Good day, and welcome to the CBIZ Full Year 2020 Results Conference Call. [Operator Instructions] Please 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 morning, everyone, and thank you for joining us for the CBIZ fourth quarter and full year 2020 results conference call. In connection with this call, today's press release has been posted to the Investor Relations page of our website, cbiz.com. This call is being webcast and a link to the live webcast as well as an archived replay and transcript can also be found on our website. Before we begin our presentation, 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 or in the investor presentation on our website. Today's conference call may also include forward-looking statements, including statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only estimates on the date of this conference call and are not intended to give any assurance as to actual 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. A more detailed description of such factors can be found in our filings with the Securities and Exchange Commission. Please note that CBIZ assumes no obligation to update forward-looking statements. Joining us for today's call are Jerry Grisko, President and Chief Executive Officer; and Ware Grove, Chief Financial Officer. I will now turn the call over to Jerry for his opening remarks. Jerry?

Thank you, Lori. Good morning, everyone. With the release of our results this morning, we were pleased to announce growth in total revenue, income from continuing operations and adjusted EBITDA for both the fourth quarter and full year of 2020. Throughout the past year, I emphasized the fundamental characteristics of our business that I believe enable us to continue to perform well in both favorable and less favorable business climates. As I described on our second quarter call, these characteristics include that approximately 70% of our revenue is generated from essential services, including our tax services, insurance services, payroll services and a host of others that we provide to our clients regardless of economic conditions in the market. We generally retain approximately 90% of our clients from year-to-year. We have a broad geographic footprint. We serve a diverse client base in terms of size and industry. We enjoy strong and constant cash flow and have a substantial amount of variable expenses in our business. Our ability to grow throughout the challenging business climate that was 2020 is a testament to those characteristics, the strength of our business model and the agility and resilience of our team. As expected and reflected in our results, some of our businesses performed better than others in more uncertain and volatile business environments. Generally, the essential services described earlier tend to continue to perform well even in more challenging business climates while certain more discretionary services are less predictable. Many of our more discretionary services are in higher demand when our clients are pursuing or making decisions around growth, such as acquisitions or significant expansion plans. We saw much of this play out during 2020. Within our Financial Services group, we experienced strong performance from our core tax & accounting business and our litigation support…

Thank you, Jerry, and good morning, everyone. I want to take a few minutes to run through further details and the highlights of the numbers we released this morning. The total revenue growing by 1.6% for the full year and margin on pretax earnings from continuing operations increasing by 90 basis points. We were pleased to report earnings per share of $1.42 for the full year, up 11.8% over $1.27 reported a year ago. To recap a few important points. As the impact of the COVID pandemic unfolded, there was considerable risk and uncertainty everywhere. We took a number of immediate actions to protect our liquidity, and we took measures to prudently control expenses with a view toward preserving our ability to serve clients in order that we could emerge as a strong and healthy business ready to resume growth. We have not been completely immune, but with many actions we took, coupled with the dedication of our CBIZ team, we are pleased that our business model has weathered the storm, and we are now a stronger company for the experiences in 2020. Our primary concern operating under the pandemic environment was to protect our liquidity. Perhaps the best measure of our success in 2020 is the continuing nature of our strong positive cash flow. We ended 2020 with $108 million of outstanding debt on our credit facility, increasing only $2.5 million from $105.5 million at year-end a year ago. After an active first quarter in 2020, repurchasing 1.2 million shares and closing three acquisitions, we paused both acquisitions and share repurchase activity from mid-March through mid-September until we could develop more confidence with the stability of our cash flow trends. For the full year of '20, we closed seven acquisitions and utilized $89.7 million of capital for acquisition activities.…

Thank you, Ware. I'd like to touch on a couple of additional areas before we turn it over for Q&A. First, I would like to talk about our unique position in the market and how it allows us to provide solutions to our clients that are unmatched in our industries. While we have a large number of very capable competitors for many of the services we provide, they are often not aligned and lack the ability to provide the holistic, multidisciplinary solutions that our clients need when analyzing decisions that relate to their most impactful opportunities or greatest challenges. We witnessed the strength of our business model throughout 2020 as we move quickly to collaborate across businesses, service lines and geographies to bring CBIZ's resources and expertise to bear in coordinated services that were responsive to our clients' most pressing needs. We are encouraged by the value that our holistic multidisciplinary solutions approach brings to our clients and are excited for the opportunities that it presents for CBIZ to further distinguish us from our competitors. Next, relating to M&A. We welcome two outstanding organizations to our team in the fourth quarter. The acquisition of BeyondPay brings additional implementation capacity to support sales of our upmarket payroll solution and follows another similar acquisition earlier in 2020. We also acquired Borden Perlman Insurance Agency within our property and casualty business. Based in New Jersey, Borden Perlman is a leading provider of property and casualty insurance with an over 100-year history of serving clients on the East Coast. Both of these acquisitions provide strategic value, but are also strong cultural fits, which is the most important factor when we consider acquisition opportunities. As Ware mentioned, overall, we completed seven acquisitions in 2020, all of which bring expertise, capacity, talent and a strong client…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Chris Moore with CJS Securities. Please go ahead.

Hey. Good morning, guys.

Good morning, Chris.

Good morning. Maybe just talk a little bit more about the quarterly volatility, specifically how it relates to Q1. So the midpoint guided revenue is 6.5%. Does that apply to Q1 is the reason to think given the strong Q1 '20 that the growth in Q1 might be towards the lower end of the range? Or any thoughts there?

Yes. Chris, it's Jerry. Hey, before I kind of comment on the specific question, I made note in my opening comments that we're really guiding to annual - we have an annual guidance. We really caution against any quarterly comparison. I think this is going to be a far less predictable year. Any quarter-to-quarter I think is going to be very difficult for us to be able to predict with any type of certainty or predicality [ph] And as we sit here today, particularly as it relates to the first quarter, you're right. We came out last year in 2020 with a very, very strong quarter. And we think that's going to be a particularly challenging quarter to compare to this year. But again, we'd really like to dissuade you from comparing quarter-to-quarter. We're very comfortable with our annual guidance, but quarterly comparisons are going to be a challenge for us.

Got it. That helps. I appreciate that. Ware had talked about, and you guys have in the past, that kind of some of the expenses that were lower in fiscal '20 versus '21, health care and travel, I guess just a couple of things. Do you expect those levels to still be kind of below, say, a normal 2019? And were there any kind of COVID-related expenses in '20 that may not be repeating in '21?

Yes. Chris, this is Ware. With respect to the health care costs, that's not so controllable. And we would expect while we got a favorable cost reduction last year just because of the dynamics of the health care industry and the deferral of a lot of treatments our costs were lower, we're planning and expect that those will normalize back to 2019-type levels, okay? With respect to travel and entertainment, we're still on kind of modified work conditions as is the entire economy so that while we got a pretty dramatic reduction last year just because we were on pretty severe lockdown situation for a period of time. That will creep back up, but it's still very controllable here, and we're expecting that that will creep back maybe half of the distance between 2019 and 2020, but not the entire amount, but we can still manage that. Those are a couple of the big issues.

And were there any kind of - any COVID-related expenses that may not necessarily repeat in '21?

I think the thing to bear in mind there, not necessarily expenses, but the impact on our business. In the first quarter, I commented on the impact on our advisory businesses and some of the P&C program businesses, things like that, that were more severely impacted. Those had a relatively stronger first quarter before they were impacted late in the first quarter and through the balance of the year. So that's why we caution against the quarterly comparables. But that's where we felt the slowdown in those select businesses.

Got it. Appreciate it. I’ll jump back in line.

Our next question comes from Andrew Nicholas with William Blair. Please go ahead.

Hi, good morning. Just wanted to start with a question on client retention. Just wondering if you could provide any additional color on how it progressed over the course of the fourth quarter? And then any color on year-to-date trends or kind of how you're thinking about that through this year? And relatedly, how it kind of compares to this time last year?

Yes. Andrew, this is Jerry. As you know, we generally enjoy very favorable client retention rates in the 90 percentile range across our business lines. Holistically, as a company, we actually - when we went back and measured those things, we actually improved those retention rates in many of our service lines. Not surprisingly, many of the clients weren't thinking about changing service providers during that environment. However, that was somewhat offset by some of the attrition that we did see in certain of the very specialized practices we have like the program business that we have within property and casualty that really serves the hospitality industry and the action sports industry. So within our core services, I would say our - our retention rates actually improved throughout 2020. But our total as a company retention rates remained in about that 90 percentile range just because of some of the offsets. Look, I think we would expect that going into 2021 that the attrition that we saw in some of the businesses, that's kind of behind us, the program business, for example, on property and casualty, and we would continue to enjoy a very strong retention rates in our core services into 2021.

Got it. That's helpful. And maybe as my follow-up, sticking with the one thing that you touched on there in your response. Just the services most directly impacted by the pandemic. I think in the prepared remarks, there was a comment about 16% of revenue being down 13% or so in 2020. Just wondering - I think you mentioned some improvement in the fourth quarter there and to start the year. Just wondering kind of what you're thinking about in terms of a growth rate for that same subset of business in 2021, what's embedded in guidance? And to the extent that vaccines take hold and the economy improves, if there's any upside in that area that's not baked in? Thanks.

So Andrew, again, this is Jerry. What I would say is that it's hard to take any particular segment of our business and really predict exactly how that's going to perform in this environment. What I would say as far as the growth rates are concerned, when we set our guidance, we looked at it at the highest level, knowing that things are going to come in different than we expect them to come in, in any given segment of our business, but we are comfortable at the highest level with the guidance that we provided. So it would be difficult for us to give you very specific guidance on a particular segment of the business.

Understood. Thank you.

[Operator Instructions] Our next question comes from Marc Riddick with Sidoti & Company. Please go ahead.

Hi, good morning.

Hey, Mark.

Wanted to get a sense of the - I appreciate some of the commentary - hey there. I appreciate some of the commentary that you've already provided. I wanted to sort of touch a little bit on maybe how we should think about the complexity of the - maybe the tax work specifically and how that might compare year-over-year with - and what kind of opportunities that might provide for you? And also, I know the last couple of years, we've had the timing of federal balance offset. So I'd like to talk a little bit about maybe how we should be thinking about what the differences are as far as this year versus the prior years as far as tax filing activity?

Okay. Hey, Marc, I have the tax filing question. The first part of that question, you broke up a little bit. Can you please help us with that again? You were talking about some complexity in the business. I didn't fully understand.

Oh, sure. So we're talking complexity of what the filing that can be made. So not just in timing, but either as far as tax goes [ph] as far as uncertainty as far as what may or may not be in stimulus packages, additional PPE opportunity - PPP opportunities, things like that.

I got it. Thank you, Marc. So let me address them in order here. As it relates to complexity, we would expect some changes to come out of congress. And as you know, in our business, when there are changes that provides an opportunity for us to be in front of our clients in front of prospects, talking to them about how those changes impact their business. So any changes in the regulatory environment is generally positive for us. And so we would expect some of that. It's very difficult to measure. As you know, the Biden administration is talking about another round of stimulus into the economy. They're talking about infrastructure. So all of that will provide opportunities for us to be talking to our clients about how that may impact them, and that's just nothing but positive. It's very difficult to put a precise forecast on that, but generally positive. As it relates to the timing of tax filings, that's a very good question and one worth noting, again, another reason why it's difficult to measure us on a quarter-to-quarter. Last year, as you know, the tax filing deadlines were extended from April 15 to July 15. We can then roll right into another - the second busy season after that in the fall. That's not likely to recur this year. There is some discussion around moving the tax filing deadline from April 15 to maybe May 15, but it's not likely to push out as far as it did last year. More to come, that's still very uncertain. So for now, we are planning on an April 15 tax filing deadline. And you'll see it when we do if that extension gets pushed out.

Okay. [Technical Difficulty] one from me. I wanted to touch a little bit on your comment on the success of early investments on the new producer programs. Just wondering if you could delve a little bit into that and maybe what you're seeing that gives you some confidence there and what we might see in future investments there? Thank you.

Yes. Thanks, Marc. So as you know, historically, if you go back several years, we were not growing organically at the rates that we would expect from a number of our businesses on the Benefits and Insurance side. Primarily, the reason for that is we have outstanding teams there. We have outstanding producers. They do a very good job of -- in production. We just didn't have enough of them, right? So every year, you're going to lose, if you have $100 million business, you should be expected the industry kind of benchmark is 10%. So you'll lose 10%. So you go from $100 million to $90 million, you need to fill that back up, so go back up to $100 million, so $10 million of new sales before you're showing growth. And that just takes more and more producers. So realizing that that was a necessary investment, we started along this path about three years ago, 3.5 years ago. As we would with any significant expense, we had models built and business plans established, and we are now going back, obviously, and measuring against those things. And our comments are that we are very pleased that the producers that we're onboarding are actually producing at higher levels than we had expected them to produce in the non-validated category, which is before they start to kind of cover their draws. And most importantly, the validated producers, which are the more seasoned producers that tend to produce at a much higher rate, they are achieving that position faster than we had expected in our model. So kind of check, check, check across the board. Very pleased with that we decided to make those investments, very pleased with how those investments are performing. And we're taking much of the lessons that we learned principally within our employee benefits group. Great shout-out and the team here have done a really outstanding job. We're taking many of the lessons that we learned there and bring them into other lines of business because of the success that we've enjoyed.

That’s very encouraging. Thank you very much.

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

All right. Thank you. In conclusion, I'd like to thank our analysts and investors for joining us on the call today and for your continued support. And as always, I also want to recognize and thank our team members who may be listening to the call today. I've never been as proud of our team as I've been over the past 12 months, as I reflect on how we came together as one CBIZ to support each other, our team and our clients. Throughout that period, our team remained flexible, determined and focused on our clients throughout the last year, and our performance is a direct reflection of that commitment. I'm encouraged by the momentum that we see at the start of 2021, and I'm excited for the opportunities that lie ahead. Thank you, and I look forward to speaking to you after the - after our first quarter. Thank you.

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