CBIZ, Inc. Q1 2026 earnings call

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 Participants should be mindful that subsequent events may render this information to be out of date.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 three, 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 five.

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. 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 purchase activity. Now moving to slide six. We are advancing our four 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 roadmap. 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 in 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. 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 four priorities positions us to drive attractive levels of growth in 2026 and beyond. Moving to slide seven. I've asked Peter to join us today to provide you with a more detailed walkthrough of how we're advancing our AI roadmap. 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, 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've 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 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 test services, for year one, 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 falling 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 it will play in creating long-term value for our clients and our business. Slide eight details how offshoring continues to be a meaningful opportunity for CBIZ. We're 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 timeline 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 wanna 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%-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. As Brad will discuss in more detail, we are pleased with the strong free cash flow we are generating and will 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 3.4 times compared to approximately 3.9 times 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. 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 non-recurring 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 non-recurring 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%-5% year-over-year growth.

Our adjusted EBITDA is effectively unchanged, but is updated to a range of $465 million-$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 $4.00-$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 a range of $270 million-$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 one-time 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 de-levering, targeting net leverage ratio of less than 2.5 times in 2027. 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. 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 multi-service 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. 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. With that, operator, please let's open the call for Q&A.