Q3 2020 CBIZ Inc Earnings Call
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Good morning, everyone and thank you for joining us for the <unk> third quarter and nine months conference call. All participants will be in a listen only mode should you need assistance. Please signal copper, especially by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Lori Novickis director of corporate Relations. Please go ahead.
Good morning, everyone and thank you for joining us for the sea this third quarter and nine months 2020 results conference call.
In connection with this call todays press release has been posted on the Investor Relations page of our website <unk> Dot com.
This call is being webcast and the link to the live webcast as well as the replay and transcript can be found on our web site.
Before we begin our presentation, we would like to remind you that during the call management may discuss certain non-GAAP financial measures, but.
Reconciliations of these measures can be found in the financial tables of today's press release.
Finally, remember that management May also make forward looking statements. These.
These statements are based on current information and managements expectations at this stage do not guarantee future performance.
Forward looking statements involve certain risks uncertainties and assumptions that can be difficult to predict that.
Actual results can and sometimes do differ materially.
A more detailed description of such risks and uncertainties can be found in the Companys filings with the Securities and Exchange Commission.
Joining us today are Jerry Grisko, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer, I will now turn the call over to Jerry for opening remarks, Gary.
Thank you Laurie good morning, everyone.
I am pleased to speak with you. This morning about the very strong results that we experienced for the third quarter and year to date.
But before I get into the details on our performance there.
Here are a few key points that I would like to emphasize starting with the resilience of our business EPS.
We expect that the fundamental characteristics of our business have allowed us to continue to perform well in the current economic environment.
Demand for our core counting in many of our core benefits and insurance services remains strong.
These are the central recurring services, which make up approximately 70% of our revenue.
Fueled up performance through this quarter and from the start of the pandemic.
We are also starting to see increasing demand for a number of our advisory more project based services.
These were areas, where we experienced some decline in the first and second quarters.
Our financial results were bolstered by the previous responses to expense management that we put in place at the onset of the pandemic.
And the proactive steps that we've taken throughout the last nine months to protect the company.
He's moved the benefactor in allowing us to preserve the substantial investments that we've made over the years and our team.
Which will position us to accelerate growth when the economy begins to improve.
We also continue to be proactive with our outreach to our clients and our prospects.
Our clients turn to us for advice and solutions in times of change and uncertainty.
And we've been hard at work over the past nine months to help mitigate the challenges and pursue the opportunities presented by the current business climate.
For example earlier this year, we mobilized quickly to help our clients understand an access to a wide range of federal stimulus and relief programs.
Like the payroll protection plan and the main street and lending program.
We are watching current discussions around a new economic stimulus package carefully and are prepared to once again assist our clients are taking advantage of opportunities as they become available.
These efforts allow us to expand and strengthen our client relationships, which ultimately leads to higher retention rates.
Similarly, our time, we thought leadership in digital marketing efforts have resonated with prospects.
Breadth and depth of our services and expertise and our ability to provide holistic solutions truly differentiates us from many of our competitors and this led to a full pipeline of prospects.
A great example of our ability to offer more comprehensive and coordinated services is the recent launch of our accelerated recovery what in our programs.
These programs features he does experts on topics that can help our prospects respond to their most pressing issues.
Hey, better decisions and act on them to advance critical strategies for their own recovery.
The market response has been overwhelmingly positive as prospects recognize how see this can provide value quickly in a wide range of areas.
Overall, we're very pleased with our third quarter and year to date performance given the unique circumstances that the current business climate presents.
The quarter played out as expected.
With the changes and adjustments we've made having the intended effect.
For the third quarter of 2020 revenue was $238.4 million.
A slight decrease of $1.4 million over the same period in 2019.
However income from continuing operations improved by 12.5% an EBITDA increased by 8.3% for the most recent third quarter compared to the same period a year ago.
From a year to date perspective, we recorded revenue of $752.8 million, an increase of seven and a half million dollars over the prior year.
Income from continuing operations improved by 8.6%.
And adjusted EBITDA improved by 7.6% over the same period in 2019.
Within our financial services segment, our core accounting and tax services continue to perform well, which reflects the steady demand for these essential services.
As expected the extension of tax filing deadline from April 15th of July 15th.
Shifted revenue from the first and second quarters to the third quarter EPS.
That work is now completed and we would expect that the remaining revenue related to tax the point were to be relatively consistent with more normal years.
Our results within this segment also reflect continued strong performance from our litigation support practices.
In the second quarter, we know that M&A transactions would largely put on hold as most businesses shifted their focus to addressing issues brought on by the pandemic.
These delays impacted a number of our advisory services that focus on transaction support.
Recently, we have seen signs of improved activity in this area, which is good news for a number of our advisory services businesses.
Turning to our government healthcare consulting business.
While we continue to experience reasonable growth within this business the rate of growth has slowed as a result of coated related issues.
On our last call, we talked at length about the slowdown and delivery of information from our clients.
In constraints around being onsite to complete certain aspects of the work.
While we ended the third quarter in a better place than when we started and the demand for these services remained strong it.
The timing of certain work will remain a question in an area that we will continue to monitor closely.
Some of that work may be delayed into 2021, and we will know more as we progress through the fourth quarter.
Within our benefits and insurance segment, we are seeing strong performance from our employee benefits business. Our four one k. advisory business and the personal and commercial lines portions of our property and casualty insurance business.
We have experienced some softness in our payroll business related to early decline in the number of people on payroll of certain clients based on layoffs and risks.
After the initial drop in April the number of pays improved in May and has remained fairly stable since that time.
Also our clients and prospects continue to express interest in our new up market payroll platform.
And our pipeline of new business for this product is very encouraging.
Before I turn it over to where to provide more specific details on our financials I wanted to take a few minutes to talk about two acquisitions that we completed in the quarter.
We've completed five acquisitions, so far this year.
And we started the year with the strongest pipeline of opportunities in recent history.
While we paused our M&A efforts at the onset of the pandemic. Our most recent transactions demonstrate our readiness to pursue strategic opportunities and our ability to close transactions in this business climate.
On our last call at the end of July I touched briefly on the acquisition of Prince would insurance and independent agency in leading provider of financial insurance and advisory services located in Woodbridge, Virginia.
Chris what is this a second property and casualty insurance related acquisition, so far this year.
As we continue invest in areas of our business like property and casualty insurance.
That have been strong contributors to our historic growth.
In September we also completed the acquisition of our consulting and our placement growth HPG.
Both companies located in San Francisco, California.
The acquisition of Arkon HPG adds to our advisory services capabilities within our financial services group.
Our consulting assist finance departments with complex accounting reporting and compliance needs that require a high level of technical knowledge, including GAAP and FCC requirements.
The RPM is often engaged to assist clients with complex capital structures with the potential for public offering or strategic exit.
VPG focuses on an interim and direct placement of finance and accounting talent that meet the needs of our clients.
This acquisition was already underway when the pandemic hit.
Rather than moving forward at that uncertain time.
We put the deal on hold as we continue to monitor their performance.
We were pleased to see the resilience in their business. During this timeframe and we moved quickly to complete the transaction in the summer.
The expansion of advisory services within our financial services group is another critical step to establish the right mix of services to respond to our clients and prospects increasingly complex needs.
Our mix of core essential services, along with advisory and specialty services has enabled us to maintain our performance while positioning the business for long term growth.
In many ways our experience in 2020 has further validated see business does a strategy.
Strategic acquisitions will continue to be an important part of our records for short term recovery within the business as well as long term growth.
Towards the end of the second quarter, we reactivated our M&A sourcing team.
And are in discussions with a number of very attractive acquisition prospects.
We believe that there will be new opportunities in the near term, especially given companies and firms recent experience would COVID-19.
Given the unique attributes of our business and our demonstrated resilience I believe we can offer potential targets a level of stability and opportunity that many others cannot.
We can better articulate now the value of being part of a large well capitalized and wrote resilient organization like see because that is able to emerge even stronger from the current economic environment.
At this point I will turn it over to Ware Grove, our CFO to provide more specific details on our financial performance for the third quarter and year to date were.
Thank you Gerry and good morning, everyone.
I want to take assume that EPS to review highlights of the numbers. We released this morning and talk about the actions we have taken as we navigate through recall that related challenges.
As Jerry commented the majority of our core businesses are performing well.
Broad diversity of clients that we serve coupled with the recurring and essential nature of our core services.
Providing stability to our results.
Reported total growth has an impact but impacted by a small number of businesses within our mix of services that are more severely impacted by corporate related influences either.
Peter because these services are project oriented.
They are more directly impacted by the higher unemployment trends or they are more highly dependent upon travel related or client facing activities.
For example, looking at those services most severely impacted we can identify unique areas of our business that comprise approximately 15% of our nine month revenue this year.
The spread between both lets a national services and the benefits and insurance practice groups collectively these businesses reported a decline of 12.9% in revenue for the nine months.
To illustrate the stability of the remaining 85% of the core services. When you eliminate the impact of those businesses that have been more severely impacted.
The remaining core service revenue grew by an adjusted 4.1% per.
The same unit revenue growing by an adjusted 1.9% for the nine months ended September Thirtyth this year.
Within financial services for the full quarter total revenue was up 1.1% the same unit revenue flat from a year ago.
For the nine months total revenue within financial services was up 1%. The same unit revenue also flat.
Revenue and core tax and accounting services has grown we have also recorded modest growth in the government healthcare consulting business for our growth has slowed a bit this year due to disruptions and the availability and cost reports and other information or limited access to client sites that we need.
Under normal circumstances this.
This work still needs to be done and some portion of this work may push into 2021.
Within the advisory or project oriented businesses and financial services activity is rebounding as travel restrictions are lasting and the outlook is improving.
Turning to benefits and insurance total revenue for the third quarter declined by 4.0% the same unit revenue declined by 6.0%.
For the nine months ended September Thirtyth two.
Total revenue grew by 0.9% and same unit revenue declined by 2.9%.
In a similar fashion with financial services, a portion of the benefits and insurance business is impacted by cobot related factors, including higher unemployment trends.
Core recurring services, such as group health benefits property and casualty commercial coverage.
Our retirement investment advisory services have been very stable.
Client retention and lease businesses has been solid this year and the new producer investments, we've been making are having a very positive impact.
There is a pool of variable cost within the business and we have carefully managed costs. This year with an eye toward making prudent decisions appropriate for the circumstances, but also avoiding across the board actions such as risks or other actions that may compromise our ability to grow.
So lots more normal conditions return.
Improved margins have resulted from lower costs, which include a natural reduction in travel related expense lower marketing and event sponsorship costs lower.
Lower variable compensation levels, lower benefits and health care costs, and other actions to defer discretionary items where possible.
Yeah on these cost reductions. We've also taken very targeted actions to right size costs in those operations that have been more impacted by economic conditions. This year.
As you think about the cost structure and the margins.
As an important reminder, it is important to eliminate the impact of accounting for gains and losses on the assets held in the deferred compensation plan.
As a reminder, this does not change the reported margin on pre tax income the elements of operating income are impacted.
Eliminating the impact of gains or losses for the third quarter gross margin was 16.4% compared with 15.6% a year ago and general administrative expense was 4.5% of revenue compared with 4.6% a year ago.
For the nine months gross margin was 18.9% compared with 18.0% and general administrative expenses was 4.3% compared with 4.4% for the nine months a year ago.
And our second quarter conference call I commented on the favorable impact of lower benefits costs as with many others. We have experienced favorable adjustments to health care costs. This year, resulting from the general Kogut related deferral of healthcare that has occurred since March.
For the third quarter and for the nine months this favorable item accounts for about 40% of the increase in pre tax income compared with the prior year.
Under normal circumstances, there may be some minor adjustments to this estimated cost throughout the year and a favorable adjustment to costs for the first nine months. This year may not recur as the economy and individual behaviors returned to normal in the future.
Importantly, cash flow has remained positive this year.
End of September outstanding debt on our $400 million unsecured credit facility was $110 million.
And that leaves $284 million of unused capacity.
Well add cash remittances continue to be stable with day sales outstanding improving to 87 days this year compared with 94 days at September Thirtyth a year ago.
Earlier this year, we recorded an additional $2 million of bad debt reserve at the end of March and for the nine months bad debt expense was 42 basis points of revenue compared with 26 basis points for the nine months a year ago.
The additional reserve recorded at the end of the first quarter anticipated a higher risk generally associated with those clients, whose business is focused on travel entertainment or restaurant associated industries.
With our diverse set of clients. These types of clients represent less than 5% of our client base.
Acquisition related spending including Earnouts.
Paid on previously closed acquisitions totaled $48.8 million through September thirtyth.
For the balance of this year, we expect to pay an additional $3.7 million.
For 2021, we expect to pay approximately $12.4 million and for 2022, we expect to pay approximately $11.3 million for earn out payments on acquisitions previously closed.
And then for 2023, an additional $3.7 million as planned and for 2020 for approximately $3.1 million.
Acquisitions continue to be our highest priority as the best long term use of our capital.
However, we have also has the flexibility to repurchase shares.
After suspending share repurchase activity near the end of the first quarter since that time, we have experienced strong cash flows.
As a result during the third quarter, we elected to resume share repurchase activity.
We initiated a TNB repurchase program during September.
And we repurchased approximately 165000 shares through September Thirtyth.
In October we have repurchased an additional 166000 shares.
Combined with the 1.2 million shares that were repurchased in the first quarter. This year to date through October 27th we have repurchased approximately 1.5 million shares at a cost of approximately $37 million.
Considering this recent share repurchase activity, we are projecting a full year weighted average share count at approximately 55.5 million shares for 2020.
Capital spending in the third quarter was approximately $4.1 million and for the nine months capital spending was approximately $9.6 million.
Full year capital spending is expected at approximately $12 million this year.
The effective tax rate for the nine months was 25.7%.
And for the full year, we continue to expect an effective tax rate within a range of 24% to 25%.
As we navigate through this challenging environment.
We are pleased with the steady performance of our business. We are extremely pleased with the quarter improved margins with a 9.3% growth in earnings per share for the nine months ended September Thirtyth this year.
As a reminder, fourth quarter results are typically more dependent upon project work and that may lead to volatility in the fourth quarter results.
With ongoing risks and uncertainty in the months ahead, we continue to prudently manage costs.
For portions of our business has been more severely impacted we are continually assessing the business has taken more targeted actions, we're ready with further contingency plans if necessary.
Most importantly, with a strong cash flow attributes of our business our liquidity is stable we.
We have the capacity and we're continuing to make investments in the business to enhance the long term growth prospects perceive is and we are well positioned for growth once we get beyond the cobot related impact to the economy.
With these comments I will turn it back over to Gerry.
Thank you Ware I'd like to touch on a couple of additional areas before we turn it over for acuity.
Throughout the last nine months there has been a great deal of discussion on how small businesses are likely to care in the months ahead, given the impact of the pandemic.
Let's see bids we serve a wide range of clients of varying sizes and across many industries and geographies.
That diversity within the mix of clients that we serve helps to insulate against business conditions that have a disproportionate impact on certain client populations.
Moreover, while we do serve a large number of small businesses a significantly larger portion of our revenues come from clients with annual revenues in excess of $20 million.
This is a besides historically proven to be far more resilient than smaller businesses and uncertain and challenging business climates, such as the one year now facing.
Turning to the upcoming presidential and congressional elections.
We've also received a number of questions around what different outcomes might be perceived as our clients in the future of our business.
Throughout our 24 year history, we've been through a number of changes in our nation's administration.
Sustained growth regardless of who's in the White house or the Congress.
Regardless of the outcome of next week's elections.
We expect to experience continued change in complexity in the laws and regulations that apply to our clients.
Which is good for our business as our clients turn to us to help them understand the impact of the changes on their businesses.
Finally, I want to provide a brief update on our efforts to make diversity and inclusion in the central part of our wouldn't see this culture.
Earlier this summer following the tragic death of drugs Floyd pieces move to develop a comprehensive and long term diversey didn't clean strategy aimed at meaningful action and lasting change.
We wanted to begin with those things that we can influence and in some cases control when it comes to our team.
Our culture and our company.
We also hope to drive change within professional services industry, and we intend to use C business position invoice to join with other like minded companies to be a catalyst for that change.
Too often we've watched that these kinds of efforts become more about checking boxes and taking action.
We've taken some important first steps in this journey, which.
Which included signing onto the CEO action for diversity inclusion pledge in September.
As CEO action for diversity inclusion pledge is the largest CEO driven business going into two advanced diversity and inclusion within the workplace.
Signatory to the pledge include leaders for more than a thousand of the world's most well recognized companies and organization.
Representing over 85 industries.
By signing the pledge the leaders of these companies have all committed to focus on a shared goal.
To advance diversity and inclusion within the workplace.
I am proud to affirm my personal commitment to diversity and inclusion by signing on to this effort.
I believe our active participation with the CEO accident diversity and inclusion pledge will connect us with others and helped to accelerate our work in this area.
With that we will open it up to today.
Thank you we will now begin the question and answer session to.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
And the first question today will come from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys.
Good morning, Jim and Greg just talk a good morning.
<unk> a little bit about.
Pricing just trying to understand is is pricing power much different between financial services and benefits.
Parents, and what has the kind of.
Current environment turns during fiscal year 2008 was pricing Ben versus you know kind of typical.
Yeah, Chris first of all the pricing is a little bit different between the two divisions as you know.
Within the benefits and insurance Division.
We often times are paid a commission, which is really a product sales were driven by the service that we provide so a percentage of the premiums that the client may pay is it typical compensation system and benefits and matured. So while not exclusive we obviously have fees related to our payroll services and some of our advisory services.
Much of the revenue there is more commission driven within our financial services group. We are often most of that revenue is in fact fee driven and we have not seen or heard of a lot of fee pressure in this environment.
Really I think what we've experienced is that our clients are turning to us for advice and as to how to navigate in this environment and net net advice is now.
Less fee driven and more.
Valued based on the expertise that we bring to bear so not to say that it will come at some point in the future as we bid for work going into 2021, but so far to date I have not heard of significant fee pressure.
Got it that's helpful.
On the government health care front that demand is still strong timing uncertain again is that mostly travel challenges or something else that's embedded in there and I'm just.
Just trying to get a sense in terms of and for the first nine months.
How significantly impacted that that business segment was.
So as you know, we typically enjoy high single digit organic growth year over year on that business. We are still experiencing nice growth in that business and it continues to perform well and as you indicated the work.
Work is there the demand is high.
We have had some cold weather related challenges really that fall into two buckets. One is the one that you identified which is if we are required to be on site to do certain work. That's obviously is then somewhat impacted by this environment, although even in those instances.
Like many other companies in this environment, we are getting more comfortable with delivery network virtually our.
Our clients are able to work with us virtually in so we're establishing a new work flow.
Relative to work that was traditionally done on site in many of those instances the other kind of.
Hurdle that we've we've begun to overcome here in that business is the fact that some of the state governments were given.
Some latitude in some reprieve on when they were required to submit the background information and data that we need in order to do our work and just it was as you would expect just a product of of of other priorities, but that work also.
Of late seems to be flowing more freely to us and we've had a couple of good months in that business.
Time will tell if there's further delays based on on on on the on the impact of Covance in various states and with various clients.
Got it that's helpful and.
And last from me just ask the tough question, but just trying to get a sense you know assuming no.
No big covert shutdowns over the coming months.
In terms of your expected visibility would you expect to be in a position in February two two from where you sit today to give.
Fiscal 20 on guidance.
You know, Chris I think.
It's too early to call that at this point, but certainly if there are no further kind of cobot shuts then shutdowns if there is a vaccine.
On the horizon or may be in place by that time, we would hope that we could.
With guidance back in place as quickly as we can given a more certain to certain environment.
Got it I appreciate how jump back in line. Thanks, guys.
Once again, if you have a question. Please press Star then one.
The next question is from Marc Riddick with Sidoti and company. Please go ahead.
Hi, good morning [noise].
Good morning, Mark Hello, Hi, I.
I wanted to just sort of go over a a couple of things a lot of what you covered on the you know on the prepared remarks, which was great I wanted to see if you could just.
Bring us up to speed, maybe on some of the decision making that that you may be experiencing whether it be anecdotal or what have you as to the.
Sort of the the waiting for or the current lack of upward potential stimulation, maybe what you might be seeing as to.
Customers are the response for them and what the latest that may be and their decision, making that may have an impact on your business currently and what you how you see that maybe playing out.
So mark this is Gerry abhi.
Obviously, there is lots of discussions around when that next wave of stimulus may may be available I think overall.
Overwhelming kind of sentiment is that it will come at some point, whether it's you know shortly after the election or early into 2021, I know that our clients are tracking that I know that it would be helpful for many segments of the.
The economy in certainly for a lot of our clients what I will say is that.
You know it really shined a light on the on the value and the differentiated value that we can bring to our clients with a holistic approach when we help them through the first wave of the PPP loan to main street lending.
Type programs that were available so we stand ready we have our finger on the pulse of what might come and as soon as it does come we will we will mobilize as we did in the first instance to help our clients there.
The second part of the question really is how important is that to our clients I will tell you that we have surveyed our clients.
Informally as well as we've had some clients.
Panels that we've talked to and not surprisingly our clam our clients are.
Our more optimistic than than some of the the you know the newspaper reports and others may indicate we tend to represent a very resilient segment of the population as far as businesses are concerned.
Well, they all kind of pad.
Had to readjust their businesses based on the current environment I think the sentiment is more optimistic as.
As they look forward so.
I think that's that's been reflected in our results and we would expect that to continue to be the case going forward.
That's encouraging and I was wondering if you could just share a little bit of of time talking about the longer term a market share opportunities I mean, certainly providing these services and being a trusted advisor channel.
Challenging time.
Certainly a is a competitive differentiator and I wanted to get a sense of you know how you feel about the opportunity just to gain a greater share of wallet from existing customers, bringing on new customers as well as maybe if you could touch a little bit on if you have any thoughts on those who are maybe outsourcing some things that they had been doing themselves up to this point with the greater.
Complexity in and how that you know that.
Lead to new business and new accounts going forward. Thank you.
Yes, so I'm going to take to take the questions in order first of all after market share and in how we're faring environment. It actually yesterday I believe there's an article in accounting today, we were lead article there as to.
Our unique value proposition relative to certainly many of our competitors as to the breadth and depth of services that we're able to provide and how will that be received into the market and so if you haven't seen it I'm happy to send you a link to that article, but but it did a very nice job of describing kind of how uniquely positioned we are.
In this environment to bring more.
More than just the model line view and solution to our clients because.
As you can imagine the challenges that are being faced by many business or.
Our multi disciplinary and there are.
Really no others in the country that are as well positioned as we are to bring a multidisciplinary holistic approach comprehensive approach to the solution. So.
As far as market share is concerned we're very.
Encouraged by the reception that we've received to our digital outreach to our webinars to our other thought leadership pieces going not only to our existing clients, but also to products I'm sorry prospects in the pipeline of new business opportunities that are flowing from them. So we're we're very encouraged by that as to.
Outsourcing.
I will tell you we havent seen a dramatic difference at least I haven't heard of a dramatic difference in and how receptive the market is to that although logically you would say that in times like the ones that we're facing now our clients are most interested in focusing on their core competencies and they're in and things.
They do best and looking to others to help them with things that that now.
That may not be a core competency, including outsourcing things not building not not incurring net expense to build their own infrastructure in costs, but turning to organizations like ours that already have those have made those investments and can help them through this thing. So I think all of that's at play right now and certainly a message that we're delivering to the market and again, our we're very encouraged by.
The reception that we're receiving in the pipeline of opportunities that we see.
Okay. Then one last one from me I was I wanted to get a sense of it and probably early but maybe it's it's maybe a sterling need it's not I'm not sure, but I wanted to get a sense of as you look at current tax code changes what we have so far is there a sense of what level of complexity that.
Look like year over year, I know, we've had certain years, where the complexity was far greater than others. I was wondering how that might look relative maybe the last few years as far as the year over year changes of textbook. Thank you.
So as we look forward right it really kind of depends on what happens in the upcoming elections here I.
I think under regardless of of of what that outcome is there is likely to be changes in our tax code just as a result of all the stimulus and other dollars other monies they've been putting the economy in the if that would have to be repaid.
Some point right. So so I think tax log are likely to change one is we said repeatedly over the years.
Complexity and change is good for our business because it does two things are clients of course turn to us to help them understand how that impacts them and their businesses and we help them navigate those that analysis.
But may be equally important it really does I think shine a light on cedars and our unique value proposition to prospects and it gives us an opportunity to go out and have that discussion and and demonstrate how we can bring different levels of solutions to the clients and prospects.
Our current provider may not be able to provide so I think whenever there's changes whenever there is complexity. It's good for us we've proven that over the years and they kind of regardless of what happens to the upcoming elections were likely to see.
Change in complexity.
Makes sense I greatly appreciate the commentary thank you very much.
Thanks, Brian.
Ladies and gentlemen, once again, if youd like to ask a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Jerry Grisko for any closing remarks.
Okay, well. Thank you everybody I appreciate you listening in today in conclusion I want to thank our enamel analysts and investors for joining us on the call and for your continued support.
I'd also like to recognize and thank our service team members, who may be listening in our call today.
I attribute.
Our continued success and resilience on the commitment and dedication of our team. This has been a year like no other in our history and I couldn't be more proud of our team continues to rise to the occasion to support each other.
Our clients in our communities. Thanks.
Thank you and have a great day.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Good morning, everyone and thank you for joining us for the sea. This third quarter and nine months conference call. All participants will be in a listen only mode should you need assistance. Please.
Specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Lori Novickis director of corporate Relations. Please go ahead.
Good morning, everyone and thank you for joining us for the sea this third quarter and nine months 2020, <unk> results conference call.
In connection with this call today's press release has been posted on the Investor Relations page of our website <unk> Dot com. This.
This call is being webcast and the link.
Linked to a live webcast as well as the replay and transcript can be found on our website.
Before we begin our presentation, we would like to remind you that during the call management may discuss certain non-GAAP financial measures buckets.
Reconciliations of these measures can be found in the financial tables of today's press release.
Finally, remember that management May also make forward looking statements. These.
These statements are based on current information and management's expectations at the state and do not guarantee future performance.
Forward looking statements involve certain risks uncertainties and assumptions that could be difficult to predict.
Actual results can is sometimes do differ materially.
A more detailed description of such risks and uncertainties can be found in the Companys filings with the Securities and Exchange Commission.
Joining us today are Jerry Grisko, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer, I will now turn the call over to Jerry for opening remarks, Gary.
Thank you Laurie good morning, everyone.
I am pleased to speak with you. This morning about the very strong results that we experienced for the third quarter and year to date.
But before I get into the details on our performance.
There are a few key points that I would like to emphasize starting with the resilience of our business.
As we expected the fundamental characteristics of our business have allowed us to continue to perform well in the current economic environment.
Demand for our core counting in many of our core benefits and insurance services remain strong these.
These are the second recurring services, which make up approximately 70% of our revenue.
You got performance through this quarter and then the start of the pandemic.
We are also starting to see increasing demand for a number of our advisory and more project based services.
These were areas, where we experienced some decline in the first and second quarters.
Our financial results were bolstered by the prudent responses to expense management that we put in place at the onset of the pandemic.
And the proactive steps that we've taken throughout the last nine months to protect the company.
He has been effective in allowing us to preserve the substantial investments that we've made over the years and our team.
What's your position us to accelerate growth when the economy begins to improve.
We also continue to be proactive with our outreach to our clients and our prospects.
Our clients turn to what's your advice and solutions in times of change and uncertainty.
We've been hard at work over the past nine wants to help and mitigate the challenges to pursue the opportunities presented by the current business climate.
For example earlier this year, we mobilize quickly to help their point understand and access to a wide range of federal stimulus it really programs.
Like the payroll protection plan and the main street in letting program.
We're watching current discussions around a new economic stimulus package carefully and are prepared to once again assist our clients are taking advantage of opportunities as they become available.
These efforts allowed us to expand and strengthen our client relationships, which ultimately leads to higher retention rates.
Similarly, our time, we thought leadership in digital marketing efforts.
David good prospects.
The breadth and depth of our services and expertise and our ability to provide holistic solutions truly differentiates us from many of our competitors and that led to a full pipeline of prospects.
The Great example of our ability to offer more comprehensive and coordinated services.
The recent launch of our accelerated recovery what in our programs.
These programs feature she does experts on topics that can help our crosstex respond to their most pressing issues.
Make better decisions and act on them to advance critical strategies for their own recovery.
The market response has been overwhelmingly positive as prospects recognize how see this can provide value quickly in a wide range of areas.
Overall, we're very pleased with our third quarter and year to date performance given the unique circumstances that the current business climate presents.
The quarter played out as expected.
With the changes and adjustments we've made having the intended effect.
For the third quarter of 2020 revenue was $238.4 million.
Decrease of $1.4 million over the same period in 2019.
However income from continuing operations improved by 12.5% an EBITDA increased by 8.3% for the most recent third quarter compared to the same period a year ago.
I mean year to date perspective, we recorded revenue of $752.8 million, an increase of seven and a half million dollars over the prior year.
Income from continuing operations improved by 8.6%.
And adjusted EBITDA improved by 7.6% over the same period in 2019.
Well there are plenty of <unk> services segment, our core accounting and tax services continue to perform well, which reflects the steady demand for these essential services.
As expected the extension of tax filing deadline from April 15th of July 15th shifted revenues in the first and second quarters to the third quarter EPS.
That work is now completed and we would expect that the remaining revenue related to tax the plenty of work to be relatively consistent with more normal years.
Our results within that segment also reflect continued strong performance from our litigation support practices.
In the second quarter, we know that M&A transactions were largely put on hold as most businesses shifted their focus to addressing issues brought on by the pandemic.
These delays impacted a number of our advisory services that focus on transaction support.
Recently, we have seen signs of improved activity in this area, which is good news for a number of our advisory services businesses.
Turning to our government healthcare consulting business.
While we continue to experience reasonable growth within this business the rate of growth has slowed as a result of coated related issues.
On our last call, we talked at length about the slowdown in delivery of information from our clients.
Constraints around being onsite to complete certain aspects of the work.
While we ended the third quarter in a better place than when we started and the demand for these services remained strong.
The timing of certain work will remain a question in an area that we will continue to monitor closely.
Some of that work may be delayed into 2021, and we will know more as we progress through the fourth quarter.
Within our benefits and insurance segment, we are seeing strong performance from our employee benefits business. Our four one k. advisory business and the personal and commercial lines portions of our property and casualty insurance business.
We have experienced some softness in our payroll business related to early decline in the number of people on payroll certain clients based on layoffs in gross.
After the initial drop in April the number of page improved in May and has remained fairly stable since that time.
Also our clients and prospects continue to express interest in our new markets payroll platform.
And our pipeline of new business for this product is very encouraging.
Before I turn it over to where to provide more specific details on our financials I wanted to take a few minutes to talk about two acquisitions that we completed in the quarter.
We've completed five acquisitions, so far this year.
We started the year with a strong pipeline of opportunities in recent history.
While we paused our M&A efforts at the onset of the pandemic our most recent.
The actions demonstrate our readiness to pursue strategic opportunities and our ability to close transactions in this business climate.
On our last call at the end of July I touched briefly on the acquisition of print with insurance and independent agency and leading provider of financial insurance and advisory services located in Woodbridge, Virginia.
Chris what is this a second property and casualty insurance related acquisition, so far this year.
As we continue to invest in areas of our business like property and casualty insurance.
That have been strong contributors to our historic growth.
In September we also completed the acquisition of our consulting and art placement group EPG.
Both companies located in San Francisco, California.
The acquisition of Arkon HPG adds to our advisory services capabilities within our financial services group.
Our consulting assist finance departments with the complex accounting.
Reporting and compliance needs that require a high level of technical knowledge, including gap in FCC requirements.
The RPM is often engaged to assist clients with complex capital structures with the potential for public offering what strategic exit.
VPG focus isn't an interim indirect placing the finance and accounting talent to meet the needs of our clients.
This acquisition was already underway when the pandemic hit.
Rather than moving forward at that uncertain time.
We've got to be on hold as we continue to monitor their performance.
We were pleased to see the resilience in their business. During this timeframe as we moved quickly to complete the transaction in the summer.
The expansion of advisory services within our financial services group is another critical step to establish the right mix of services to respond to our clients and prospects increasingly complex needs.
Our mix of core essential services, along with advisory and specialty services has enabled us to maintain our performance while positioning the business for long term growth.
In many ways our experience in 2020 has further validated she business does a strategy.
Strategic acquisitions will continue to be an important part of our records for short term recovery within the business as well as long term growth.
Where do you ended the second quarter, we reactivated our M&A sourcing team.
And are in discussions with a number of very attractive acquisition prospects.
We believe that there will be new opportunities in the near term, especially given companies and firms recent experience with covered 90.
Given the unique attributes of our business and our demonstrated resilience.
Believe we can offer potential targets a level of stability and opportunity that many others cannot.
We can better articulate now the value of being part of a large well capitalized and wrote resilient organization like see does that is able to emerge even stronger from the current economic environment.
At this point I will turn it over to Ware Grove, our CFO to provide more specific details on our financial performance for the third quarter and year to date were.
Thank you Gerry and good morning, everyone.
I want to take a few let US review highlights of the numbers we released this morning.
Okay about the actions we have taken as we navigate through called it related challenges.
As Jerry commented the majority of our core businesses are performing well.
Broad diversity of clients that we serve coupled with the recurring and essential nature of our core services.
Providing stability to our results.
Reported total growth has been impact, but impacted by a small number of businesses within our mix of services that are more severely impacted by cold weather related events losses either.
Peter because these services are project oriented.
They are more directly impacted by the higher unemployment trends or they are more highly dependent upon travel related or client facing activities.
For example, looking at those services most severely impacted we can identify unique areas of our business that comprise approximately 15% of our nine month revenue this year.
The spread between both what's a national services and the benefits and insurance practice groups collectively these businesses reported a decline of two.
12.9% in revenue for the nine months.
Illustrate the stability of the remaining 85% of the core services when you eliminate the impact of those businesses that have been more severely impacted.
Remaining course events revenue grew by an adjusted 4.1% lets.
The same unit revenue growing by an adjusted 1.9% for the nine months ended September 30 of this year.
Within financial services.
For the third quarter total revenue was up 1.1% the same unit revenue flat from a year ago.
For the nine months total revenue within financial services was up 1%. The same unit revenue also flat.
Revenue in core tax and accounting services has grown we have also recorded modest growth in the government healthcare consulting business, where growth has slowed a bit this year any disruptions in the availability and cost reports and other information or limited access to client sites that we need under.
Normal circumstances this.
This work still needs to be done and some portion of this work they put into 2021.
Within the advisory or project oriented businesses International services activity is rebounding as travel restrictions are lifting and the outlook is improving.
Turning to benefits and insurance total revenue for the third quarter declined by 4.0% the same unit revenue declined by 6.0%.
Nine months ended September Thirtyth total revenue grew by 0.9% and same unit revenue declined by 2.9%.
No similar fashion with financial services, a portion of the benefits and insurance business is impacted by cold weather related factors, including higher unemployment trends the.
Core recurring services, such as group health benefits property and casualty commercial coverage.
Or retirement investment advisory services have been very stable.
Client retention and these businesses has been solid this year and the new producer investments, we've been making are having a very positive impact.
There is a pool of variable cost within the business and we have carefully managed costs. This year with an eye toward making prudent decisions appropriate for the circumstances, but also avoiding across the board actions such as risks or other actions that may compromise our ability to grow.
So what's more normal conditions return.
Improved margins have resulted from lower costs, which include a natural reduction in travel related expense lower marketing and event sponsorship costs lower.
Lower variable compensation levels, lower benefits from health care costs, and other actions to defer discretionary items where possible.
Yes. These cost reductions we've also taken very targeted actions to right size costs in those operations that have been more impacted by economic conditions. This year.
As you think about the cost structure and the margins.
As an important reminder, it is important to eliminate the impact of accounting for gains and losses on the assets held in the deferred compensation plan.
As a reminder, this does not change the reported margin on pre tax income, but elements of operating income are impacted dilemma.
Eliminating the impact of gains or losses for the third quarter gross margin was 16.4% compared with 15.6% a year ago and general administrative expenses was 4.5% of revenue compared with 4.6% a year ago.
For the nine months gross margin was 18.9% compared with 18.0%.
General administrative expenses was 4.3% compared with 4.4% for the nine months a year ago.
In our second quarter conference call I commented on the favorable impact of lower benefits costs as with many others. We have experienced favorable adjustments to health care costs. This year, resulting from the general call that related deferral of healthcare that has occurred since March.
For the third quarter and for the nine months this favorable item accounts for about 40% of the increase in pre tax income compared with the prior year.
Under normal circumstances, there may be some minor adjustments to this estimated cost throughout the year and a favorable adjustment to costs through the first nine months. This year may not recur as the economy and individual behaviors returned to normal in the future.
Importantly, cash flow has remained positive this year.
At the end of September outstanding debt on our $400 million unsecured credit facility was $110 million.
And that leaves $284 million of unused capacity.
Hi, its cash remittances continue to be stable.
Sales outstanding improving to 87 days this year compared with 94 days at September Thirtyth a year ago.
Earlier this year, we recorded an additional $2 million of bad debt reserve at the end of March.
For the nine months bad debt expense.
Was 42 basis points of revenue compared with 26 basis points for the nine months a year ago.
The additional reserve a quarter that ended the first quarter anticipated a higher risk generally associated with those clients. In this business is focused on travel entertainment or restaurant associated industries.
With our diverse set of class these types of clients represent less than 5% of our class pace.
Acquisition related spending including Earnouts.
Paid on previously closed acquisitions totaled $48.8 million through September thirtyth.
For the balance of this year, we expect to pay an additional $3.7 million for two.
2021, we expect to pay approximately $12.4 million and for 2022, we expect to pay approximately $11.3 million for earn out payments on acquisitions previously closed.
And then for 2023, an additional $3.7 million as planned and for 2020 for approximately $3.1 million.
Acquisitions continue to be our highest priority as the best long term use of our capital.
However, we have also has the flexibility to repurchase shares.
After suspending share repurchase activity near the end of the first quarter since that time, we have experienced strong cash flows.
As a result during the third quarter, we elected to resume share repurchase activity.
We initiated a TNB repurchase program during September.
And we repurchased approximately 165000 shares through September Thirtyth.
In October we have repurchased an additional 166000 shares.
Combined with the 1.2 million shares that were repurchased in the first quarter of this year to date through October 27th we have repurchased approximately 1.5 million shares at a cost of approximately $37 million.
Considering this recent share repurchase activity, we are projecting a full year weighted average share count at approximately 55.5 million shares for 2020.
Capital spending in the third quarter was approximately $4.1 million and for the nine months capital spending was approximately $9.6 million.
Full year capital spending is expected at approximately $12 million this year.
The effective tax rate for the nine months was 25.7%.
And for the full year, we continue to expect an effective tax rate within a range of 24% to 25%.
As we navigate through this challenging environment.
We are pleased with the steady performance of our business. We are extremely pleased with third quarter improved margins with a 9.3% growth in earnings per share for the nine months ended September Thirtyth this year.
As a reminder, fourth quarter results are typically more dependent upon project work and that may lead to volatility in the fourth quarter results.
The ongoing risk and uncertainty in the months ahead, we continue to prudently manage costs.
There are portions of our business that's been more severely impacted we're constantly assessing the business. That's taken more targeted actions, we're ready with further contingency plans if necessary.
Most importantly, with a strong cash flow attributes of our business our liquidity is stable we.
We have the capacity and we're continuing to make investments in the business to enhance the long term growth prospects for see those and we are well positioned for growth once we get beyond the coal that related to impact the economy.
With these comments I will turn it back over to Gerry.
Thank you where I'd like to touch on a couple of different areas before we turn it over for Q and a.
Throughout the last nine months, there's been a great deal of discussion on how small businesses are likely to care in the months ahead, given the impact of the pandemic.
See bids we serve a wide range of clients of varying sizes and across many industries and geographies.
That diversity within the mix of clients that we serve helps insulate against visit conditions that have a disproportionate impact on certain client populations.
Moreover, while we do several large number of small businesses a significantly larger portion of our revenues come from client with annual revenues in excess of $20 million.
This is a besides historically proven to be far more resilient than smaller businesses and uncertain and challenging business climates, such as the one we are now facing.
Turning to the upcoming presidential and congressional elections.
We've also received a number of questions around what different outcomes might be perceived as our clients in the future of our business.
Throughout our 24 year history, we've been through a number of changes in our nation's administration.
And the sustained growth regardless of even the white house or the Congress.
Regardless of the outcome of next week's elections.
We expect to experience continued change in complexity in the laws and regulations that apply to our clients.
Which is good for our business as our clients turn to us to help them understand the impact of the changes on their business.
Finally, I want to provide a brief update on our efforts to make diversity and inclusion in the central part of our one see this culture.
Earlier this summer following the tragic death of drugs Floyd.
This move to develop a comprehensive and long term diversity didnt cogent strategy aimed at meaningful action and lasting change.
We wanted to begin with those things that we can influence and in some cases control when it comes to our team our culture and our company.
We also hope to drive change within professional services industry, and we intend to use seeded this position in voice to join with other like minded companies to be a catalyst for that change.
Too often we watch that these kinds of efforts become more about checking boxes and taking action.
We've taken some important first steps in this journey, which.
Which included signing onto the CEO action for diversity inclusion pledge in September.
CEO action for diversity inclusion pledge is the largest CEO driven business going into two advanced diversity and inclusion within the workplace.
Signatory to the pledge include leaders for more than a thousand of the world's most well recognized companies and organization.
Representing over 85 industries.
By signing the pledge the leaders of these companies have all committed to focus on a shared goal.
To advance diversity and inclusion within the workplace.
I am proud to affirm my personal commitment to diversity and inclusion by signing on to this effort.
I believe our active participation to the CEO accident diversity and inclusion pledge that connects with others and helped to accelerate our work in this area.
With that we will open it up to today.
Thank you.
Well now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question today will come from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys.
Good morning, Jim you guys just talk a good morning.
A little bit about pricing.
Pricing just trying to understand me is is pricing power much different between financial services and benefits.
Parents, and what has the kind of.
Current environment turns during fiscal year 2008 was pricing band versus you know kind of typical.
Yeah, Chris first of all the pricing is a little bit different between the two divisions as you know within the benefits and insurance Division.
We often times are paid a commission, which is really a product of were driven by the service that we provide so a percentage of the premiums that the client may pay is it typical compensation system and benefits and matured. So while not exclusive we obviously have fees related to our payroll services and some of our advisory services.
Much of the revenue there is more commission driven within our financial services group. We are often most of that revenue is in fact feed driven and we have not seen or heard of a lot of fee pressure in this environment.
Really I think what we've experienced is that our clients are turning to us for advice and as to how to navigate in this environment and net net advice is less.
Less fee driven and more.
Valued based on the expertise that we bring to bear so not to say that it will come at some point in the future as we bid for work going into 2021, but so far to date I have not heard of significant fee pressure.
Got it that's helpful.
On the government health care front demand is still strong timing uncertain again is that mostly travel challenges or something else that's embedded in there and I'm just.
Just trying to get a sense in terms of for the first nine months.
How significantly impacted that that that business segment was.
So as you know, we typically enjoy high single digit organic growth year over year on that business. We are still experiencing nice growth in that business and it continues to perform well and as you indicated the work.
Work is there the demand is high.
We have had some quoted related challenges really they fall into two buckets. One is the one that you identified which is if we were required to be on site to do certain work. That's obviously is then somewhat impacted by this environment, although even in those instances.
Like many other companies in this environment, we're getting more comfortable with delivery network virtually all of our clients are able to work with us virtually in so we're establishing a new work flow.
Relative to work that was traditionally done on site in many of those instances the other kind of.
Hurdle that we've we've begun to overcome here in that business is the fact that some of the state governments were given.
Some latitude into repreve on when they were required to submit the background information and data that we need in order to do our work and just it was as you would expect just a product of of of other priorities, but that work also above.
Of late seems to be slower.
Flowing more freely to us and we.
We've had a couple of good months in that business.
Time will tell if there's further delays based on.
On the on the impact of Covance in various states and with Baird claim.
Got it that's helpful.
And last from me just ask the tough question, but just trying to get a sense you know assuming.
No big covert shutdowns over the coming months.
In terms of your ex.
Expected visibility would you expect to be in a position in February two two from where you sit today to give a fiscal 20 on guidance.
You know, Chris I think it's.
Too early to call that at this point.
But certainly if there are no further kind of cobot shuts then shut downs if there is a vaccine.
On the horizon or may be in place by that time, we would hope that we could put.
<unk> guidance back in place.
As quickly as we can given a more certain to certain environment.
Got it I appreciate it I'll jump back in line. Thanks, guys.
Once again, if you have a question. Please press Star then one.
The next question is from Marc Riddick with Sidoti and company. Please go ahead.
Hi, good morning.
[noise] Mortimer Hello, Hi.
So I wanted to just sort of go over a a couple of things a lot of what youve covered on the you know on the prepared remarks, which was great I wanted to see if we could just.
Bring us up to speed, maybe on some of the decision making that that you may be expansion, whether it be anecdotal or what have you as to the.
Sort of the the waiting for or the current lack of or potential stimulus, maybe what you might be seeing as to.
What customers are the response for them and what the latest that may be and their decision, making that may have an impact on your business currently and what you. How you see that may be playing out.
So mark this is Jerry a hobby.
Actually there is lots of discussions around when that next wave of stimulus may may be available I think.
We're well being kind of a sentiment is that it will come at some point, whether it's you know shortly after the election or early into 2021, I know that our clients are tracking that I know that it would be helpful for many segments of the <unk>.
The economy in certainly for a lot of our clients, but what I will say is that.
You know it really shine the light on the on the value and the differentiated value that we can bring to our clients with a holistic approach when we help them through the first wave of the PPP load the main street lending.
Type programs that were available so we stand ready we have our finger on the pulse of what might come and as soon as it does come we will we will mobilize as we did in the first instance to help our clients there.
The second part of the question really is how important is that to our clients I will tell you that we have surveyed our clients.
You know informally as well as we've had some clients.
Panels that we talk to and not surprisingly our clients our clients are.
Our more optimistic than than some of the the you know the newspaper reports and others may indicate we tend to represent a very resilient segment of the.
The population as far as businesses are concerned.
Well, they've all kind of pad.
Had to readjust their businesses based on the current environment I think the sentiment is more optimistic as.
As they look forward so.
I think that's that's been reflected in our results and we would expect that to continue to be the case going forward.
That's encouraging and I was wondering if you could just share a little bit of of time talking about the longer term or market share opportunities and we certainly providing these services and being a trusted adviser challenge.
Challenging time.
Certainly a is a competitive differentiator and I wanted to get a sense of.
How you feel about the opportunity just to gain a greater share of wallet from existing customers, bringing on new customers as well as maybe if you could touch a little bit on if you have any thoughts on those who are maybe outsourcing some things that they had been doing themselves up to this point with the greater complexity and how that you know that.
Lead to new business and new accounts going forward. Thank you.
Yes, so I'm going to take the take.
Take the questions in order first of all after market share and and how we're faring. So the environment. It actually yesterday I believe there's an article in accounting today, we were lead article there as to are.
Our unique value proposition relative to certainly many of our competitors as to the breadth and depth of services that we're able to provide and how well that fee received into the market and so if you haven't seen it I'm happy to send you a link to that article, but but it did a very nice job of describing kind of how uniquely positioned we are.
In this environment to bring on more than just a minor line view and solution to our clients because.
As you can imagine the challenges that are being faced by many business or our multi disciplinary and there are.
Really no others in the country that are as well positioned as we are to bring a multidisciplinary holistic approach comprehensive approach to the solution. So.
As far as market share is concerned we're very.
Encouraged by the reception that we've received to our digital outreach to our webinars to our other thought leadership pieces going not only to our existing clients, but also to products I'm sorry prospects in the pipeline of new business opportunities that are flowing from them. So we're up we're very encouraged by that as to.
Outsourcing.
I will tell you we havent seen a dramatic difference at least I haven't heard of a dramatic difference in.
And how receptive the market is to that although logically you would say that in times like the ones that we're facing now our clients are most interested in focusing on their core competencies in there and and the things that they do best and looking to others to help them with things that that.
And it may not be a core competency, including outsourcing thing not building not not incurring net expenses to build their own infrastructure in cost, but turning to organizations like ours that already have those have made those investments and can help them through this thing. So I think all of that's at play right now and certainly a message that we're delivering to the market and again, our we're very encouraged by.
The reception that we're receiving in the pipeline of opportunities that we see.
Okay and then one last one from me I was I wanted to get a sense of an IDE and probably early but maybe it's maybe too early maybe it's not I'm not sure, but I wanted to get a sense of as you look at current tax code changes what we have so far is there a sense of what level of complexity that might look like.
Like year over year, I know, we've had certain years, where the complexity is far greater than others. I was wondering how that might look relative maybe the last few years as far as the year over year changes of textbook. Thank you.
So as we look forward right it really kind of depends on what happens in the upcoming elections here I.
I think under regardless of of of what that outcome is there is likely to be changes in our tax code just as a result of all the stimulus and other dollars other monies that have been put into the economy.
But if that would have to be repaid.
Some point right. So so I think backlog are likely to change when it was we said repeatedly over the years.
Complexity and change is good for our business because it does two things are clients of course turned to EPS to help them understand how that impacts them and their businesses and we help them navigate those that analysis.
But maybe equally important it really does I think shine a light on cedars and our unique value proposition to prospects and it gives us an opportunity to go out and have that discussion and demonstrate how we can bring a different levels of of solutions to the clients and the prospects.
Their current provider may not be able to provide so I think whenever there's changes whenever theres complexity is good for us we've proven that over the years and they kind of regardless of what happens to the upcoming elections were likely to see.
Change and complexity.
Makes sense I greatly appreciate the commentary thank you very much. Thanks.
Thanks, Brian.
Ladies and gentlemen, once again, if youd like to ask a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Jerry Grisko for any closing remarks.
Okay, well. Thank you everybody I appreciate you listening in today in conclusion I want to thank our enamels analysts and investors for joining us on the call and for your continued support.
I'd also like to recognize and thank our service team members, who may be listening in on the call today.
I attribute.
Our continued success and resilience on the commitment and dedication of our team. This has been a year like no other in our history, but I couldn't be more proud of our team continues to rise to the occasion to support each other.
Our clients in our communities. Thanks.
Thank you and have a great day.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.