CBIZ, Inc.

Thank you, Joanne, and good morning everyone and thank you for calling into CBIZ’s Fourth Quarter and Full Year 2012 Results Conference Call. Before I begin my comments, I’d like to remind you of a few things.

As with all our conference calls, this call is intended to answer the questions of our shareholders and analysts. If there are media representatives on the call, you’re welcome to listen in; however, I ask that if you have questions, you hold them until after the call and we’ll be happy to address them at that time.

This call is also being webcast and you can access it over our website. You should have all received a copy of the release which we issued this morning.

If you did not, you can access it on our website or call our corporate office.

Finally remember, that during the course of the call, we may make forward-looking statements. These statements represent management’s intentions, hopes, beliefs, expectations and predictions of the future.

Actual results can and sometimes do differ materially from those projected in forward-looking statements.

Additional information concerning the factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our SEC filings, Form 10-K and press releases. Joining me on the call this morning are Jerry Grisko, our President and Chief Operating Officer and Ware Grove, our Chief Financial Officer.

Prior to the opening this morning, we were very pleased to release our fourth quarter and full year results. As you’ve noted from the release, we’re reporting for the full year 2012 revenue growth in excess of 4% and same unit growth for the first time since 2008.

What is particularly encouraging as we look at the numbers in the third and the fourth quarter is the continuation of the positive trends we’ve seen in our core businesses. I would point out to you that our same unit growth for 2012 includes the absorption of the previously expected and announced reduction in the MMP revenue.

So on a combined basis we have positive organic growth and it’s led by our core businesses.

The trend that we were seeing in the third and the fourth quarter appears to continue into 2013, so we are guardedly optimistic of that 2013 will continue to see the continuation of the trends we’ve seen before. With that I’d liked to turn it over to Ware to give you the details of 2012.

Thank you, Steve, and good morning, everyone. I want to take a few minutes to run through the fourth quarter and full year numbers we released earlier this morning, for the year ended December 31, 2012.

Now as Steve commented, we continue to see improvements in the economic environment throughout 2012, and we are very pleased to report organic same unit revenue growth for CBIZ of 2.5% in the fourth quarter with each of our business segments, including medical management professionals, achieving organic revenue growth in the fourth quarter.

For the full year of 2012, same unit organic revenue growth was 0.8%. Led by our financial services group, this marks the fourth consecutive quarter of same unit organic revenue growth for our core financial and employee services business segments on a combined basis.

And that represents about 77% of our total revenue.

In the fourth quarter, these segments combined, grew by 2.6%. And for the full year, these 2 core business segments grew by 1.8% on a combined basis.

Now in addition to improving organic revenue growth throughout the year, we were very active with acquisitions, having closed 5 transactions in the fourth quarter and 10 transactions for the full year of 2012. We closed 8 transactions for employee services and 1 each for medical management professionals and for financial services.

The largest transaction closed December 31, with the acquisition of PHBV Partners, which is a $30 million consulting and accounting business that specializes in healthcare compliance for federal and state agencies. This new business will integrate very nicely with our existing business.

The focus is on the same consulting and accounting services within this healthcare compliance area. Now thanks to the many CBIZ associates who are working hard to provide great service to our clients, we were able to record total revenue growth of $32.3 million or 4.4% for 2012 compared with a prior year.

And we recorded fully diluted earnings per share of $0.63 which is an 8.6% improvement over the $0.58 per share recorded for 2011.

As was outlined in the numbers we released earlier this morning, the sale of our wealth management business which occurred in 2011 resulted in a gain of $0.02 per share in the first quarter of 2011. And we also recorded a gain of $0.03 per share in the first quarter of 2012, from the sale of this business.

Now looking at each segment, our revenue growth was led by full year organic growth within our financial services group, which recorded 3.4% same unit growth in the fourth quarter and recorded 2.6% same unit growth for the full year, compared with the year ago. This group reported same unit organic growth in each of the 4 quarters throughout 2012.

Including the impact of acquired operations, total revenue within this group increased by 5.2% for the full year. As has been the trend during this past year within our core accounting services, the volume of hours charged to client engagements has been relatively flat and we’re realizing the higher yield per hour, as we continue to gain efficiencies, as we have experienced very nice revenue growth within several of our national consulting and valuation services within this financial services group as well.

As we commented earlier in 2012, during the past year, we made a number of investments in this group which we believe will enhance revenue growth opportunities going forward. We built out a team of business development managers who are now working in most of our major markets across the U.S.

We’ve also brought specialty teams on board that will strengthen our services in state and local tax service planning, specialty teams on board that will -- in forensic accounting services and also property tax services. As these teams ramp up efforts to generate revenue during the early stages of this investment, we’ve incurred more cost than revenue in 2012.

So the full year of 2012, the collective impact of these initiatives resulted in a net cost of approximately $1.9 million which is a 47 basis point impact on our financial services segment margins and a 25 basis point impact on CBIZ margins for the year.

Turning to employee services, same unit growth was 1% for the fourth quarter compared with a year ago. And for the full year, same unit revenue was flat compared with the prior year.

Including the impact of acquired operations, total revenue grew by 12.2% for the quarter and grew by 8.8% for the full year compared with a year ago. Now we have continued to see strong results within our property and casualty services, retirement plan advisory services and in our payroll services areas.

And turning to medical management professionals, as we expected, there were pressures on achieving revenue growth within this segment throughout 2012. We have seen a good rebound in the volume of procedures processed and that was up by 4.3% over the prior year, but reimbursement rates, particularly in the radiology specialty, declined in 2012.

Now the management group in this business has done a terrific job finding productivity improvements and efficiencies that reduce our cost per procedure processed, but we saw a decline in margin from this group as a result of pressures on reimbursement rates, and the contribution from this group declined by approximately $1.5 million which is 20 basis points on CBIZ margin as a result of the decline in reimbursement rates.

For the full year, organic revenue declined by 3% primarily due the pressures on reimbursement rates. On a very positive note, we achieved organic revenue growth of 1.7% in this segment in the fourth quarter with a corresponding improvements in the contribution from this segment.

As we have pointed out in the past, our merger and acquisition advisory business, while relatively small, can impact the overall results for CBIZ as the timing of transactions and the related revenue and contribution is somewhat unpredictable. For the full year of 2012, revenue and pretax contribution in this group was about $1 million less than the previous year.

So the margin impact in 2012 was 12 basis points with an earnings per share impact of approximately $0.01 a share as a result of this.

As was noted in the earnings release issued this morning, during the fourth quarter we reached an agreement for a favorable settlement of a longstanding litigation matter and we have since received the funds on this settlement. You may remember my prior comments earlier in 2012 to note that we had incurred higher legal expenses throughout the third quarter as a result of managing through this and other various legal issues.

A portion of the settlement received in the fourth quarter was recorded as a reimbursement of expenses and that is reflected in the G&A expense category which serves to reduce that expense. The remaining balance of the settlement was reported as other income in the fourth quarter and the positive impact on earnings per share from this item and other income was $0.02 per share.

Now as I always do, I want to take a minute to help you understand the performance of the company excluding the impact of the accounting for gains or losses in our deferred compensation plan, the assets of which now total $39.8 million at the end of the year. Excluding this item, operating income margin was 7.8% for 2012 and that compares to 7.8% for the prior year.

G&A expense for the full year was 3.9% of revenue compared with 4.3% of revenue last year when you exclude the impact of this item. These numbers are outlined in the footnotes to the release issued earlier today.

And as a reminder, there is no impact to the reported pretax income margin which was 6.6% per 2012 compared with 6.4% per 2011.

Cash flow continued to be strong during 2012. Our non-GAAP earnings, which outlines the impact of major noncash items, increased from a $1.10 per share in 2011 to $1.22 per share in 2012 and that is an 11% increase.

During 2012, we used $5 million to repurchase 874,000 shares of our common stock and this activity occurred during the first 3 quarters of the year with no repurchases occurring during the fourth quarter. As we have commented previously, our intentions going forward are to limit share repurchases to a level necessary to maintain a fully diluted share count of approximately 50 million shares.

You may note that we recently filed an 8K indicating that our board recently authorized the purchase of an additional 5 million shares through March of 2014. Now with 10 acquisitions closed during 2012 including earn out payments for prior year acquisitions, we used $106.8 million of cash for acquisition activity during 2012.

At December 31, 2012, the outstanding balance on our $275 million unsecured credit facility was $208.9 million and that represents an increase of approximately $64 million over the balance of $145 million at the beginning of the year. Of course the yearend balance on the credit facility includes the initial closing payments for the 5 transactions that we closed during the fourth quarter including the 2 transactions that were closed on December 31.

Having used approximately $112 million for acquisitions and share repurchases with a corresponding increase of $64 million in borrowing levels for the year, that is a good indication that the underlying cash generated from operating activities continues to be steady and very strong.

As we look at future potential earn out payments we have approximately $18 million scheduled for 2013 with about $9 million each in 2014 and 2015. With good support from our bank group, we continue to have the financial resources to actively pursue acquisitions, and we currently have an active pipeline of acquisitions under consideration.

As we have in the past, we expect to close at least 3 to 5 transactions in 2013.

Capital spending was $4.2 million for 2012, including $973,000 in the fourth quarter. This level of capital spending is consistent overtime and we expect future spending will generally be in the range of $4 million to $6 million [ph] annually.

Now days sales outstanding on our receivables stood at 74 days at the end of the year compared with 71 days a year ago, and I believe that the increase is due primarily to the acquired assets and receivables on the acquisition activity without a corresponding sales activity to offset the increased assets.

Bad debt expense for the full year was 67 basis points on revenue compared to 84 basis points a year ago. Now fully diluted share count for 2012 was 49.3 million shares compared with 49.6 million shares a year ago.

At this point, looking forward, we expect the share count for 2013 will be approximately 50 million shares. You will also note the effective tax rate for 2012 was approximately 38.4%, and that reflects the fact that we expect to more fully utilize net operating loss carry-forwards as a result of recent acquisition activity.

As we evaluate our position today, we expect for 2013 the effective tax rate will be approximately 40%. Now with this small increase in the effective tax rate expected for 2013, this will impact earnings per share by slightly more than $0.01 a share in 2013.

So in summary, with total revenue growing by 4.4% and earnings per share increasing by 8.6% over prior year, we are very pleased to record full-year results for 2012 that are slightly above our guidance for the year. We have seen a steadily improving economic environment throughout 2012 and our same unit organic revenue growth reflects this improving environment.

Looking forward to 2013, we expect continuing improvements in our ability to record organic revenue growth, and, of course, we expect a very positive impact in the year ahead from the acquisition activity that has occurred in 2012. As a result, for 2013, we expect to achieve total revenue growth within the range of 7% to 9% over the $766 million recorded in 2012, and that will be driven by stronger organic growth, combined with the impact of recent acquisition activity throughout 2012.

Now looking at earnings per share in the year ahead, we should normalize the $0.63 per share reported for 2012 to exclude $0.05 per share for the 2 non-recurring items I commented on. To remind you, in the first quarter of 2012, we recorded a gain on the sale of our wealth management business that was $0.03 per share and that will be non-recurring.

And the legal settlement recorded as other income in the fourth quarter was $0.02 per share and we consider that to also be non-recurring in the year ahead. So considering these items, with a $0.58 per share normalized base for 2012, we expect to achieve an increase in earnings per share within the range of 12% to 15% over the normalized level of $0.58 per share in 2012.

Now looking at cash flow in EBITDA, we expect continued strong cash flow and expect that EBITDA in 2013 will also grow by 12% to 15% over the $85.3 million recorded in 2012. So with these comments, let me conclude, and I will turn it back over to Steve.

Thank you, Ware. Let me comment on a few other items.

Our acquisition pipeline remains strong. It’s unlikely that we will report any significant acquisition in the first quarter as we continue to focus our efforts on the appropriate integration of the companies that we acquired in the fourth quarter of 2012, but I am expecting, as Ware points out, for us to conclude at least the 3 to 5 transactions we have historically done and possibly closer to the 10 that we did in 2012.

We also intend to continue our investment in our associates and our investment in technology and our investment in the other necessary parts of our business to take advantage of and help us grow. Ware commented that we are seeing a stable economic environment with positive indications on the horizon and we wish to be well-positioned to take advantage of that, specifically anything that may come out of the Affordable Care Act, the Tax Relief Act of 2012, as well as a general sentiment among our clients that with the certainty that came from the congressional actions at the end of the year, they are feeling a little bit better about their business prospects.

With that, I would like to stop and take questions from our analysts and shareholders.

Steve and Ware, if I take all the acquisitions you made last year and the revenue contributions and basically put into my model, am I right to assume that your guidance implies about 2% same unit growth for the year.

Yes, I think, Josh, we are somewhere in the 2% to 4%. We are not quite sure, but at the lower end, that’s what our numbers would say.

Okay, great. And with regard to...

Josh, let me also, you know, we are comparing that to 2012, which was less than 1% in aggregate for the company, and we are expecting, quite frankly, the continuation of a decline in MMP. So we are looking for our core businesses to actually be higher than that.

Okay, that’s helpful. Thank you.

And PHBV, are you going to run that through the employee services or financial services segment or both?

No. PHBV is in financial services and particularly with our Myers & Stauffer affiliated company.

So it’s in financial services.

Okay, with the government budget cuts, does that hurt the government healthcare consulting market?

Our belief is that it’s actually going to help. If you look at the Affordable Care Act and if you look at the requirements for the states to have exchanges and to have their own Medicaid plans, state-by-state, our PHBV and our Myers & Stauffer business focuses primarily on the creation adjustment audit of and consulting for states on Medicaid.

So overtime, we believe that as the federal government shifts the burden to the states, this is actually a very good place for us to be now.

Okay, great. And shifting to employee services, what percent of the business is group health and what percent is payroll?

Josh, about 40% to 45% is group health and slightly more than 10% is our payroll service.

Okay. And with regard to group health, can you talk about the trends here and the dialog you are having with clients about healthcare reform?

And it seems like this could benefit the vision, are you seeing more opportunities arise here with potential clients?

I think we are seeing more opportunity to have a dialog with existing and potential clients because there is still great uncertainty as to what will happen and when it will happen. We don’t, on a today’s basis, expect -- if the Affordable Care Act is in fact implemented in 2014 and there is some question about that, we don’t see the movement of most of our clients to exchanges as being likely.

So we think this is an opportunity for more consulting work and more creative structuring of plans, but the bulk of our business in the benefits area in terms of dollars are in larger clients anyway, which are not going to be affected by it. So we view this net-net as an opportunity, although I think there is still great confusion in the market today as to what might happen.

Could you talk a little bit about the payroll acquisition you just did? And I guess you said that, that was completed in the end-of-the-year debt numbers, I guess, but how that’s going to fit into your core payroll business?

Sure. It’s a Minneapolis-based payroll company with a very strong footprint in the mid-west.

The operating system is exactly the same as we have in our primary business. We made the acquisition and folded it into the existing CBIZ payroll, which is operated out of Roanoke.

Overtime, we will look to find the efficiencies that come out of that kind of combination. Our expectation is to continue the sales activity and, certainly, the client-related activity there, and this is just the natural tuck-in of a payroll business into our existing one.

There is nothing particularly special about it except that it’s got a good longstanding client base on an operating system that’s the same one we used.

And typically, payroll companies could be pretty expensive. Was this more expensive than your normal multiple?

No, it was not. Certainly, larger payroll companies go for higher multiples; this one doesn’t fall in that category.

Okay. And shifting to the legal area and legal settlements, you had a lot of cost throughout the year, are those all gone now or are there still outstanding actions?

What are your expectations for legal costs in 2013?

I think that legal costs in 2013 will continue to be significant. As we reported in our 10-K, there is at least 1 large or 2 large cases, which will now start to come closer to trial.

As you come closer to trial, you ramp up in -- with depositions and pre-trial activity. So I don’t see in the short run, certainly I don’t see in 2013, unless we are successful with various motions to dismiss, I don’t see it, the legal expense coming down dramatically, if anything it could tick up a little bit in 2013.

As I think, you know, these are cases that go to the heart of how the alternative practice structure is run. They deal with allegations that CBIZ does audits, and we don’t do audits.

So this is key to the business, and we are going to continue to defend it as aggressively as we can. I think at the end of the day, we will be hugely successful as we normally are, but there will be an expense.

Okay. And on MMP, you mentioned you expect another decline.

Can you talk about that a little bit?

Yes. I think MMP had a good fourth quarter, and I congratulate them on an excellent quarter and a great year in terms of reducing expenses.

I think as a practical matter, reimbursement rates will continue to give them a softer revenue line. So I expect them to be down a bit.

I am hopeful we can again make it up or make up most of it on the bottom line, but I didn’t want anybody to extrapolate the fourth quarter year-over-year growth and think we are out of the woods. We are not quite there yet, although we may be getting close.

And is there another tick down of January 1st as usual?

Yes.

Okay. Can you quantify that at all?

I believe it’s in the 1% to 2% range or 2% to 2.5%, I think that’s where it is, in terms of their radiology business. But of course, you know, the acquisition we made the fourth quarter of last year was not in radiology, so that the mix of business is a little bit different.

They also have a backlog of prospective clients that is as strong, if not stronger than we have seen for a long time. So there is an opportunity there to pick up some new business in 2013, which would make this revenue line a little bit better even though on a same-store basis for 2013, we might not see that improvement.

And switching to a technical question, can you talk about your current interest rate and whether you have that hedged at all and what your expected availability is towards the end of April or middle April when you kind of use cash in the first quarter usually?

Yes. The interest rates, Jim, are, as you know, really low.

We're paying a spread on a variable basis of LIBOR plus about 250 basis points, which gives us roughly a 300 basis point effective incremental borrowing cost. We are keeping things relatively short.

At this point in time, we are hedged a bit. Unfortunately, we are hedged at slightly higher cost because we and many people have thought for a long time that a rate increase might be imminent.

Of course, we have a $130 million piece that’s due 2015 that’s fixed. So we got a good blend of fixed and variable rates.

We got good availability on the unsecured credit facility with $275 million. We have got that fully available to us.

While the balance is, I will say, $210 million, the acquisition activity, we have got another $50 plus million dollars available at the end of the year, and we don’t expect to be constrained in any way through the first quarter and through the balance of the year.

So you have enough EBITDA to be able to address that whole $275 million line at this point?

We do, because as we bring on newly acquired businesses, from a bank perspective, we include the pro forma EBITDA that’s acquired for leverage in covenant testing purposes.

And guess one more technical question, and I will circle back. The tax rate in the quarter, I guess net-net was kind of -- it seems like it was a true-up or something; any comments on that?

It is, Jim. With the acquisitions in the fourth quarter being fairly significant and the way we structure the business from a tax perspective, we now can take advantage of some net operating loss carry-forwards that are now, we relieve some allowances which reduced the effective tax rate in the fourth quarter as a result of that activity.

So the 38.3% you see is as a result of some of the adjustments we made in the fourth quarter.

Steve, could you talk a little bit about your comment about doing 3 to 5 or maybe even as many as 10 acquisitions in the coming year? Is that supply-driven, meaning there are more acquisitions available for you to choose from, is that size-driven, there are a lot more smaller acquisitions, or is it demand-driven, CBIZ has a greater appetite?

Rob, what I wanted to highlight was that we historically do 3 to 5. Last year, we did 10, which was the highest since 1999 or 1998.

That, my gut tells me that we will be somewhere in the middle of that. I just didn’t want us to be -- I didn’t want the investors to be surprised if we did a little more than the 3 to 5.

We are seeing a continually good flow of acquisitions, both opportunities on financial services and employee services. I wouldn’t say that there are any more available.

I just think we are refining our process better, we are able to make decisions faster and redeploy the resources and I just think the opportunity, if you look at the pipeline, is slightly better than we have done before. As you know we’ve always been opportunistic.

We would have dumped more than 3 to 5 in the past if we could have found the right ones without changing our standards which we continue to maintain and are very high. There just seems to be more in the pipeline, and that is all I was trying to signal.

I wouldn’t suggest in any way that there's been a dramatic shift in either of the market of available or our appetite. We continue to have an appetite for the employee benefits, the property and casualty and the various businesses within financial services.

Okay. And then secondly, you made reference during your remarks to your clients seeming more optimistic about their businesses due to -- let's just put it, getting past the end of the year.

Could you provide a couple of generic examples as to what that has permitted clients to decide to do as they go forward that they were holding off on doing before?

No. Everything that I see tends to be very anecdotal.

My sense of talking to our top accountants and our top producers on the employee side is that our clients are more engaged in discussions about expansion and investment. It isn’t specific to an industry.

It isn’t specific to a geography. It’s much more a gut feel after going through the last 4 years, as to what the clients are thinking about.

With projected GDP at not much more than 2% across the U.S, I’m not in any way suggesting we’re looking at a boom economy. But my gut feel, again, and its nothing more than that, is that there is far more discussion with us and far more discussion by our clients as to seeking where the opportunities are and beginning to think about investing.

And as you know, with a very high client retention rate and with a good part of our business being reoccurring, the real advantage -- or the real opportunity for us, if you will, is when they begin to expand. And I’m just getting the feeling that we’re starting to see that in a more tangible way across the board than we’ve seen before.

Okay, I would like to again thank our shareholders for their continued support, but I would really particularly like to thank our associates. We’ve come through 2009 through 2011 in a very difficult environment and everyone hung in there and did the job as best they can.

2012 began to see a change and a turnaround in the external markets and we’re now well positioned to take advantage of it. But I never forget and the company never forgets that the revenues all generated by those of you in the field who are actually dealing with our clients.

So I thank you for a good year in 2012 and I look forward to being able to report even a better year in 2013 due to your results. And I thank you with and look forward to talking to everyone after the first quarter.