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Good day and welcome to the CBI

Good morning, everyone, and thank you for joining us for today's conference call to discuss CBI

Thank you, Lori. 2024 was an exceptional year for CBI

Yes. Thank you, Jerry, and good morning, everyone. With the Marcum transaction that closed November 1, this impacts the consolidated fourth quarter and year-end results released this morning. There is a lot to unpack. Let me get started with some of the key highlights. I think the central issue to emphasize this morning is the full year outlook for the consolidated business in 2025. The health of the business is good. Of highest importance, our full year outlook for 2025 is in line with the general guidance we provided when we first announced the transaction in mid-2024. But before we dig into expectations for '25, recognizing the optics of the short stub period in 2024 may present a challenge. Let me share a few brief comments on 2024 results. When we provided an update to our guidance at the end of the third quarter last year, we commented that if the Marcum transaction closed in the fourth quarter, the impact for the short stub period would greatly amplify the seasonal nature of our fourth quarter results. For this reason, we have typically closed financial services acquisitions early in the year rather than in the fourth quarter. Closing the transaction in November, however, was a decision we made to accelerate progress towards integrating the business to enable planning as we prepare for a strong full year 2025. There is a significant seasonal loss from the newly acquired Marcum operations for the months of November and December that is characteristic of the Accounting & Tax business. Plus there are significant onetime transaction and integration costs. The seasonal nature of the November and December operating results were the core tax and accounting business is not unique to Marcum. Without the benefit of nonseasonal business services such as Benefits and Insurance, Government Health Care Consulting or others within the CBI

Thank you, Ware. Now turning to our acquisition of Marcum. I'd like to discuss some of the early progress we're making on integration. This acquisition creates tremendous opportunities for us, propelling us to the seventh largest accounting firm in the U.S., expanding our capabilities and service offerings, strengthening our market position and brand, and accelerating our long-term growth strategy. Now at just 4 months into the integration process, work is underway to realize many of the benefits and opportunities we anticipated as a result of this transaction. We recently held a town hall meeting for our team members, where I outlined priorities for the year as integration, people, cultural alignment and growth. Today, I want to provide an update of our progress in each of these areas starting with integration. As we discussed on our last call, given the size and scope of this transaction, we established an Integration Management Office to guide our process and ensure that we are hitting the milestones within our overall time frame. The IMO helps to support multiple work streams led by leaders and teams from across the company, focused on identifying how we can truly bring the concept of Stronger Together to life. Within each of the integration work streams, these groups are taking a best-of-both approach to craft a path forward that leverages the collective strength of both organizations. I'm pleased to report that we're making excellent progress with strong cooperation and collaboration across our teams and a shared commitment to achieving our milestones, including the anticipated synergies. While we don't expect to fully realize many of these synergies until starting in 2026, our focus this year will be to identify the synergies and begin to execute on the plan. At the same time, we remain laser-focused on our clients and continuing to deliver the exceptional services they rely on us for. We're now in busy season for our Accounting & Tax services business, and we're being very intentional about the pace of integration, while at the same time, minimizing disruption to allow our professionals to focus on client work and deadlines during this important time of year. That said, there's still a great deal of work happening behind the scenes, including alignment of key business functions and the standardizations of policies and processes. We're also developing our time line for integration of key systems, which will enable further integration of our day-to-day operations. In terms of people, much of the work since close is focused on organizational redesign, bringing our teams together and identifying our future leaders. For example, we've organized our Accounting & Tax business into 6 geographic regions and named the leader for each one: 3 coming from legacy CBI

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

I want to say thank you to Ware for all his hard work and help over these years. So thank you very much. I joined the call a little bit late, so I just want to make sure that I understand. The $3.60 to $3.65 adjusted EPS, does that include an add-back of the tax-adjusted intangible amortization?

It does not. The amortization is simply the normal intangible amortization that's added back. It is all tax-affected, of course, but the -- I'll call it the cash flow tax asset that we are referring to, I believe, is a separate issue.

Got it. I wasn't -- I'm glad to hear that. So it's apples-to-apples in terms of...

Yes, yes. We're not double-counting anything. It's a bit of a tougher conversation to weave your way through that. But the amortization expense that's attributed to the acquisition and the intangible assets that are amortized, that's added back. And that's clearly noncash in the P&L.

Got it. Okay. Just in terms of the -- kind of the ability to get leverage down in that 2.1 to 2.3x in the next 24 months, I guess, '25 versus '26 cash flow, is there -- you expect there to be a significant difference between those years? Or just a little incremental improvement in '26? Just any thoughts there?

Yes. Good question, Chris. I think the cash flow-generating capability will accelerate. But initially, in 2025, we're going to have a layer of integration expenses and things like that, that while eliminated to arrive at adjusted earnings per share, they're going to still represent cash flow. Retention payments and things like that are considered to be part of those integration expenses.

Got it. In terms of Marcum itself, I mean, you -- can you talk a little bit about the benefits of more about -- maybe, Jerry, the benefits of scale, things like leveraging investments in technology that make it more cost-effective to have the -- a big partner like Marcum in there?

Yes. Of course, Chris. Thank you. That's among the many benefits, right? So when we think about the combination, prior to the transaction, we were about $1.6 billion in revenue. We're now pushing up about $3 billion. At that scale, we can do more on the technology side. We can do more on the innovation and transformation side. We can do more to elevate our brand. We can do more to attract talent. So there are countless benefits that come from that scale. You combine that with the fact that it's such a strong synergistic fit. Again, we are bringing things to legacy Marcum like our advisory practice that was considerably more built out. They brought things to us, such as industry groups that were considerably more built out. But together, what we could now bring to our clients and gain greater share of wallet, bring greater value through our industry expertise, bring greater depth of services -- depth of expertise and breadth of services through our advisory, the combination is really powerful.

Got it. Very helpful. And maybe just -- obviously, the Marcum seasonality is even stronger in Q4. Is there any opportunity in terms of kind of cross-selling the Financial Services at Marcum into -- on the B&I side?

Yes. Chris, this is Ware. The seasonality is not dissimilar to the CBI

Chris, let me just bring you back to a comment that Ware made in his opening comments. You asked about the seasonality. Ware is absolutely correct. Their seasonality looks very similar to ours apples-to-apples. But now combined, and Ware made this comment in his opening remarks, we would expect, because of that seasonality and because of the combined core accounting tax, we're going to see a stronger kind of first half of the year, maybe by as much as 10%; and then in the second half of the year, probably not quite as strong of a year, I mean on the bottom line, only because of that seasonality. So that will be important for modeling purposes.

The next question comes from Andrew Nicholas with William Blair.

Congratulations, Ware, on an incredibly successful career. I wanted to first hone in on Marcum. It sounds like the expectation is that 2025 growth at Marcum is relatively muted. I guess, can you confirm kind of what your expectation is for Marcum on an organic basis in '25? And maybe just speak to how '24 wrapped up for them as well. I know they had some headwinds in '24 as they pared down some of their audit and public company work. But any additional color on kind of the organic trajectory both last year and looking ahead would be great.

Yes. Andrew, '24, it was hard for us to do an apples-to-apples comparison because they're non-GAAP, et cetera. But as best we could tell, their performance in '24 kind of tracked ours with the exception of the SPAC and some of the other specialty things that we expected to be a little softer in '24 than they've historically been there. When we look forward into '25, we expect that their apples-to-apples practice, so their core accounting practice, should track very close to our core accounting practice. We've planned for the same type of growth as you would typically see within our practice for their practice. So your comment that it looks a little muted is actually not correct. We would expect quite strong performance for them in '25 and performance that kind of mirrors our performance for the same practice.

Got it. Okay. And then maybe just bigger picture, thinking about the combined organization. Can you talk a bit about kind of what areas or practices you're most excited about in '25? What would the growth rates, maybe not in terms of guidance, but just overall demand for audit tax, business advisory and then -- and on the business advisory front, in particular, what you've seen to this point around decision-making postelection, SMB optimism, likelihood of some increased M&A activity. Just looking for a little bit more color at the practice level within Financial Services.

Yes. Listen, Andrew, it's always early this time of the year, right? But you nailed it, right? As we look forward -- and by the way, we talk about CBI

Great. And then maybe one last one. Just on the Government Health Care Consulting business, quite a bit of an evolving set of regulatory instruction or demands out of Washington. I don't think it would impact that business, but just to clarify or confirm whether or not you expect there to be any pauses or uncertainty impacting that business based on the new administration?

Andrew, we don't -- we're not hearing it from that team, and we don't expect it. In fact, there is some -- and it's speculative right at this point, but there's some conversation that if, in fact, the federal workforce is reduced, they may need to rely more heavily on some external partners like us. So it could actually go the other way. It's early stage right now.

And the next question comes from Marc Riddick with Sidoti.

Ware, I just want to thank you again for all of your efforts and particularly coming to the finish line here. It certainly has kept you busy. So I do want to thank you particularly for that once again. I wanted to touch a little bit on maybe -- you made mention in your prepared remarks around client retention trends with Marcum. Maybe you could sort of delve a little bit into that, into maybe the type of feedback that you're getting from those clients and how that sort of plays into your opportunity set for cross-selling opportunities going forward there.

Marc, it's Jerry. I'll take it in 2 pieces here. First of all, we're only 4 months in. We're very pleased with the level of retention among, obviously, the legacy Marcum clients, also the legacy CBI

Great. And then you touched on quite a few things as far as what's inherent in your growth expectations and in the guide. Can you talk a little bit about maybe the pricing environment, maybe how you see the combined CBI

Yes. So Marc, pricing is obviously always supply and demand, right? And so as we kind of highlighted based on the other question, we think demand is going to be very high. It was high and really strong for our core services in 2024. We would think that, that would continue, which gives us pricing ability. As we look into '25 on our planning, we always say kind of mid-single-digit organic. We're in that range. We always say kind of in any given year, half volume, half pricing. We've been a little stronger in the price. I think we would expect to -- within those ranges, it could be 2/3 pricing, 1/3 volume, but half-half, 1/3-2/3, in those ranges. And we think that's really healthy for the business.

Okay. Great. And then I guess the last piece for me, at least for now, I was sort of curious as to whether or not you've seen any particular standouts when it comes to client activity. When we're looking at a particular industry verticals, where there -- are there any particular call-outs that we should be thinking about that are maybe a little more active, a little less effective, what we're seeing initially as far as activity levels from client industry verticals, that might be helpful.

Yes. When we look at -- again, what we keep talking about is -- prior to the transaction, when we thought about accelerated future growth, our focus was going to be on industry groups, right? And as it turns out, as I mentioned, they were further developed in that area. We now have -- together, we now have 10 either industries or specialty practices with revenues over $100 million. The power of what that brings to the organization, the ability to come and bring thought leadership into each of those 10 industry groups and specialty practices, the ability to bring deep subject-matter expertise, just kind of really accelerates our path and our growth opportunities there. So I can't say any one client, although I have heard some really encouraging prospect news. But I think it's too early to kind of see how that all plays out. But just the power of what we now have by bringing these 2 organizations in that industry offering is, I think, really exciting for us.

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

Yes. Thank you. And thank you, everybody, for joining us. As we wrap up today, I want to thank our shareholders and analysts, as we always do, for joining us on the call and for your continued support. This is an exciting time for CBI

Yes, yes.

That's how last year started. Ware has been obviously a fixture on these calls for almost 25 years, and his outstanding leadership, strategic vision, dedication and support has been invaluable in allowing us to navigate really strong and tremendous growth during that time. We're obviously grateful for all that you've done for us, and we wish you well in your well-deserved retirement.

Yes, yes. Thank you. And thank you, everyone, for your kind comments. I think the business -- it's been a long journey and it's been a good journey. And I know, as investors, many of you have been along for a long time with us. So that's a great shared experience. But I think the business is in a great spot today. There's an exciting opportunity ahead. It's time for me to step down, but the transition is going to be a good, smooth transition. Already, I've been working with Brad Lakhia quite a bit, and I'll be here for an extended period of time to ensure that we have a great, smooth transition. And I wish you well, and I think the future is very bright for CBI

Thanks, Ware. Well, you know we have you on speed dial, so I appreciate you hanging out with us for a while. In closing, I want to recognize our incredible team, many of whom are listening today. 2024 was obviously a historic year for CBI