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Good morning, everyone, and welcome to the CBI

Good morning, everyone, and thank you for joining us for the fourth quarter and full year 2023 CBI

Thank you, Lori, and good morning everyone. We are pleased to share our fourth quarter and full year results for 2023 and our outlook for the year ahead. Last year at this time, we reported on record performance and results in 2022. We are pleased that this momentum continued in 2023 and that despite uncertainty at the start of the year about a potentially challenging business climate ahead, we successfully continued our trend in 2023 of achieving growth across every major service line of our business. Over the past year, CBI

Thank you, Jerry, and good morning, everyone. Let me take a few minutes to talk about key highlights of the fourth quarter and year-to-date numbers we released this morning. Our business continues to be strong in every major service line, within both Financial Services and within Benefits and Insurance. We are pleased that results in the fourth quarter and the full year are in line with our expectations. After encountering some weakness in the first half of 2023, both the government health care consulting and the California core accounting and tax business recorded strong fourth quarter and second half results. The first half 2023 contract delays that we encountered within government health care consulting have resolved and the IRS tax filing delays in California moved a large portion of this recurring business from first half into second half of 2023. With the acquisition of Somerset in February of 2023, generating approximately $55 million of annual core tax and accounting services revenue, at the end of the third quarter, we guided that we expected the higher portion of core accounting business within our business mix this year would amplify the seasonal nature of our consolidated results in the fourth quarter. Coupled with the impact of higher interest expense in the fourth quarter this year compared with last year, the loss recorded in the fourth quarter this year was higher than last year. Total revenue in the fourth quarter increased by $32.5 million, up 11% over fourth quarter a year ago. The fourth quarter same unit revenue was up $19.9 million or up by 6.8%, with acquisitions contributing $12.6 million or 4.2% to growth compared with last year. For the full year, total revenue grew by $179.2 million or up by 12.7%, compared with 2022. Same unit revenue for the 12 months grew by $104 million or up by 7.4%, with acquisitions contributing $75.2 million, or 5.3% to revenue growth for the 12 months this year compared with last year. Within Financial Services, for the fourth quarter, total revenue was up by 13%. Same unit revenue for the fourth quarter was up by 7.1%. For the 12 months, total revenue within Financial Services grew by 14.9% and same unit revenue for the 12 months was up by 7.6%. We experienced strong revenue growth across all lines of services, including core tax and accounting, advisory services and government health care consulting services for both the fourth quarter and for the 12 months in '23 compared to '22. Within Benefits and Insurance, total revenue in the fourth quarter of '23 grew by 5.7%, and same unit revenue grew by 4.8%. For the full year, total revenue grew by 6.9% with same unit revenue growing by 6.5%. Every major line of service within our Benefits and Insurance Group recorded revenue growth for both the fourth quarter and for the 12 months. We continue to see strong client retention and new client production. The investments we have made in recent years to hire and increase the number of new business producers continue to gain traction. We remain committed to further enhancing growth capabilities within the Benefits and Insurance Group, and we will continue to make investments in hiring and in developing additional producers in 2024. On February 1st of '23, we acquired Indianapolis-based Somerset CPAs and Advisors with estimated annual revenue of approximately $55 million. There are transaction closing costs, plus one-time integration-related expenses, associated with this transaction. In a similar manner to reporting New York-based Marks Paneth acquisition costs in 2022, we are reporting an adjustment to eliminate Somerset acquisition-related costs from GAAP reported results to report adjusted results this year. We are extremely pleased to have both the Somerset team on board this year and the Marks Paneth team, now in its second year and both are performing in line with our expectations. In addition to these acquisition-related expenses, this year we reported a gain of $1.5 million related to sale of technology asset in our Financial Services practice group in the third quarter and a gain of $1.4 million resulting from the receipt of contingent payments in the fourth quarter related to the last year's sale of a book of business within Benefits and Insurance. Last year, we recorded a gain of $2.4 million related to this transaction. These gains were recorded in other income and represented approximately $0.02 per share for the fourth quarter of '23 and $0.04 per share in '22. With a view towards presenting meaningful comparable information, eliminating the impact of these gains and eliminating the acquisition-related expenses, adjusted earnings per share this year is $2.41, up 13.1%, compared with adjusted earnings per share of $2.13 last year. Considering these same adjustments, adjusted EBITDA, which serves to eliminate the impact of both tax and interest costs, was $223.8 million for the 12 months this year, up 17.7% over adjusted EBITDA of $190.1 million last year. A table reconciling reported GAAP numbers to these adjusted earnings per share and adjusted EBITDA numbers that I'm referencing is included in the earnings release issued this morning, so you can review the detail of the items included to arrive at adjusted numbers. We have previously talked about the level of health care and benefits, travel and entertainment expenses, and marketing expenses that are normalizing the higher levels post pandemic. As we continue to restore and expand outreach to clients and prospects, by design, travel and entertainment expenses are trending higher and we've also restarted several media campaigns in our marketing programs this year. Some of you may recall seeing the CBI

Thank you, Ware. Before we move on to Q&A, I'd like to provide a brief update on our M&A results for the year. Interest in M&A within our industry remains high, and CBI

Ladies and gentlemen, at this time we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Chris Moore from CJS Securities. Please go ahead with your question.

Hey, good morning, guys. Congrats on another great year. Maybe I'll just start where Jerry left off on M&A. Just curious, in terms of the pipeline, are there many $50 million-plus acquisitions that are in that pipeline at this point in time?

Yeah, Chris, we don't comment, as you know, on the exact pipeline size and transaction size of the companies and the number in there. But what I would say is we remain pleased with the amount of revenue, certainly in aggregate, within that pipeline and the number of transactions represented by that pipeline. So, deals come and deals go. We were pleased with what we were able to accomplish last year, and pretty pleased with what we're seeing so far in the pipeline.

Got it. I appreciate that. Maybe we'll just talk a little bit about visibility. I mean, given the backdrop, this time last year, there were more rate increases were likely versus today. At some point in time, we'll probably get some rate cuts. Can you talk a little bit about visibility today versus this time last year?

Yeah. So, Chris, the nature of the business is obviously a large percent of it of essential recurring services, so kind of through the busy season, we remain very pleased with what -- the business and what we're seeing and what we expect to do through that period of time. As we sit here today, we don't obviously have as much visibility into the back half of the year, but we look at the factors. Like you said, we think interest rates will stabilize. We see cautious optimism among our clients. So, we sit here today, I would say, equally optimistic and maybe even slightly more optimistic than we were sitting here at this time last year. The one uncertainty being obviously, it's election year, and you never know how that's going to shape consumer confidence.

Got it. Helpful. I was going to ask that as well. Maybe just one more for me. You talked about pricing during -- in Financial Services during fiscal '23 was above wage increases. Is pricing now back to more normal 2% to 3% for the year for Financial Services, or just anything you can say in terms of what pricing looks like there?

Yeah, I'll comment on two things. First of all, Chris, as you know, we've been able to more than offset any wage increases with pricing. We're seeing some easing in the labor pool, which are bringing wage increases down a little bit. You've seen that kind of across the board. So obviously that's the labor part of it. As far as prices are concerned, yet to be seen. We still expect to be able to go out with favorable pricing this year. And as you know, we've built considerable processes, systems reporting infrastructure around our ability to methodically analyze our pricing within an office, within a client by service line. So, we still think that there's considerable opportunity on the pricing side.

Got it. I really appreciate it. I will leave it there. Thanks, guys.

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

Hi. Good morning. Thanks for taking my question. Just wanted to first follow up on that last question on pricing. Jerry, you said considerable opportunity. I imagine that's specific to '24, but maybe if you could talk about kind of the medium-term pricing opportunity? I know. in prior years, you've had some benefit from the investments on that side, and maybe what you've described is some catch up pricing. I was under the impression that, that's largely out of the equation at this point. So, if you could kind of respond to that and talk about maybe medium-term price expectations, that'd be helpful.

Yeah. Andrew, when I say considerable opportunity, it never stops, right? So, the pricing discipline that we have, the systems, the processes, the tools, they're not fully embedded yet in Marks Paneth, obviously, that's a more recent acquisition, or Somerset, even more recent. So, we have opportunity there. We also go through our client profiles and identify clients that may not fit the profile of a client that we can serve in a profitable way, call those clients, bring a different profile client into the fold, and pursue pricing with those clients as well. So, I think this is an ongoing -- not I think, I know this will be an ongoing focus of CBI

Got it. That's helpful. And then, I wanted to ask a question. I think you touched on easing labor markets. Can you kind of address capacity constraints at CBI

Yeah. Let me start here, Andrew. Labor is -- for the 25 years I've been in this industry, labor has always been tough to find, right? Always challenging to find qualified, experienced labor. With that said, you've seen some of the layoffs at the big four. That's obviously easing the labor demands in the labor pool. We've seen some of that among some of the larger firms as well, other larger firms. So, right now -- and by the way our attrition rate, our retention rate is even higher today -- I'm sorry, our retention rates are even higher today, are more favorable today than they were pre-COVID. So, we're able to retain people at a more favorable rate. We think the labor pool on the other side is easing a little bit, which allows us to attract and recruit a little bit more favorably. So, all of those things are positive for us. And yes, you're correct, we feel confident today that we have -- we're adequately staffed to be able to take advantage of the demand that we have for the services.

Great. And then maybe if I could ask one last one on the M&A environment. It sounds like you're pretty constructive on the pipeline and what makes it up. Can you talk a little bit about pricing there where multiples have trended? And there's another private equity sponsor investment in the space here recently. Just wondering if you could maybe respond to the potential impact from that on your business. Thank you.

Yeah, Andrew, great question. Here's what I would say, below the large platforms in your -- the transaction that was recently announced fits into that category, very large firm, large platform acquisition. I would say below the large platforms, pricing hasn't moved considerably over the past couple of years. I mean, it might have ticked up a quarter, 25 bps or 50 bps, certainly the larger platform transactions are trading at considerably higher multiples. And it's really a scarcity factor. So, as you would expect, they're trading higher. But in the types of transactions that we typically pursue, we haven't seen material pricing differences.

Thanks, Jerry.

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

Hey, good morning.

Good morning, Marc.

Hi, Marc.

So, wondering if you could share a little bit of your views as to some of the -- if there's much in the way of differentiation of client behavior and demand drivers and in particular, whether that's an industry vertical type thing or a regional mix. And also, I was wondering if you could talk a little bit about the thoughts around sort of the project-based work. I mean, you touched on it in prepared remarks around some of the advisory, but maybe sort of give a little bit of color as to sort of maybe what folks are willing to move forward on, or maybe if you're seeing any changes, that sort of signal toward green shoots and the like.

Yeah, I'll take the first part of it and I'll turn to Ware for the second part of it. But as far as clients are concerned, client sentiments are concerned, as you know, one of the very attractive attributes of CBI

Yeah. The only other thing about the advisory business I would remind you of is a good share of that tends to be recurring and repetitive. For example, the internal audit co-source and SOX consulting tends to be more long-term year-after-year, as does the valuation work, or at least pieces and parts of the valuation work are repeated annually. On some of the project work that's focused on private equity or venture capital, IPO readiness and things like that, we see a bit of ebb and flow, but we've had a very strong year collectively in that group, and we've seen a bit of a rebound in those two pockets that I just mentioned. So, we look at 2024 with some optimism at this point.

Great. And then the last one for me, I was sort of curious as to, if there are any timing discrepancies around tax filing that we should be thinking about this year. I know we had this last year. Well, it seems like we've kind of had a little bit of it almost every year, right, last four or five years. I was sort of curious as to whether or not there was any particular call out we should be thinking about or if this is more traditional as far as the timing of that.

As far as we know, this should tee up as a relatively normal year for us. Keep an eye on all the rains and the floods on the West Coast, we don't know. But just remember that if these things do occur, it really represents a shift seasonally, not a reduction in the business.

Right. Excellent. Thank you so much.

Thanks, Marc.

And, ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

Thank you. As we wrap up today, I just want to thank our shareholders and analysts as we always do, for joining the call and for your continued support in management and in the company. I also want to take this opportunity to recognize our team as many of you listen in on the calls on a regular basis. I started the call today by reporting on our very strong performance and results for the prior year of 2023. It was a year that included a number of important milestones and achievements. Among them, and one that I'm particularly proud of, is setting a new record for workplace awards. In 2023, CBI