Thank you, everyone. My name's Andrew Nicholas. I'm the business services analyst here at William Blair. Before getting started, I am required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that out of the way, I'm very pleased to welcome CBIZ here to the 46th annual William Blair Growth Stock Conference. I have with me CEO Jerry Grisko and CFO Brad Lakhia here to present for you today. I'm going to hand it over to Jerry to tell you about the business. Thank you.
Thank you, Andrew, and thank you everybody for joining us this afternoon. For those of you who are not as familiar with us, CBIZ is the leading professional services provider of our kind to middle-market businesses across the country. What makes us unique relative to our competitors is the combination of our size, scale that being nearly [$2 billion of revenue], 9,500 team members, 23 major markets coast to coast. We go to market with two primary divisions, one being our financial services division. Really anything that a finance department or a CFO or a Chief Accounting Officer will turn to an outside accounting firm for, we can provide those services. We also have a set of services around the HR department, so health insurance, 401(k), payroll, and related services.
When I say we're unique of our kind, it's that breadth of services and our ability to bring those into the middle market that make us unique relative to our competitors. The other attribute that makes us very attractive from an investment standpoint is that we provide highly recurring services. About 70% of our services are essential, our clients are going to turn to an outside service provider for their tax, for their assurance services, for their payroll, for their insurance services, et cetera. Highly recurring revenue base, and it's a combination of that highly recurring revenue base, high client retention rates at over 90%, strong and consistent cash flow that allows us to perform strong in any really market conditions, favorable market conditions, and less favorable market conditions. I have to go forward. I mentioned that middle market client.
Distinct from the Big Four, who really serve a Fortune 500, Fortune 1000, or some of the local market providers who really serve a small, more startup client, we like that middle market space. Why do we like that middle market space? First of all, it's a very large total addressable market. We view that as clients between $10 million and $1 billion. That's, on a domestic basis, $10 trillion in annualized revenue. Lots of clients, lots of opportunities. The characteristics of the clients are that they're large enough to be able to pay for our services, and yet not so large that they have big back-office support groups that can help them grow. As a result of that, they turn to CBIZ and our competitors to help them with their most critical decisions. Of course, their compliance needs that they have on tax audit assurance, all those services.
Also, as they grow, as they expand, as they go overseas, as they make acquisitions, as they go out for financing, they turn to us for all of those critical decisions. I keep going backwards here. Sorry. Our revenue, really drivers, we have three. One is pricing, and we've shown year-over-year over year that we're able to get mid-single- digits pricing increases year-over-year, regardless of business conditions. That's what the market generally allows us. As a result of our size and scale and the way that we go to market, we should also be able to get greater share of wallet within our clients, so expanding that relationship by bringing new products and services into that client relationship.
Of course, as a result of all that we can do that differentiates ourselves, certainly from the smaller middle market businesses, our ability to win new logos. Clients come to us oftentimes because they've outgrown their local or regional service provider. When they do that, they're looking for someone with deep subject matter expertise. They're looking for a firm with that breadth of services that can continue to support them in the way that they need to be supported. They're looking for someone with deep industry expertise.
We have 12 of those industries, what that allows us to do is to take our deep subject matter expertise, that full array of products and services that we offer, and create bespoke solutions, specialized, highly tailored solutions that look different for a food and beverage client than they do for a financial services client, than they do for a consumer and industrial client. That allows us to expand that share of wallet within that client base and attract a new client into that client base that is looking for that combination of deep subject matter expertise, breadth of services, and now their industry expertise. Everyone's asking the question, "How will you use artificial intelligence or AI within your business?" We really look at this through two different lenses.
One is kind of table stakes, and it's true in the industry, it's true of many of our competitors, is to create efficiency. We're already seeing those within our organization. We have started out with generative AI. We put that into our enterprise about 18 months ago and actively used generative AI throughout that period of time. We've recently also incorporated agentic AI, and our agentic AI kind of approach is not specific to a particular functional area, a specific task within the organization, we've put it in top to bottom. Of our 9,500 team members, all of them either have been or will be trained up on agentic AI, and they're already creating agents within the organization to make the workflow that we do more efficient.
The other thing that we have is we have a team of 60 people, that's 60 people, that are devoted exclusively to automation and innovation. As they're observing the activities that are happening as people create these agents to help them with their workflow, those that are most scalable are being incorporated, grabbed by that 60-person team, brought over, and leveraged throughout the organization. This is a very leverageable approach that we have, enterprise-wide approach, and a leverageable approach that is quickly scaling throughout our organization and creating efficiencies within what we do. Like I said, that's kind of the table stakes. When we talk to people about AI, everybody has access to the tools. It's how they're using those tools to create efficiencies. We think that the differentiator is the revenue opportunity. How using AI within an organization like CBIZ will allow us to enhance our revenues.
I'll give two examples. One is that we oftentimes, in certain portions of our practice, the way that we generate new clients is through RFPs. Those RFPs come in different forms. They're very time-consuming. They require a lot of information. Prior to AI, we had to be very selective about those that we would respond to and those that we weren't, and it was highly manual. Through AI and through the data that we have and the ability to leverage into AI and extract data, we are now able to respond to far more of those AIs through an automated process. Again, by doing that, win a higher percentage of those shares and accelerate growth.
The other opportunity for AI with us is if you think about that middle market client, again, that client that is $10 million or $50 million in revenue, up to a couple of hundred million dollars in revenue, they don't have the back-office resources to be able to fully implement AI. We've taken our approach to AI, which is identifying the tools that are out there, creating the strategy around it, identifying the governance that needs to be put in place, and then upskilling the workplace. We are packaging that now and bringing that out into that underserved middle-market business to be able to help them with their AI journey as well. That's just one example of the revenue opportunities that we have. Of course, when you talk about AI, what you have to appreciate is it's not going to displace the people.
It will augment the work we do. It will make it more efficient. It will create opportunities for us to generate greater revenue within our clients. But it's never going to replace the relationship. They call the accountant the trusted advisor to the client. That trust is built on long-standing relationships. It's built on context around the client relationships. It's built around understanding the client's priorities, applying judgment to those decisions, and accountability, right? Those things are uniquely human. They will never be replaced by automation. We have to stay focused on our workforce. We have, as I mentioned earlier, 9,500 people. We work hard to establish a culture that they're all proud of. We win many of the Best Places to Work Awards within our industry and within our markets.
We commit a significant amount of resources, more than many of our peers, to the growth and development of our people, training, upskilling, giving them the tools, and career pathing. Of course, we have to be competitive with benefits. But when you look at the people part of our business, we're proud of what we've created, and we are able to now attract talent from many of our competitors from the Big Four and others that are seeing what we're doing, the investments we're making, not only in the technology, but in their growth and development, and we're winning the war for that talent. With that, I'll turn it over to Brad, who can do some financial overview, and we'll then open it up to Q&A. Thank you.
Thanks, Jerry. Thank you everyone for being here. Good afternoon. I'm just going to give you a little bit of an overview, a financial overview, then I think Andrew will have an opportunity to take some questions as well. Let's see if I got the right page up here first. I'll start on a little bit of a recap in terms of how we started the year. Really, really pleased with the year in terms of where we started out. Is the microphone okay?
Yeah.
From a revenue perspective, we reported organic growth of 1.3%. Candidly, when we look at that, we're really pleased with it, despite it being somewhat of a low number, a headline number. When we look at that and we look at where we've come with the integration of Marcum, the transaction, and some of the work that we've done around there, we made some choices around clients, right? We have gone through some client transitory work where we moved some clients out for risk purposes, for profitability purposes. Really, we feel like the client base that now we have to run with going forward is one that's really, really strong. Adjusting for some of the client impacts, the transitory client impacts that we had in Q1, our organic revenue growth would've been closer to 3.5%. We commented on that on our first quarter earnings call.
Really pleased with our first quarter revenue growth. From a margin perspective. We talked a little bit about synergies over the course of our time. When we announced the transaction, we targeted about $25 million of synergies. Pleased to report we've exceeded that. Now we're above $50 million. All of those synergies are essentially baked into our current run rate now that we've exited Q1. Really pleased with what that's doing from a margin perspective. As we've now transitioned into 2026, we're also experiencing some incentive compensation impacts year-over-year. Net-net, pleased with the margin performance on the whole. Then from an adjusted EPS perspective, lower share count is benefiting primarily our improvement in EPS, but also the strength of our earnings. From a free cash flow perspective in Q1, we benefited from the final settlement of the purchase price on the Marcum transaction.
We were able to leverage that cash flow in Q1 all the way through the end of April to drive share repurchases, but then also drive some improvement in our leverage, which I'll talk about here in a moment. Overall, growing revenue, increasing profitability, really, really strong cash flow profile. Our business model, again, 70% recurring revenues. High retention rates in our client base. Strong talent retention drives a really strong business model, which drives cash flow and margin. Turning to the balance sheet and our cash flow profile, really pleased also with our net leverage progress. Last year in Q1, we exited Q1 at about 3.9x net leverage. Our leverage as a company is higher than it historically has been. Again, largely attributable, entirely attributable to the transaction.
We were able to increase or lower our leverage by a half a turn year-over-year in Q1. That's after having delivered a lot in the way of share repurchases, not only in 2025, but also as we started this year. As you'll see on the chart here, we delivered about $63 million in share repurchases through the end of April. Again, reflecting the strong nature of our business model and also the strong cash flow generation that business model churns out. Our net leverage target remains below 2.5x . We feel confident we're on the path to deliver that net leverage target as we move and exit 2027, also remain opportunistic at the same time on share repurchases as we feel like currently, highly accretive opportunities to do some share repurchases.
With that, I'll just say from a capital allocation framework, pretty straightforward here. Obviously, we're focused on investing in the business first, so we'll make sure that we're funding the business, funding some of these investments that Jerry talked about around technology transformation, AI, talent, right? That's really, really important to us. We're going to be investing in the business. Beyond that near term, I would say pretty balanced view of debt reduction and share repurchases, particularly as I said here a moment ago, highly accretive opportunities that we see in terms of being able to return cash to shareholders. We'll continue to be opportunistic and balanced and disciplined on that front. Long term, our growth algorithm, I'll start there, is largely consistent. We've historically said 8%-10% revenue growth. That's 50% typically, about we target about 50% organic growth, 50% inorganic growth.
We'll be turning our attention as we move into 2027 and beyond to getting back into M&A, while still investing in the business. We're going to continue to be focused on share repurchases. Then from a target debt perspective, we feel like 2.5x is the right level, right target, kind of foundational level of debt for us going forward. Just to summarize our comments here today, really coming back to the business model, strong recurring revenue base, coupled with a very diversified, as Jerry explained, the total addressable market, targeting that middle market, large client base, large number of companies, $10 trillion or more in revenue, underserved market generally. Then an opportunity to take all of that from an operating leverage perspective with our enhanced size and scale, enhance our free cash flow, and really drive our margin improvement.
Really feel like our business model remains very, very strong, where we're positioned to be able to grow and drive growth initiatives. Feeling really, really good about that. That concludes my remarks. Thank you again for being here, and I'll turn it over to Andrew.
All right. Great. Thanks, Brad. Thanks, Jerry. As this is a generalist conference, I want to kind of spend some time first walking back and talking through the Marcum transaction. Obviously, that's been a huge undertaking for the firm over the last, what, year and a half now. Just for the audience, if you could kind of remind us on the rationale for that deal, how it's going, the major kind of takeaways at this point that you've gotten out of it and kind of where that's trending. I think you're now probably wrapping up first big busy season as a combined organization. Any learnings from that, too? I know that was a multi-part question.
Yeah. Listen, what I would say is, when I think about why we did the deal and where we sit today, the timing couldn't have been better. The original premise for the transaction was that the size and the scale mattered in this business. The work that we do is increasingly complex for the clients that we need to provide to the clients. We needed to have scale in order to be able to do that work, to be able to make investments in the business. We needed to have scale to be able to win the war for talent. This is still at its core a people business, and we've established that. When we think about today, the people that are joining our company, it's a different profile than the people that were joining our company two years ago and before that, right?
Attracting talent out of the Big Four, attracting talent from our competitors.
Really pleased with what we're seeing there. Being able to make the investments in the business. We talked about AI. We now have, and I mentioned this earlier, we have 60 people that are devoted to this transformation innovation. Things like, think of it as our R&D team. They're out in the market. They're looking at the tools that are in the market. They're testing those tools. They're bringing those tools into our environment. They're working with the data that we have, organizing that data, extracting the data, bringing it back to our teams, or to our clients in a way that brings greater insight into their businesses. Our ability just to go win new clients and the value that we bring for our clients. All of those things are performing at or above expectations when we did the deal, and that's why we did the deal.
Really pleased. With that said, it's a lot of work. When you bring two groups together of like size, there's two ways to do that. You either integrate them over some period of time, two or three years, or you try to do as much as you can, as quick as you can, get it out of the way, and then start really leveraging the value. That's what we did. Last year in 2025, if you think about our business, we got through busy season. That concluded at April 15th. We really started the work of full on integration May 1. We're just a year into it. A year into it, we have about 80% of the tasks, the integration tasks behind us.
That was unsettling, and there's a lot of change involved in that, and we put our organization through that, but we're already now seeing people kind of come out of that and say, "Okay, now the change is behind us, and I see the value in what we can bring, the value of the tools that we have, the value that we can bring to our clients," and kind of moving forward. Really pleased with what we're seeing, quality of the people and the benefits of the transaction.
You'd say absent some of the client pruning that you did for risk and profitability purposes, largely in line in terms of customer retention across the last year.
Exactly right. Very pleased with our client retention. As Brad indicated, 90%. It's probably 90%+ . I think even more favorable than 90%. Our employee retention, I think that speaks volumes as well, right? We look at employee retention kind of through two lenses. One is just overall, I would say our retention rates are actually more favorable today than they were two years ago. Now, the market's changed a little bit, and the market's a little bit more favorable. Our retention rates, we also look at what we call key regrettable losses. People who otherwise weren't kind of retirement aids that have left. Very few of those. Very pleased with the retention rates of not only our overall workforce, but key influencers within the organization.
Yeah, I would just emphasize, the ability to recruit, our size, our scale, our brand, our market position, the ability to draw in a different level of talent that the two organizations separately would have been more challenged to do, has been very notable.
I have a few other questions, but I want to stick with the hiring and talent piece because I think it's something that I get asked quite a bit about in terms of the staffing pyramid. It sounds like you're hiring a lot externally. I would assume that's at a lateral level, if not more.
Correct
senior level. In this new kind of AI paradigm, is there any adjustment to how you're thinking about hiring velocity at each level? Is it going to be more tower-like or square-like as opposed to pyramid, or just kind of any thoughts on hiring? Obviously, it's great that you're finding new talent at that senior level, but does that offset or replace any junior level hiring at this point?
I would say complements, right? To your point, when we talk about attracting a different level of talent in the organization, that's really, we're referencing a more senior level kind of talent. We have people within each of those 12 industry groups. We've charged each of the leaders and each of the participants within that group of identifying their most highly regarded competitors and having discussions. We have a full pipeline by industry group of people who are kind of the rock stars within each of our competitors that we're in active conversations about joining CBIZ. That's the level of talent. They see what we're building, they're interested in joining us. Functionally, we have our head of AI, was the head of AI incubation for one of the Big Four.
The data person we talked to was on the leadership team of data for one of the Big Four. To be able to attract that level of talent. That's the senior level. As far as the pyramid, if you think about, again, I'll just reference accounting firms. Historically, there was a pyramid, right? You hire a whole bunch of people at the bottom, and they work their way up. As a result of AI and a result of offshoring, that looks more like a house, right? The roof is still there, but the walls get flattened. Where we pick up efficiency on either end, offshoring or AI, that used to be kind of the edges of the pyramid. We need to have a full funnel at the bottom in order to develop people, give them experiences, and bring them up the curve.
It'll never look like a diamond. I don't even understand what that model might look like because there's not enough people at the bottom. We have to make sure that we still have the opportunity to bring people in, train them up, give them experiences, and bring them up the value chain.
One of the questions I have written down here that I wanted to ask was about kind of the interplay between AI and offshore. Maybe Brad, you could speak to the offshoring initiative, maybe what some of the targets are. How do you think about that next to some of the productivity improvements that you would potentially get from technology and automation?
Yeah, sure. I'll start with the target portion of this, and we put this out publicly. We're targeting to get to 10%, particularly within our accounting and tax practices. 10% this year with a path to 20%, call it over the next two to five years, well, really two to three years. That's kind of how we're thinking about the global resources kind of offshoring initiative, and making a lot of traction on that. We have some things that we'll share, I think yet this year, publicly around the traction that we're getting there. On terms of the model, our approach here is first and foremost, where we see a resource need, Andrew, we first ask ourselves, can we do this without a human, right? Forget about whether it's onshore or offshore, right?
Can it be done through technology, through automation, or through some other alternative, right, around existing resources somehow? The second step is if it does require a person with some talent and skill set, we do then look at the profile, what we're looking to fill, then we say, "Should we do that domestically?" Do we do that with global resources? And we make that decision. If it's domestic, then it's really come back to some of the things that Jerry just spoke about. Is it client-facing? If it's client-facing, where are we going? Are we making sure these client-facing roles fit within our go-to-market, our industry strategy, or fit within the growth trajectory that we want to pursue? If it's non-client related and it's something more functional excellence or operational excellence, we almost sometimes revert back to then why not global resources?
It can be a bit of a circular reference.
Great. Switching gears a little bit, I think we have maybe time for one or two more questions. Just on pricing, I think that's obviously a huge, maybe partly related to the AI discussion, just a general conversation about the accounting services industry. You mentioned in your comments mid-single digit pricing. Has there been any change to kind of the nature of those conversations or the pricing conversations with clients? Anything kind of notable that's different maybe right now versus this time last year when we were kind of in the aftermath of some of the tariff uncertainty? Anything that you could say on pricing would be-
Listen, pricing, I would say mid-single digits is kind of what the market gives us license for, right? We've seen that mid-single digit pricing kind of for the past probably 10 years, we're seeing that still. The difference was, in certain market environments, we actually can get greater pricing in a more inflationary environment. We had that inflationary environment in 2023 and 2024. We were more kind of 7%-8 % pricing. We came into 2025 expecting that we'd have that same inflationary pricing. 2025 played out different. We were still able to get mid-single digit. It just wasn't at the high. Mid-single digits is what you should expect from us, we continue to see that going forward.
Perfect. Maybe just last one from me. I know the capital allocation priorities right now are a little bit more balanced between debt repayment, maybe some share repurchases. Can you talk to 2027, 2028 on the M&A front specifically? Once you feel like you're at a good spot from an integration perspective with Marcum, how quickly can you get back into the M&A game, if you will, and what are the types of assets that you'd be interested in? Is it a geographic expansion service line or some mixture of both?
Yeah. Let me kind of first give you our growth algorithm, right? Historically, we've said 8%-10% top line, and that gives us leverage. We can do 1.5 , or 1.5x t hat on the bottom line if we get the top-line growth. That 8%-10%, we'd typically have said half organic, half inorganic, right? If you count on 4% or 5% organic, 4%-5% inorganic. On roughly $3 billion, that means $150 million annually in inorganic. We know there's opportunities out there. We could be doing those deals today. We just really wanted to make sure that we land the acquisition and the integration of Marcum. We expect that going into 2027, certainly by mid-year, we're back in the market for that, and we believe those opportunities are there. To answer your question, where would we be?
I would say it really falls into two buckets. The right platform acquisition geographically. If you look at Texas, for example, we don't have the right platform in Texas. If we could find the right firm there, we'd love to be there. Atlanta, Charlotte, Nashville, right? There's really strong demographic markets. If we find the right platform firm, we'd like to do that. There's a host of advisory services that are in high demand by our clients, and I see us expanding into those services as well.
I'll try to squeeze one more in. Just on the advisory market, obviously one of the great aspects about accounting services, and audit and tax in particular, is high recurring revenue, very strong retention. Advisory can be a little bit more cyclical, not altogether cyclical, can you speak to kind of the development of the advisory business over the past couple of years? It seems like it's accelerated in the back half of last year and has remained strong to start this year, just kind of paint the picture on some of that part of the business.
We talked about the kind of essential nature of what we do, right? 70/30. In favorable, less favorable business climates, our clients turn to us for that 70%. We like that mix because it creates a lot of certainty in our revenue profile. The 30% bring greater value to the client relationship. It's more than just compliance. It's more than just the essential services. Our clients need us. They're going to go out and make an acquisition. They'll turn to us to help for quality of earnings and due diligence on that transaction, to bring financing to the table. All of those services, those are all the advisory services. In less favorable business climate, I would say less certain business climates, there's less demand for that. In more certain business climates, there's more. We saw that last year.
At the beginning of 2025, Liberation Day, all the discretionary work or a good deal of it kind of went to the sidelines until the dust settled. We saw that work pick up in the back half of 2025 and continue strong through 2026. Through the first quarter of 2026 and kind of continued strong, right? In most business climates, that is kind of the differentiator for us. We can provide a broad array of solutions to our clients. They don't have to go to an outside firm to get those things. They can turn to us. They bring greater value, they typically are higher margin, and they give us a nice growth trajectory, in most business climates.
Great. Thanks to you both for being here. Thanks to everyone in the room. We'll wrap up there and head to Adler for the breakout session. Thank you.
Thank you.
Thanks, Andrew.