Executive Summary / Key Takeaways

• CBIZ's transformative acquisition of Marcum LLP has significantly increased its scale, positioning it as a leading professional services provider to the middle market and the 7th largest accounting firm in the U.S.
• The company's Q1 2025 results demonstrate the immediate accretive impact of the acquisition on revenue and earnings, while highlighting the resilience of its business model and variable cost structure in maintaining profitability despite softness in discretionary services.
• Management is prioritizing the integration of the Marcum business, focusing on people, culture, and technology systems to unlock anticipated synergies and enhance operational efficiency, while also concentrating free cash flow on debt reduction.
• While economic and geopolitical uncertainty is impacting demand for nonrecurring project work, CBIZ's core recurring services continue to perform well, supported by strategic investments in technology and a disciplined approach to pricing.
• The investment thesis centers on CBIZ's ability to successfully integrate Marcum, leverage its expanded scale, service breadth, and industry depth to capture market share, and execute on its capital allocation strategy to enhance shareholder value amidst a competitive and evolving industry landscape.

Setting the Stage: A Transformed Leader in Professional Services

CBIZ, Inc. (CBZ), established in 1996, has built its foundation on providing diversified professional business services primarily to the dynamic middle market across the United States and parts of Canada. The company's history is marked by a consistent, strategic approach to growth, heavily reliant on targeted acquisitions designed to deepen its presence in key markets, expand into attractive industries, and broaden its suite of service offerings. This inorganic growth strategy culminated in a truly transformative event on November 1, 2024, with the completion of the acquisition of Marcum LLP. This landmark transaction, the largest in CBIZ's history, fundamentally reshaped the company's scale and competitive standing.

The professional services industry is characterized by fragmentation and intense competition, facing ongoing pressures from technological advancements, evolving client needs, and a persistent war for talent. Key market drivers include the increasing complexity of tax and regulatory environments, the demand for integrated advisory solutions, and the need for businesses to leverage technology for efficiency and insight. CBIZ competes with a diverse set of players, ranging from large, publicly traded firms like Automatic Data Processing (ADP) and Paychex (PAYX) in payroll and HCM, Marsh & McLennan (MMC) in insurance and risk, and Robert Half (RHI) in financial consulting and staffing, to regional firms and specialized boutiques. Indirect competition also comes from fintech platforms and emerging AI-driven tools that automate certain services.

In this landscape, CBIZ has historically differentiated itself through its integrated service model, offering a combination of financial services (accounting, tax, advisory, technology, government healthcare) and benefits and insurance services. This breadth allows CBIZ to serve as a single-source provider for many middle-market clients, fostering deeper relationships and higher client retention. The Marcum acquisition significantly amplifies these strengths, creating a combined entity with approximately $2.8 billion in revenue and over 10,000 professionals. This scale positions CBIZ as the 7th largest accounting firm in the U.S. and a leading provider of professional services to the middle market, offering a breadth and depth of expertise that management believes is unmatched by many competitors.

A critical component of CBIZ's strategic response to industry dynamics, particularly post-Marcum, is its focus on technology and innovation. The company is investing in integrated systems, data analytics, and leveraging advancements in areas like AI. The acquisition of CompuData in March 2024 brought expertise in cloud hosting, ERP solutions, IT security, and managed IT services, enhancing CBIZ's technology advisory capabilities. Furthermore, the company is deepening its relationship with Suralink, a client collaboration platform, expanding its license adoption to optimize client experience and audit workflows. The strategic intent behind these technology investments is multifaceted: to drive operational efficiency, streamline back-office processes, enhance data visibility for better decision-making, and ultimately deliver more innovative and higher-value solutions to clients. While specific, quantifiable metrics on the benefits of these technologies compared to competitors are not always publicly detailed, the strategic goal is to improve service delivery, create internal efficiencies, and strengthen the competitive moat against rivals who may have scale or specific tech advantages in certain niches, such as ADP's highly automated payroll processing platforms which can offer faster speeds and lower per-unit costs. CBIZ's approach aims to combine human expertise with technology to provide integrated, data-driven insights that resonate with the complex needs of the middle market.

The Marcum Integration and Business Performance

The integration of Marcum is a central strategic priority for CBIZ in 2025. Management reports that integration efforts are on schedule, focusing on combining the best practices from both legacy organizations. Key areas of focus include aligning people and culture, redesigning organizational structures (such as organizing Accounting & Tax into six geographic regions with combined leadership), and integrating technology systems onto a unified environment. While the majority of the anticipated $25 million in cost synergies are expected to be realized in 2026 and beyond, the work in 2025 is critical for identifying these opportunities and laying the groundwork for execution. The integration process also involves navigating complexities related to independence requirements, particularly concerning SEC-reporting attest clients of the affiliated CPA firm (CBIZ CPAs, which acquired Marcum's attest business), which can limit the scope of non-attest services CBIZ can provide to these clients and potentially result in some revenue loss, although management believes this is within expected ranges.

The impact of the Marcum acquisition is clearly reflected in CBIZ's recent financial performance. For the first quarter of 2025, total revenue surged by 69.5% year-over-year to $838.0 million, with the acquisition contributing 66.8% of this incremental revenue. Net income increased by 59.7% to $122.8 million, and adjusted diluted EPS rose by 40.5% to $2.29. Adjusted EBITDA doubled to $238 million, demonstrating the significant accretive benefits and scale advantages of the combined entity.

Looking at segment performance in Q1 2025, the Financial Services group, now significantly larger post-Marcum, saw revenue climb 91.5% to $713.7 million. This growth was primarily driven by the acquired traditional accounting and tax services, national technology services, as well as strong performance in advisory services and government healthcare consulting. Fees earned under ASAs also increased substantially. The Benefits and Insurance Services segment reported revenue growth of 4.2% to $113.0 million, with strength in payroll, employee benefits, and retirement services, partially offset by a decrease in property and casualty revenue. The National Practices segment's revenue decreased by 14.2% to $11.4 million, primarily due to a divestiture in the prior year period.

Despite the strong overall growth driven by the acquisition, management noted softness in demand for nonrecurring project-based services in Q1 2025, which constitute approximately 23% of total revenue. This softness is attributed to the uncertain economic and geopolitical environment, impacting areas like SEC audit practice and general advisory work sensitive to capital markets activity. However, the core recurring portions of the business, including accounting and tax compliance and Benefits and Insurance, performed as expected, growing in the mid-single-digit range organically. CBIZ's business model, with its high proportion of variable expenses, particularly compensation tied to performance, provides levers to manage costs and protect profitability in response to revenue fluctuations. This inherent resilience is a key factor underpinning management's confidence in their earnings outlook.

Financial Strength and Capital Allocation

CBIZ's financial position has been significantly altered by the Marcum acquisition, which was funded with a mix of cash and stock, utilizing a new $2.0 billion 2024 Credit Facilities agreement. As of March 31, 2025, the company had $1,548.4 million outstanding under this facility, with approximately $384.0 million of available funds. The weighted average effective interest rate on this debt was 6.57% in Q1 2025, a notable increase from 5.23% in the prior year, reflecting the higher debt balance and prevailing rates. The company remains in compliance with its debt covenants.

Cash flow generation exhibits a seasonal pattern, with Q1 typically showing a use of cash due to the timing of tax season and incentive payments. Q1 2025 followed this pattern, with cash used in operating activities totaling $88.3 million, primarily driven by working capital needs. However, management noted improved collections, with trailing-twelve-month DSO decreasing to 96.0 days from 101.0 days a year prior.

The company's capital allocation strategy is clearly defined post-Marcum. The immediate priority is to maximize cash flow to pay down debt, aiming for rapid deleveraging from an initial leverage ratio of 3.25-3.5x EBITDA towards a target of approximately 2-2.5x EBITDA by the end of 2026. This deleveraging is supported by the combined entity's strong cash flow attributes and a tax asset from the Marcum acquisition expected to provide a cash flow benefit of approximately $15 million in 2025, growing to $30 million annually. Beyond debt reduction, cash will be used to fund remaining contingent purchase price payments for prior acquisitions (projected at $60 million in 2025, $30 million in 2026, and $10 million in 2027) and for estimated capital expenditures of $20 million to $25 million in 2025. The company also maintains a share repurchase program, authorizing the purchase of up to 5.0 million shares through March 2026, and intends to be disciplined and opportunistic in its use, particularly as shares issued in the Marcum transaction become eligible for resale.

Competitive Dynamics and Outlook

CBIZ's competitive positioning is significantly enhanced by the Marcum acquisition. The combined scale, expanded geographic footprint (strengthening presence in key markets like New York, New England, and the Mid-Atlantic), and deepened industry expertise (now boasting over 10 industries or specialty practices with revenues exceeding $100 million) provide a stronger platform to compete against both large national firms and smaller regional players. While competitors like ADP and Paychex may hold advantages in specific areas like highly automated payroll processing or lean operational margins, CBIZ's strength lies in its integrated service offering and deep, localized relationships with middle-market clients. The ability to offer a comprehensive suite of financial, insurance, and advisory services, coupled with specialized industry knowledge, allows CBIZ to capture a greater share of client wallet and maintain high retention rates. The investment in technology, including integrated systems and data analytics, is aimed at closing efficiency gaps and enhancing service delivery to remain competitive.

Despite the strategic advantages gained, CBIZ faces risks inherent in its business and the current environment. Integration risk is paramount, requiring successful alignment of people, systems, and processes to realize anticipated synergies and avoid disruption. The uncertain economic and geopolitical climate poses a risk to demand for discretionary services, potentially impacting revenue growth. The increased debt level post-Marcum exposes the company to interest rate risk and requires consistent cash flow generation for deleveraging. Independence requirements and potential conflicts of interest, amplified by the Marcum acquisition, could limit service offerings to certain clients. Other risks include talent retention, cybersecurity threats, and potential liabilities from errors and omissions.

For the full year 2025, CBIZ has maintained its guidance for adjusted EBITDA at approximately $455 million and adjusted EPS in the range of $3.60 to $3.65. However, in response to the softness observed in discretionary services in Q1 and the continued uncertainty, the company widened its full-year revenue guidance to a range of $2.8 billion to $2.95 billion. This adjustment reflects a pragmatic view of potential top-line headwinds, while the maintained earnings guidance underscores confidence in the business model's resilience and the ability to manage costs. The effective tax rate for 2025 is expected to be approximately 29%, reflecting the impact of the acquired business in higher state tax rate geographies. The pacing of earnings is expected to shift post-Marcum, with a stronger first half and a relatively weaker second half compared to historical patterns due to the increased seasonality of the combined core accounting and tax business.

Conclusion

CBIZ stands at a pivotal point in its history, having successfully completed the transformative Marcum acquisition. The investment thesis for CBZ is now firmly rooted in its ability to leverage this significantly expanded scale, integrated service model, and deepened expertise to drive future growth and enhance profitability. While the immediate environment presents challenges, particularly impacting demand for discretionary project work due to economic uncertainty, the company's resilient business model, characterized by essential recurring services and a flexible cost structure, is expected to support earnings performance.

The successful integration of Marcum, including the realization of anticipated synergies and the effective deployment of technology, will be critical determinants of long-term value creation. The strategic focus on debt reduction is prudent and aims to restore financial flexibility for future opportunistic acquisitions. Investors should monitor the progress of the integration, the impact of the macroeconomic environment on revenue trends, and the company's execution on its capital allocation priorities. CBIZ's enhanced competitive position, coupled with its disciplined operational management, suggests a compelling trajectory for the scaled entity, provided it effectively navigates the complexities of integration and the uncertain market backdrop.