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Good day, and welcome to the CBI

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

Thank you, Lori, and good morning, everyone. I'm pleased to be able to provide an overview of our strong first quarter performance and results along with an update on our progress with integration following our acquisition of Marcum in November of last year. Overall, our integration efforts are on schedule, and we are encouraged by the outstanding collaboration we are experiencing among our teams, as we build on the best of both legacy organizations and continue to position ourselves as the premier provider of professional services to the middle market. Now before I turn to our results, I want to take this opportunity to highlight the key attributes of our business model and how these attributes enable us to perform relatively well even in more challenging economic environments, such as the one we faced in the first quarter. First, approximately 77% of our services are essential and recurring, meaning that our clients need these services regardless of business climate. We also have strong and consistent cash flows, high client retention rates, our broad geographic footprint, serve businesses across a diverse set of industries and are not overly concentrated in any one market or industry. Also inherent to our business model is a high degree of variable expenses that serve as leverage we can pull to manage our expenses in response to changing conditions, including a compensation structure tied to growth, profitability and other key performance metrics. Those attributes have served us well throughout challenging economic environments in our history, whether it was through the great financial crisis or the pandemic. Our historic performance during those times demonstrates our ability to successfully position our business to deliver relatively strong earnings results and at the same time, improve the strategic positioning of our company to emerge even stronger when conditions improve. When assessing our revenue results for the first quarter, it is important to recognize that we find ourselves in a rapidly evolving, ever-changing and increasingly uncertain economic and geopolitical environment. While the essential nature of many of our services makes us more resilient, our overall business and our clients are not entirely immune to the challenging business climate and our Q1 revenue results and full year outlook should be viewed through that lens. With that said, I am very pleased to report that our business model enabled us to continue to deliver very strong results for the first quarter. Among the high notes, the essential compliance portion of our core accounting and tax business generally performed as expected through the traditional busy season. There are a number of areas of our business that we expected some revenue softness due to a special project work that we performed in the first quarter of 2024 that we knew would not recur to the same degree in 2025. Our revenue was also impacted by the anticipated loss of a number of clients due to conflicts that prohibit us from continuing network related to the transaction. In addition, the current economic and geopolitical environment has had a significant impact on a number of industries that affect our clients. including the capital markets and not-for-profit industries as well as on certain of our advisory services, which tend to be more project-based than discretionary. On a positive note, our government healthcare consulting business continues to build our strong pipeline of new projects and posted very strong revenue growth in Q1 and our Benefits and Insurance business also performed very well, with growth coming from nearly every service line. In summary, we are very pleased with how the business performed for the first quarter with strong earnings and consistent cash flows. As we look forward to the rest of the year, we recognize that we may continue to be operating in a more challenging economic environment, and we are taking all appropriate steps to continue to protect and grow our earnings in the event that the business climate does not improve. Based on the fundamental attributes of the business that allows us to protect profitability, we are pleased to be able to confirm and maintain our previously announced guidance for adjusted EBITDA and adjusted EPS. However, based on the business climate we experienced through the first quarter, continued uncertainty for the months ahead and the proportion of our work that is more discretionary through much of the remainder of the year, we are widening our revenue guidance to be within a range of $2.8 billion to $2.95 billion. At this point, I would like now -- to now introduce, our new Chief Financial Officer, who joined us in March following the retirement of Ware Grove. We welcome Brad to our team at a time of incredible opportunity as we integrate Marcum and position our company for accelerated long-term growth. Brad brings nearly 30 years of experience within larger complex companies across a broad range of financial disciplines, including capital markets, M&A, treasury, financial planning and analysis and Investor Relations. I'm pleased to welcome Brad to the call today and look forward to connecting him with our shareholders and analysts following the call. I'll now turn it over to Brad.

Thank you, Jerry, and good morning, everyone. I'm happy to have the opportunity to join you today on my first CBI

Thank you, Brad. Before we move to Q&A, I want to provide further update on our progress with integration and our M&A strategy going forward. As we are wrapping up our traditional financial services busy season and most of the time sensitive client deadlines will soon be behind us, we now have the opportunity to accelerate our integration efforts, deepen collaboration and move forward with key initiatives and strategies that will begin to unlock the synergies and growth potential of our exciting combination with Marcum. A major area of focus in the months ahead will be the integration of our technology systems and moving our teams onto a unified technology environment. This is one of the most critical enablers to operational improvements, process standardization and our ability to drive consistency in everything from delivery of client services, to our team member experiences. Once in place, these integrated systems will allow us to streamline and automate processes, enhance data visibility and analysis, and ultimately deliver greater value to all of our stakeholders. As with every step in our integration process, we will continue to take a thoughtful and intentional approach, balancing progress with change management and training to support a smooth transition for our entire team. As we reflect on the past few months, I'm incredibly proud of the progress we've made on many fronts from identifying a group of incredibly talented leaders to drive our most impactful strategic initiatives to establishing new operating models. For our people, we continue to see high retention and strong engagement, and we're gathering feedback and input along the way. In terms of future M&A, with the successful completion of the Marcum transaction and our continued progress with integration, we're seeing an increased interest in CBI

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

Hi, good morning guys. Thanks for taking a few questions. Maybe I'll just start with where you left off, Jerry, in terms of the non-recurring services represent about 23% of revenue. You called out capital markets. Are there [technical difficulty] would be softer if you were to be closer to the low end of that revenue range?

Yes, Chris, thank you for the question. I would say capital markets is a big piece of that. The other thing is anything deal related. As you know, we have a pretty sizable private equity practice that really relies heavily on deal flow. We've seen - that's a mixed bag, right? We saw kind of through part of this year through the first kind of quarter, we saw some softness. We're actually seeing some encouraging kind of activity in the pipeline, and it's almost kind of month-by-month, right? As tariffs are imposed, activity slows, this kind of 90-day has actually increased our pipeline. So it's just very difficult to predict. So that's a sizable part of our practice. And then we do a lot of other work that's kind of harder to quantify and identify. But related to transactions when our clients are selling, of course, we help them in that process. When our clients are buying. We help them in their practice. It's not all within that PE practice. It's kind of within our core advisory and core accounting business. So there's a pretty heavy reliance on M&A, and we just don't have a lot of visibility into what that might look like this year. I will also comment on that note that, we serve predominantly a middle market client. That client tends to be very optimistic and resilient, kind of regardless of business conditions. But what they do need is line of sight, right? And I think the thing that's been unique to this - the start of this year is the uncertainty almost week-to-week, and certainly month-to-month that they're seeing. If we get more predictability in kind of what the landscape looks like, then our optimism as to what those project works will look like will obviously improve. It's just been a very uncertain environment for us.

Got it. Very helpful. You mentioned strong government healthcare consulting during Q1. And just given the current conditions, just trying to get a sense of whether you expect that to continue? And is there potentially an opportunity here from some of the - just some of these government entities will need more help from you if some of the cutbacks [technical difficulty]?

Yes, Chris, that's exactly the way we're looking at it. The question that we get sometimes, is how much of your total revenues tied to these several contracts. Within that government healthcare consulting business, it's about $40 million directly related, but there's also an indirect relationship in that the work that we do on the Medicaid side, is in part dependent on getting data from the federal government. So, but as we sit here today, we actually are on the - I think, the right side of the DOGE and the efforts around cost containment and savings, because in fact, the work we do is work that supports that, right, making sure that the programs are in compliance, making sure that I's are dotted and T's are crossed. So when we talk to our team on that side of the business, they're quite encouraged right now, by not only how the business performed through the first quarter, but the outlook for the business for the remainder of the year.

Got it. Maybe just last one from me. So integration costs related to acquisition, it's obviously a big piece of the add-backs, I think it was 15.7% this quarter. Can you just - can you break that down into a few more primary buckets, and maybe give us a sense as when that will start to meaningfully decline? Is that next year? Is that later this year? Or just how you're looking at it?

Yes. I think the total amount that we have kind of earmarked for, again, it's kind of excluding real estate, is about $75 million, will come this year, but we will have a significant -- we'll have a significant IT-related portion of that kind of into '26. But a large portion of the $25 million will come into this year -- I'm sorry, the $75 million will come into the 2025.

Got it. I appreciate it. I'll leave it there.

Chris, this is Brad. I just want to point out on the facility-based integration. We haven't provided any outlook on that at this point in time. We're starting to obviously get - the integration team is starting to get its arms around what that's going to look like, how it's going to unfold kind of market-to-market. But those facility optimization costs will probably be more pronounced next year. So obviously, when we're at a point where we can provide more information, we have better line of sight to that, we will. But that currently is not incorporated just generally speaking, in what we provided. I just want to remind you of that.

Got it. I appreciate that. Yes. I'll jump back in line. Thanks, guys.

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

Hi, good morning. Thanks for taking my questions. First question, just to clarify on the revised revenue guide. Can you speak to kind of the conditions that the bottom end of the new range would assume. Jerry, you talked about, I think, $20 million of headwind that was a little bit unknown in the first quarter, SEC auto practice, maybe there's some transactional headwinds there in the PE business. Should we assume that continuation of that would get you to the bottom end? Or is there some cushion if things, were to get worse from the prevailing run rate?

Yes. Andrew, we think it's a pretty reliable range at this point. And here's how we got there, right? We basically - to your point, we looked at kind of how the business has performed so far in the first quarter, we kind of annualized that through the rest of the year. And again, we're certainly hopeful that things will improve. But we said if they don't, what could that look like? Again, with 23% of our revenue kind of tied to kind of more project and discretionary work. We also looked at how the business performed in kind of the two most analogous periods that we've seen, most notably or most recently was kind of COVID. In COVID, that portion of the practice was down 10% to 15% if you do the math on that. So we basically looked at our range that we had originally provided, which we were very, very comfortable with, obviously, at that time. But through that lens, we said look, the environment is a little bit different today when we go and say, how did, it perform, the business performed during that period of time, again, COVID down 10% to 15%. What would that look like? How did the business perform in the first quarter, let's annualize that. Again, kind of a pretty pragmatic approach, to let's just widen that range. Again, I will emphasize that we have line of sight, to hitting the original guidance, but we just thought it was such a tight range that, we'd rather kind of address it now than throughout the year.

Yes, makes sense. That's helpful. Obviously, I just asked a question about revenue, but you are maintaining the earnings guide, even despite those potential headwinds. So can you maybe just spend a little bit more time, talking about the puts and takes there? Like what are the things operationally that you're doing, if anything, to offset some of those pressures, versus things that are inherent to the model in terms of variable comp, and the like? And then also, if there are any synergies that are included in the '25 that you have visibility on that, you might not have a handful of months ago?

Okay. Yes. So let me - before I get to that, kind of what related, let me talk a little bit about pacing, right? So the other thing we didn't do is raise our guidance on the earnings side for the rest of the year. So while we're ahead of guidance, right now, we're being pretty pragmatic in looking - or we're ahead of consensus, I guess. We're pretty pragmatic in looking at the rest of the year. And basically saying as we suggested at the year-end call, the pacing is going to be a little bit different than what you've seen historically, just because of the acquisition and the seasonality of the business now. So we're maintaining that full year guidance, despite the fact that I think we're ahead of consensus really on that side. So, but to more specifically answer your question. I think naturally, as you've seen with our business, even when we have a more challenging economic environment, or business climate that affects our revenue, we nonetheless have a considerable number of levers that we can pull, to protect the earnings side of the business. They come in these buckets really. One is around kind of our people and comp costs. Our comp structure is designed to reward growth. And when we get that growth, there is meaningful upside bonus, and other consideration that we're pleased to be able to reward to people. We kind of accrue that ratably throughout the year. And so in periods of time, when we're not seeing that growth, obviously, those amounts can be reversed, right? We wouldn't accrue if we're not getting the growth or we're not getting the performance. Also, with kind of a little lighter demand for certain of our services, we're not filling headcount to the same degree. So it affects compensation that way. We've also had really encouraging progress on outsourcing, and our reliance on outsourcing that favorably impacts those metrics as well. So there's a number kind of on the people side. And I would say that's about two-thirds of the adjustments that, we've been able to make or savings we've been able to incur. And then the other third is around what you would just expect on discretionary side T&E, advertising, recruiting costs, those types of things are all kind of naturally lower during this period of time. So I'd say two-thirds, one-third, and we experienced that in the first quarter, and we'd expect to be able to continue to pull those levers, if we don't see improvement in the top line.

Very helpful. Thanks, Jerry. And then maybe just one last one on capital allocation. I think you've talked since the Marcum announcement about a willingness, to buy back some shares if the opportunity presents itself, also kind of save up or consider deals maybe later this year, or early next. Just in light of the current environment, and what you've seen so far with Marcum in the first half year or so, if you could just kind of give us an update on prioritization, amongst all those different items that would be great? Thanks again.

Andrew, Brad here. Appreciate the question. So listen, I think I'll start by saying in the quarter, I'll remind you kind of what I said previously, which is our working capital usage was consistent with what we expected, and consistent with our prior patterns that we saw from just a general legacy CBI

Thanks, Brad.

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

Hi, good morning, everyone. Brad, welcome. Looking forward to working with you going forward. I wanted to sort of touch a little bit as the mention on the clients' reception. And I guess it's sort of a combination, right? There's the general retention, which seems to be fine. And then the client complex, which - some of which are obviously to be expected. Can you talk a little bit about how the - as you sort of discovered where the complex are, and how they've risen to this point, what your thoughts are as to the timing of those impacts, and how that played into guidance for the remainder of the year? Do you think you kind of through most of that? Or how should we think about that as sort of go through that process?

Yes, Marc, I'll take it. Let me deal with the client side first. Let me start here. Whenever you combine two organizations of our size, it's inevitable you're going to have some client conflicts, you can't continue that work. We knew about the healthcare practice. We model that. And by the way, the numbers that we experienced, which are all behind us at this point are within the model. We also expected that there would be some de minimis amount of additional client conflicts that, were going to occur. And it might be as simple as we're doing a test work for the engagement, and that was legacy Marcum was doing that at test work and legacy CBI

Okay. And then I was sort of curious as to the - I guess, maybe the timing of when you began to see impacts on the audit practice, and advisory work. I mean, it's interesting because it's somethings you can sort of point to and say, oh okay, that was when the tariffs were announced or what have you. Is there sort of any particular signpost? Or was it sort of a gradual process as far as the timing, of when some of those impacts were seen?

Marc, truthfully, I did not ask that specific question. But what I've learned - and again, just remember that that's a practice that kind of SEC PCAOB practice is one that legacy Marcum brought to us, by the way, great practice, great people, great opportunity. We're excited about it, but not one that we had before. So as to how that - the client work evolves and comes the timing, some of those things, it's just new to us as well. But when we asked the question, it was logical, right? The response is that many of the clients that we're serving there, are going out regularly for financing, they need comfort letters, right? If they're not raising funds, they don't need those comfort letters. They're filing S-1s. There's a considerable amount of work to be done, when they do those things. If that work stalls, that work doesn't get done. Now that's not to say that work won't come, it will come, I think, naturally, as the market improves and as optimism improves, we just can't predict the timing. So there's a little more uncertainty around, even that portion of the practice than we've historically experienced.

Okay. That's very helpful. And I was sort of curious as to - I'm not sure if we discussed the pricing environment. Have you seen any changes there? Or anything that's different than what you would have originally experienced as far as just general pricing trends?

Yes. I guess I have two responses to that, Marc. Great comment. As you know we, I think, ahead of others in the industry, have really a very disciplined approach to pricing and making sure we have pricing and processes behind it, and reporting and follow-up and training, all of those things. So we've had considerable success in pricing over the past couple of years. We've actually seen - and yield is kind of our proxy for pricing. We've actually seen really nice lift in our pricing through the first quarter. The second part of that, I said there were two parts. The second part is inevitably, if the market continues to be a more challenging environment, and work is harder to come by, people look to keep their people busy. And oftentimes, that translates into people lowering rates. So we haven't seen that yet, but I wouldn't be surprised that we'd see - a more challenging environment in the future if the business climate doesn't improve there.

Understandable. Thank you very much.

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

Sure. Thank you. As we wrap up today, I always - as we always do, I want to thank our shareholders and analysts for joining us, and for your continued support. There's a headline that I'd like to leave you with today, and that is the business, despite revenue - some revenue and some macroeconomic kind of pressures on the business, the business performed very well, right? And it performed as it should in this climate. Very strong earnings number, right? And so even environments where the revenue might be off a consensus a little bit, we were able to deliver very strong earnings and in fact, ahead of consensus a little bit. The other high note is the core business - the core recurring business, both on the benefits and insurance side, and on the core accounting and tax side, continue to perform as expected and within the range of the mid-single digits that we had guided, again, very encouragingly. The integration, again, it's no easy task to bring two organizations of this size and scale together on schedule, and by all accounts going very well. We have a very disciplined process behind that. I'm doing - I'm having regular check-ins with our team and things are on schedule and very pleased. We kind of look at it every week as a red, yellow green, and it's almost green always across the board. So we have a strong team working on it, strong leadership working on it, and very happy there. And then maybe most encouragingly, just kind of the cultural alignment. You don't know what you're going to find when you bring two organizations together. And just the - I wouldn't say cultural identical, but cultural alignment has been far better than expected. Legacy Marcum brought to us really strong leadership. They brought exceptional talent. They brought a really strong culture. That combined with our extraordinary culture is you can feel it. You can feel when you go in the offices, you can feel as a team sit - around the table and collaborate. So we couldn't be more pleased sitting here today in light of all the work that everybody has put into, getting us to where we are with how we're proceeding through the first quarter. More importantly, and I've said this to our team, and I'll say to you, the future has never looked brighter. Just as a reminder as to why we brought this together. We now have scale that we never had before. That scale will allow us to make investments in the firm, to continue the growth and success in all the areas that we need, to continue to invest in the business. It will provide us with the ability to go-to-market, and provide our clients and our prospects with services and solutions that, we feel are unmatched by any of our competitors in the industry. And equally important, position us to be able to win that work for talent, by offering people career opportunities that they would never have had in a smaller organization, or one that doesn't have the culture and the commitment to people that CBI