maybe some of the pockets there that are most notable. I mean I would imagine some of the M&A-related type discretionary work might be part of that, but maybe you could share some of the thoughts on what you're seeing there that's maybe most notable.

Yes, I'm going to put it into 2 -- kind of 2 distinct buckets, right? Let's talk about the work that you're talking about, which is M&A related. As you know, the profile of CBIZ really today is no different than it was historically in that we have a very high-value outstanding service line with our -- with anything that's M&A related or TAS work and all the related work around that. Marcum brought a similar practice into us. So very complementary that way. But the reality is that when there's a lot of activity in that space, we do more. And when the market is -- as we've seen it over the prior 6 months, there's just less activity there. .

Our team has done an outstanding job of creating work. What we're seeing in that work is that the transaction sizes are smaller, but there's more volume of them, right? So that's really what we're seeing. Like I said in my comments, we're really pleased to be holding at the size and with the baseline that we came into 2025, but it's really hard to grow on top of that exceptional kind of baseline in this environment with these market conditions. So pleased with what we're doing.

And listen, well positioned so that when the market begins to improve, we've got the team, and we've got the service lines to be able to continue to grow beyond this, but pleased with what we're seeing so far, but not seeing as much growth as a result of market conditions.

I said 2 buckets. The other bucket is really the SEC a test-related practice that Marcum brought to us. That's an outstanding value proposition to CBIZ and to our clients and to the market. But that, too, is also a very market condition related, right? So when market conditions are favorable, they are 1 of the go-to firms for that type of work. but it is more transactional than we expected it to be. And we just haven't seen a lot of IPOs. We haven't seen a lot of debt issuances. We haven't seen a lot of the type of work that we do to support our clients that are in need of those things, and again, market conditions.

So a great practice, 1 that we're committed to, 1 that we think brings high value to the market, high value to our clients. But compared to certainly, its peak, which was kind of mid-2023, that business is down pretty substantially.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jerry Grisko for any closing remarks.

Thank you. I want to wrap up today with a couple of key takeaways. Despite the unfavorable market conditions through the first 6 months that has impacted portions of our business, we're very pleased to continue to deliver strong earnings in the second quarter and year-to-date, which is a testament to the strength of our business model. As we continue to demonstrate with a higher proportion of essential recurring services, high client retention rates, strong cash flow and disciplined cost controls, we remain well positioned for continued growth and success in all business climates.

Further, the revenue initiatives discussed earlier, along with the benefits of the recently classed tax legislation, are expected to generate increased demand for our services through the remainder of 2025 and beyond. Also notable is that tomorrow marks the first year anniversary of the announcement of the Marcum transaction. This has been a monumental time for our business, our clients, our industry and especially our team members. The Marcum acquisition is 1 of the most important and value-creating strategic decisions in our history, and positions us for even long term, longer term to deliver top line growth, margin improvement and even greater stakeholder value than we could have achieved without that transaction.

In closing, I want to recognize the tremendous effort, commitment and resilience of our entire team. Everything that we've accomplished in such a very short period of time is made possible because of our people and their dedication and commitment to our clients. So I offer a special thank you to each 1 of you who may be listening on the call today. And as I always do, I want to thank our shareholders and analysts for joining the call and for your continued support.

With that said, I'll conclude the call, and thank you for joining us.

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