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Good day, and welcome to the CBI

Good morning, everyone, and thank you for joining us for the CBI

Thank you, Lori, and good morning, everyone. We are pleased to report that we're off to a strong start to the year. For the first quarter, total revenue was up 8.7%, with growth coming from every major service line across our 2 business divisions. Our performance for the quarter came in as expected. And reflects continued strong demand for our services and the optimism and resilience of the clients that we serve. Now turning to the performance of our 2 major divisions. Our Financial Services division demonstrated growth across each of its 3 major service groups, Accounting & Tax, Advisory and Government Health Care Consulting. For our Tax & Accounting business, client demand for these essential and recurring services remains high, and our results include our continued success in capturing increased pricing to reflect the value of the services that we provide to our clients. Likewise, our Advisory Services also enjoyed a strong start to the year, including for those services that are more closely tied to M&A activity. After the start of the year with cautious optimism, we are already seeing the impact of improved deal flow in Q1 with especially strong demand for our private equity-related Advisory Services. Encouragingly, we're also beginning to see increased demand for new projects within our technical accounting, prefer IPO service line. Our Government Health Care Consulting business was able to build on progress made in the second half of 2023, as this group was successful in securing new business and launching new projects. During the first quarter, the continued increased volume of work translated to strong growth at the start of the year. Now turning to our Benefits and Insurance division, where we maintained our record of achieving growth across each of our 4 major service lines. For our Employee Benefits business, the growth came primarily from strong client retention and market rates. Also, our producer pool is often compared to the same period last year. For our Property and Casualty business, increased service revenue and market rates contributed to continued strong results. Our P&C business remains encouraged by a healthy pipeline of new business opportunities, despite a slight decline in the number of producers as a result of planned retirements. Growth in our Retirement & Investment Services business was largely driven by market trends and special projects in our actuarial business. This group also continues to add producers. For our Payroll business, strong interest and essentially HR, which is our upmarket payroll platform that serves larger and more sophisticated businesses continue to fuel strong growth. The growth in revenue we experienced in the first quarter was in line with our expectations and affirms the overall health of our business and the consistent demand for our services. With that by way of background, we are affirming our previously issued guidance for the year. I will now turn it over to Ware Grove, our Chief Financial Officer, to provide more specific details on our financial performance for the first quarter. And to remind those on the call today of our guidance for 2024. Ware?

Well, thank you, Jerry, and good morning, everyone. Let me take a few minutes to talk about key highlights of the first quarter numbers, we released this morning. Total revenue in the first quarter increased by $39.7 million, or up 8.7% over first quarter a year ago. Same-unit revenue is up $26.9 million, or up by 5.9%, with acquisitions contributing $12.8 million, or 2.8% to growth compared with last year. Within Financial Services, for the first quarter, total revenue grew 8.6% and same-unit revenue for the first quarter was up 5.1%, with strong revenue growth spread among core Accounting, our Advisory Services and Government Health Care Consulting Services. Within Benefits and Insurance for the first quarter, total revenue grew by 8.3%. Same-unit revenue was up 7.6%. Every major line of service within our Benefits and Insurance group reported revenue growth. The investments we have made to hire new business producers in recent years has gained traction and we are continuing to make investments in hiring additional producers in order to further enhance growth potentials within this group. Costs in the first quarter included several nonoperating items recorded within general and administrative costs that impacted pretax margin. We have previously commented that legal costs are somewhat episodic and can be unpredictable throughout the year. In the first quarter, we recorded higher legal expense, impacting margin by approximately 50 basis points. There is no one significant issue driving this rather this is higher cost is associated with small settlements and legal costs related to a variety of issues. So I wanted to highlight this for you. Another item is the self-funded health care plan costs. We have also previously commented that this nonoperating items can potentially cause short-term volatility in reported results. Higher costs in the first quarter this year impacted margin by 40 basis points. And lastly, you are likely aware of the increase in CBI

Thank you, Ware. Before we move on to Q&A, I'd like to provide a brief update on our M&A activity and our results for the year. M&A continues to be a key part of our growth strategy, as we build on our reputation as an acquirer of choice, given the volume and quality of transactions that we've completed in recent years. We began this year with a healthy pipeline of M&A opportunities and have already completed 2 acquisitions. As I outlined in our last earnings call, in February, we acquired Erickson, Brown & Kloster or EBK, a CPA firm located in Colorado Springs, Colorado. EBK's wide range of Accounting and Tax services complements our growing Denver-based financial services practice and provides us with broader representation across the state. Last month, we were also pleased to welcome CompuData. A premier technology solution provider targeting middle-market organizations. Headquartered in Philadelphia, CompuData specializes in cloud computing, accounting ERP software, managed IT and security services. These services are in high demand and our essential solutions that our clients rely on to operate and grow their businesses. CompuData brings deep technical expertise and knowledge within key industries that we serve. CompuData is another example of how we're using M&A to strengthen and build our service offerings that are in high demand by our clients. We welcome both EBK and CompuData teams to CBI

[Operator Instructions] Our first question comes from Chris Moore with CJS Securities.

Congrats on another strong quarter. Maybe, Jerry, maybe just continue a little bit on that -- the CompuData conversation. It looks very interesting, definitely outside kind of the normal M&A focus. Just trying to understand, is there a certain subset of CBI

Yes. Thanks, Chris. There is, in fact, and we try to put this -- for each acquisition we make, we try to put the rationale, the strategic rationale in the press release. But in this instance, it was really building out our advisory services and more specifically within our private equity practice, as we go in and help clients within that advisory practice, we more and more have been asked -- often asked to help them with their systems. We go in and we -- today, even before CompuData, we go in and we assess their systems a little bit, assess their reporting and help them in a number of different areas. But this just broadens that service offering and allows us to meet the demand, the request that we're receiving from clients in that area of the business.

Got it. Very helpful. Maybe I'll just stay on M&A for one second. The Marks Paneth acquisition, a little more than 2 years ago, is it fair to say that synergies and cross-selling from there pretty much been fully realized? Or is that still ongoing benefits from there?

Yes. I would say ongoing, Chris. So just a good way to kind of understand this is that the first year is we don't get a lot of synergies or a lot of cross-serving because there's a considerable amount of change that comes as we migrate from their systems on to our systems and there's change in processes and operating systems, et cetera. So -- so first year, very little of that. We are now starting to see them, now that they're, I think, fully onto all of our systems. Their operating margin should improve, they're leaning into our pricing initiatives. We have seen some cross-serving coming out of that organization, although I would expect that, that would continue to even accelerate from this point forward. So I think the year 2 and beyond is where we really start to see the growth in the revenue that comes out of the combination of these 2 organizations and margin expansion.

Got it. Almost there, still much uncertainty in terms of what the Fed is going to do at this point in time anywhere from a small decrease to a small increase in '24, from where you sit today, would a 50 basis points decrease or increase in, say, early Q3, would that have much of an impact on the way you're viewing the year?

No, I don't think so. And when you were asking the question, I was actually thinking about our client sentiment, right? And what we're hearing from our clients is that -- what they're really looking for is a more stable environment. And I think that we're seeing that this year. I think we started to see that at the end of last year, and we're seeing it now. So a 50 basis point, swing one way or another. I don't think we'll really change that sentiment. And as long as they -- there is a fairly level playing field and they understand the climate, I think that gives our clients the confidence to continue to invest and grow their businesses.

Got it. Sorry. And one last one maybe for Ware. Interest expense had, I think, roughly $0.17 negative impact on fiscal '23 year-over-year. And just trying to understand a little bit better how you're viewing it in '24 versus '23?

Yes. Thanks, Chris. Yes, the vast majority of the increase in rates would have been felt year-over-year last year. We still see a small residual impact in the first half this year, just because when you compare to first half last year, there was just a general rise last year, but not a spike like we saw '23 versus '22. So when I commented about a $0.01 impact in Q1, there may also be a small impact in Q2, but it's really a first half comparison, and that's baked into our expectations, of course.

Our next question comes from Andrew Nicholas with William Blair.

I wanted to start with the M&A pipeline. Jerry, you spoke to that at the end of your prepared remarks, but just a little bit more color on how that's shaping up? Maybe some commentary on deal multiples? And then also within that, is there any way to talk about the pipeline or your interest or even your capacity to do tuck-ins versus maybe even deals that are a little bit larger.

Yes. Thanks, Andrew. Well, here's what I would say about our pipeline is, it's really not changed from the beginning of the year and what we said at the beginning of the year is that we were pleased with that pipeline both the number of transactions and the size of the transactions that were in that pipeline. As always, deals come and go and some are larger and some are smaller, but pretty pleased as evidenced by the fact that we've already closed 2 transactions so far this year. As to multiples, again, answer consistent with what we've said kind of over the past 24 months, which is below the large platform transactions, we haven't seen multiples really moving much. There is a considerable amount of activity in the accounting space with private equity firms. I think over time that will impact multiples, but we haven't seen material shifts to date with the exception of the large platform transactions. There were 2 in the first quarter, in February, there was the announcement that Baker Tilly was accepting an investment from private equity. And then in March, Grant Thornton went in the same direction. Those trade had significantly higher multiples than the typical transaction that we've -- that we would normally engage in. So that's what's happening on the multiple side. As far as the tuck-ins versus kind of more platform transactions, look, we're always interested in both. Tuck-ins for us means that we already have a significant presence in the market and that tuck-in acquisition allows us to expand our talent pool or expand a line of service that might be in high demand. And you'll see those things from time to time. We would not do a small transaction as a stand-alone transaction in a new market. But from time to time, we have the opportunity to add quality team members in an existing market where we have scale. As far as larger transactions are concerned, well, I would say CompuData, even though -- I don't call the revenue, call it, $20 million, $25 million, was -- would fit in those categories. I mean it was a service line that was in high demand by our client, great team, they had worked with our PE team and our Philadelphia-based team in the past. So good cultural alignment there. So kind of checked all the boxes. We would certainly continue to be interested in those types of transactions. And then when and if the right -- really sizable transaction, as we've always said, we will continue to evaluate those based on cultural fit, strategic fit and our ability to integrate and onboard those acquisitions. So yes to all of the above, I guess, I would say.

No, that's really helpful. I appreciate the thorough response. Maybe just a follow-up on the M&A from before I ask one more, is when you think about kind of the runway for deals with private equity now encroaching on the ecosystem. Do you envision multiples moving in certain kind of areas or sub practices within the accounting services market more than others? And maybe another way to ask that question is, do you have any indication of those private equity-backed players or really any competitors opting for your Accounting and Tax over Advisory over Cyber or in some other order? Or is it pretty uniform and similar to your own strategic priorities on that front?

Yes. I'm guessing a little bit in my response there, right? I'm speculating a little bit. But certainly, where we see the activity today is in very traditional core accounting tax practices. That's where most of the activity has been. I suspect over time that they will also be more active in the advisory space. There are some private equity firms active in that space, but they're not to date, the same firms that are interested in core accounting. So we do have -- just so the full disclosure, we do have PE competition in both of those spaces, but they're not the same firms. I think -- I suspect over time, once they establish a more of a platform and more scale in core accounting that we will see some of those firms also in the advisory space, although we really haven't seen it to date.

Makes perfect sense. And then maybe just one more for me is it sounds like you're pretty optimistic or at least your clients are optimistic on the Advisory Services business, in particular. Can you talk a little bit more about M&A-related activity and maybe how that ramped over the course of the quarter? Because it does feel like to me that, that's incrementally better than the last time we spoke. And then relatedly, if you could just kind of recap what the margin profile is of those types of businesses relative to the rest of the Financial Services segment.

Yes. So Andrew, what I would say as far as the advisory type of practices are that the client demand tends to be within that advisory space. So as I mentioned on -- well, I'll give you 2 examples. Last year, we announced Pivot Point. That's a cyber practice. That demand is within -- that practice is within our risk and advisory practice. We had some capacity there. We were hearing high demand from our clients. So Pivot Point joined us, another great organization. We're really enthusiastic about what we'll be able to do with that to meet the demands. But it's more within the advisory client, as opposed to kind of a broad-based all season clients, although candidly, I think there should be higher demand there. And so we're pursuing that as well. But the demand that we're seeing for those advisory services are within really specific clients. I'll shift to CompuData. As I mentioned in my response to Chris' question, that is really a demand that we're hearing within our private equity practice. So we're in there, obviously, helping them with their financial needs, and there's a lot of systems alignment there and correlation there. So we oftentimes get asked about helping them with their systems, and that was really the strategic fit of CompuData. I don't -- there was another question there that I lost -- the margin.

Andrew. Yes, the margins in the advisory business are higher, generally speaking, than the core Tax and Accounting. So if core Tax and Accounting is in the mid to upper teens on an annual basis, we might expect 400 or 500 basis points higher on the advisory side.

Our next question comes from Marc Riddick with Sidoti.

So thanks for all the detail that you've already provided. And one of the things I was sort of curious about maybe you can sort of share some thoughts as to what you're seeing with your client industry verticals, maybe if there are any particular call out or any areas that maybe have been of interest, either on the positive or negative side? And then maybe if you could sort of share thoughts similarly from a geographic footprint perspective, whether or not we're seeing any regions performed a little stronger than others?

Yes. Marc, it's Jerry. As we've said, again, kind of one of the very favorable characteristics of our business is that we're not overly concentrated in one industry. We're obviously not overly concentrated in any single geography. So those -- oftentimes, when you see when you see impact one way or another, it might be in the tech center sector or the energy sector, the health care sector, we don't have those high concentrations. So I would say across our broad-based client in industries where we're hearing, I think, a reasonable level of optimism, as we would generally see among middle market clients, as to the environment that they're in today and the prospects for the rest of the year, we're not seeing a really different sentiment in one industry over the other. I guess if I had to call one out, I think we'd call out Construction. I think with rising -- with the interest rates where they are today and cost of materials and a number of other factors, maybe the construction industry one might be one that's a little bit more tepid at this point. But short of that, I wouldn't see -- we're not hearing anything from our clients that would be favorable or unfavorable in the industry. The second thing is the geography, and I would say the same thing there, generally seeing nice growth and nice strength across all geographies.

Excellent. And then could you maybe spend a little time maybe what you might be looking at as far as at least maybe between now and the end of the year or just generally near-term investments internally that you might be looking at? Or anything that you'd sort of like to sort of highlight us to reinvest in future growth opportunities?

Yes. So I don't think anything outside the ordinary. I mean, we always have a long list of investments that we're considering to continue to make the business more efficient and to continue to bring differentiated products and solutions to the client and to accelerate growth. So on the growth acceleration, obviously, we've talked for years about our investments in producers. We continue to make those investments. We continue to make significant investments in the tools that will make us more efficient, including generative AI and blockchain and those types of tools that are generally embedded in third-party products, but we have an innovation group that's focused on understanding what those products are and how they may impact the business. So there is a list of investments. We continue to make those. We have made those. We continue to make those throughout the year. But I don't think anything beyond what we've -- what you're accustomed to within our models, within our financial performance.

Yes, Marc, this is Ware. Just from an operating standpoint, we talk about these from time to time, just the increase in what we'll call investment in hiring new producers just because of the ramp-up time, it's considered an investment for the first 12 to 24 months. And so that has had kind of a choppy impact on our benefits and insurance margins as we've hired more or less from time to time. And you're seeing right now in the first quarter kind of the wraparound impact on margins with our Benefits and Insurance group with hires that were done in '23 that now impact first quarter of '24. We also are increasing resources in our national tax office, and that's a revenue generating resource. So again, there might be a timing difference between the hiring and the investment versus the revenue. So we kind of view that as an investment. And then thirdly, we're beefing up our offshoring capabilities and capacity. So we've gone from 30 to 40 to 50 and on upwards in terms of offshore resources. They're highly seasonal, but they're committed resources for us throughout the year and beyond kind of Tax and accounting, we also use them for some of the consulting services throughout the year as well. So those are 3 areas where, as with any management team, we're weighing the timing of those investments against the payback. And those are 3 examples of what we're doing that are tangible examples.

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

Thank you, everybody. Before we wrap up today, I want to take an opportunity as we always do, to thank our shareholders and our analysts for your continued support of our team and of the company. I also want to take this opportunity to recognize and thank our team. As we started today's call, we outlined the great start that we've had to the year. I want to recognize that we're just wrapping up another very busy tax season within our accounting attacks group with many team members across the company working very long hours to go above and beyond for our clients and our team. Our team is obviously what makes our results possible. And I continue to be inspired and impressed by our team's dedication to our clients, their commitment to supporting each other and to driving growth within the company. So for our team, I want to say thank you for your support. Your exceptional efforts and your focus on what we can achieve together by harnessing the power of One CBI