Q3 2021 CBIZ Inc Earnings Call

October 28, 2021

[music].

Good day and welcome to the <unk> third quarter 2021 results conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.

One on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Lori know biggest please go ahead.

Good morning, everyone and thank you for joining us for the <unk> third quarter and nine months 2021 results conference call.

In connection with this call today's press release and the quarterly presentation have been posted to the Investor Relations page of our website <unk> Dot com.

As a reminder, this call is being webcast and a link to the live webcast as well as an archived replay and transcript can also 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.

Reconciliations of these measures can be found in the financial tables of today's press release and in the Investor presentation on our website.

Today's conference call May also include forward looking statements, including statements regarding our business financial condition results of operations cash flows strategies and prospects.

Forward looking statements represent only estimates on the date of this conference call and are not intended to get any assurance as to actual future results.

Because forward looking statements relate to matters that have not yet or could these statements are inherently subject to risks and uncertainties.

Many factors could cause future results to differ materially and see this assumes no obligation to update forward looking statements.

A more detailed description of such factors can be found in the filings with the Securities and Exchange Commission.

Joining us for today's call are Jerry <unk>, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer, I will now turn the call over to Jerry for his opening remarks Jerry.

Thank you Lori and good morning, everyone with the release of our third quarter results I'm extremely proud of our performance to date.

Our results in the third quarter and throughout this year continue to demonstrate the strength and resilience of our business.

We started this year with a good deal of optimism.

Especially given the performance of the business since the onset of the pandemic.

The steadily increasing demand for our services that were experienced through the second half of last year.

And the level of confidence about the business climate that we're hearing from many of our clients.

Keeping with our optimistic outlook our performance to date has exceeded our expectations.

While we often times experienced some seasonal slowness in the third quarter that has not been the case this year.

The strong demand for our core essential services that we experienced through the first half of this year.

Has continued through the third quarter and our results have been bolstered by very strong performance for many of our more project oriented advisory services.

There are often viewed by our clients as being more discretionary.

And perhaps most encouraging this strong performance reflected in our year to date results is coming from both of our major practice groups and across nearly all major service lines of our business.

Within our financial services group, we continue to experience strong performance from our core accounting tax and advisory businesses and.

And in addition, during the third quarter, we saw steady demand for our tax consulting services.

And robust demand across the board for our advisory services.

These results reflect the strength of our current business climate and the overall confidence and optimism of our clients.

As our clients take steps to capitalize on opportunities to accelerate growth in the future. These actions should translate into additional project based advisory work for us.

Within our government health care consulting business, we are experiencing a rate of growth in the mid single digits.

While this growth is consistent with our experience since the onset of the pandemic, we would expect to see accelerated growth in the months ahead as more states fully reopen and some delayed work resumes.

A complementary acquisition that provides actuarial services that we've made this past summer is creating additional opportunities for us to bring even greater value to our government clients and the administration of complex health care programs.

Now turning to our benefits and insurance group, we're also experienced the <unk>.

Experiencing the continuation of the strong performance that we saw for the first half of the year.

We continue to see steady demand for our core employee benefits property and casualty and retirement plan advisory businesses.

As we discussed on prior calls we've made substantial investments over the past several years to accelerate organic growth within our employee benefits business by adding to the number of producers.

We are very pleased with the results that we're seeing in this area and the impact of our efforts are evident in our results to date.

Within these results I also want to emphasize the importance of client retention.

We continue to see retention rates of over 90% without our employee benefits business and for many of our other businesses within our benefits and insurance group.

These levels of client retention speak to the value that our clients receive from our team and our commitment to bring them solutions that are unmatched in our industries.

Within our property and casualty business, we continue to see steady demand and production for both the commercial and program components of the business.

We've described in the past earnings call, how some industries like hospitality lodging and adventure sports were disproportionately impacted during the pandemic.

We're seeing the return of these businesses and while some are not yet back to pre pandemic levels. The trend is positive.

The strength of the market is also providing additional lift to our retirement investment services business and an increase in demand for more project based work such as our executive recruitment in our compensation consulting services.

Our payroll business is the one area, where we continue to continue.

Continue to experience some softness.

As we mentioned on previous calls this business serves a larger number of smaller employers.

That continued to be disproportionately impacted by current business conditions, including labor shortages.

Overall, we couldnt be more pleased with our year to date results and the performance of our business.

I will remind you that during our last earnings call, we raised our full year revenue guidance.

Today, we are pleased to be in a position to raise our revenue guidance and our adjusted earnings per share guidance for the remainder of 2021, and where we'll walk through what we expect in his comments with that I will turn it over to ware.

Thank you Jerry and good morning, everyone.

Our results for the third quarter and for the nine months ended September 30th continue to be very strong.

I wanted to take a few minutes to talk about the highlights.

With revenue up by 18, 6% in the third quarter and up by 14, 5% for the nine months demand for our core services continues to be stable and strong.

Same unit right.

Revenue for the third quarter grew by eight 3% compared with last year and for the nine months same unit revenue grew by seven 3% compared with last year.

We're seeing growth in both our financial services group as well as the benefits and insurance group.

In the third quarter total revenue in the financial services group grew by 24% and for the nine months revenue grew by 16 point O percent.

Same unit revenue in the financial services group was up by nine 2% in the third quarter and for the nine months same unit revenue was up by eight 7%.

We are seeing growth across all major service lines with particularly strong growth within our advisory business services.

Within our benefits and insurance group.

Total revenue grew by 16, 1% in the third quarter.

For the nine months total revenue grew by 12, 4%.

Same unit revenue within benefits and insurance grew by six 6% in the third quarter and for the nine months same unit revenue grew by 4.4%.

With the exception of our payroll services, where we were experiencing some slight softness we are seeing growth in all service lines. The investment in producers that has been underway for some time now is continuing to show positive results.

The acquisitions, we made last year and through the first nine months this year are performing well.

These newly acquired operations contributed 10.3% to total revenue growth in the third quarter and contributed seven 3% to total revenue growth for the nine months.

As we presented second quarter earnings earlier. This year, we made an adjustment to eliminate the impact of the $35 million nonrecurring U P. M. C settlement that was announced on June 30th.

As an adjustment to eliminate the impact of the $6 4 million dollar nonrecurring gain on sale from the divestiture that occurred in the second quarter.

As required GAAP numbers are reported in our financial statements in the earnings release includes a reconciliation schedule from GAAP numbers to the adjusted numbers.

On an adjusted basis for the nine months adjusted earnings per share was $1 84, compared with $1 41, a year earlier this was up 35%.

In the third quarter earnings per share was 41 cents compared with 36 cents a year ago.

In line with our comments during the second quarter call earlier. This year as we began to restore discretionary expenses such as marketing travel, whereas other health care benefit costs begin to normalize from abnormally low COVID-19 influence levels from a year ago, we cautioned that expense headwinds.

Would impact margin in the second half this year.

As a result margin on income before tax declined in the third quarter from 11, 4% a year ago to 10, 3% this year.

This is not a reflection on the health of the business. This is simply a reflection of the year over year pandemic influenced impact on these costs, which reflect abnormally low levels a year ago.

On an adjusted basis, eliminating the nonrecurring items I mentioned, we are very pleased that margin on income before tax for the nine months has improved by 120 basis points up to 15, 2% versus 14.1% a year ago.

To date. This year, we have closed five acquisition transactions that will contribute approximately $72 million of annualized revenue.

Through September 30th we've used $74 $8 million for acquisition purposes, including earn out payments on acquisitions closed in prior years.

Future earn out payments are estimated at approximately $6 $6 million for the balance of this year $26 $7 million in 2022.

$19 $3 million in 'twenty, two 'twenty three.

$22 $9 million in 'twenty, 'twenty, four and approximately $6 million in 2025.

Our continuing priority is to utilize capital to enhance growth through strategic acquisitions, and we continue to have a very active pipeline of potential acquisitions.

With our strong cash flow, we also have the flexibility to repurchase shares.

Through September 30th we utilized approximately $85 million to repurchase two 7 million shares and since that time through October 26th we have repurchased an additional 258000 shares.

As a result of these share repurchases, we expect full year share count within a range of 53 and a half to 54 million shares.

With strong revenue growth and expansion of margin cash flow has continued to be strong.

At September 30th debt outstanding on our unsecured $400 million credit line was $192 million with $201.6 million of unused capacity.

Leverage under the credit facility was 1.2 times adjusted EBITDA at September 30th.

As a reflection of cash flow adjusted EBITDA for the nine months. This year was $153 $5 million up 21% from $126 $9 million a year ago.

Focused primarily on facility and office improvements capital spending through September 30th was $6 $5 million with $3 2 million dollar spent in the third quarter.

Full year spending may come in between $8 million to $10 million.

Days sales outstanding on receivables was 88 days at September 30th and this continues to reflect improvements that were gained over the past 12 months to 18 months.

Bad debt expense through September 30 of this year was approximately 10 basis points of revenue compared with 41 basis points a year ago.

Our effective tax rate for nine months was approximately 24, 5%.

There are a number of unpredictable factors that can impact the tax rate either up or down, but we expect the effective rate for the full year within a range of 24 to 24, 5%.

As we look at the remainder of the year and update guidance on our full year outlook and as you begin to compare expectations to last year be aware of the year over year anomalies to the items that I mentioned earlier.

Headwinds with higher expense levels compared to last year on the same items, we experienced in the third quarter, such as health care and benefits travel and marketing are expected to persist for the remainder of the year.

In addition, consider that we closed several significant business acquisitions in the financial services space in mid year. This year.

These operations will have a very positive full year impact on both revenue growth and contribution to earnings and this will provide a significant tailwind for us in 2022.

Recognizing the typical seasonality of these businesses with higher first half revenue and profitability, we are projecting a slight operating loss and these newly acquired operations in the fourth quarter. This year.

One other non operating items to point out is the impact of the timing of vacation expense accruals.

In a normal year vacation expense accruals are relieved throughout the year.

Last year as we work with clients to maintain high levels of service throughout the pandemic conditions, a higher portion of vacation time was delayed into the fourth quarter.

As a result, there was a larger than normal fourth quarter favorable adjustment last year as vacation expense accrual was relieved.

This year vacation accruals have followed a more normal pattern. So there is no significant favorable adjustment projected in the fourth quarter.

Of course, there is no full year impact and this is purely a COVID-19 influenced accounting anomaly that will be unique to the comparison of the fourth quarter. This year compared to the fourth quarter a year ago.

With revenue up 14, 5% and adjusted earnings per share up 35% the health of our business is very strong.

As we consider the unique items described above that are projected to impact the balance of the year over year comparisons our expectations for the full year are as follows.

Total revenue growth in 2021 is expected within a range of 12% to 15% over 'twenty 'twenty.

Adjusted earnings per share growth.

As expected within a range of 20% to 24%.

Over the $1.42 earnings per share recorded in 'twenty 'twenty.

We expect a full year weighted average share count within a range of 53 and a half to 54 million shares.

And unpredictable factors can impact the tax rate either up or down, but we expect a full year effective tax rate within a range of 24 to 24, 5%.

Again, we are extremely pleased with the performance of the business this year.

Despite the several headwinds I described that impact the second half comparisons. This year. The business is very healthy and there are considerable growth opportunities as we look ahead.

So with these comments, let me conclude and I'll turn it back over to Gerry.

Thank you Ware I'd like to touch on our M&A activity before we turn it over for Q&A.

As I discussed last quarter, we started this year with the strongest M&A pipeline that we've seen in our recent history.

The annualized revenue contribution from the five transactions that we've already closed this year will provide nice momentum going into 2022.

In addition, we continue to have a very strong pipeline, including some larger deals and there is still opportunity for us to close one or more of these transactions before year end.

While we are always looking ahead I'd like to take a moment to talk about the most recent group to join our team.

In early September we completed the acquisition of Shea Labar, Dobberstein and accounting tax and advisory services firm based in San Francisco Bay area.

<unk> privately held businesses individuals and nonprofit organizations across the west coast and has offices in San Francisco Santa.

San Mateo in Walnut Creek, California.

This acquisition is part of our long term growth strategy on the West coast.

<unk> complements our existing geographic footprint and increases the visibility of our brand, while adding valuable capacity and scale in this growing market.

Moreover, we always seek to find partners that share our commitment to client service and demonstrate a strong cultural fit and alignment on core values.

<unk> checks all of these boxes and more and.

And we look forward to working together to bring even greater value to our teams and our clients and to accelerate growth.

With this I will turn it over for Q&A.

We will now begin the question and answer session.

I ask a question you May press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

Yes.

And the first question will come from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking a couple of questions.

Yep, So same store growth for the nine months seven 3% financial services up $8 seven.

P&I up four 4%. So do you expect the relative contribution to same store growth to become more balanced over the next few years or financial services is likely to be that you continue to be the key driver there.

So Chris this is Gerry how are you today.

I would say is they are both benefiting both sides of our business are benefiting from.

A very favorable business climate for small middle market businesses, generally and and that's really what we're experiencing today as to the rate of growth between those two organizations I wouldn't say that we would expect one to be stronger than the other we would expect for both of them to continue to be a reasonably strong.

Of course subject to the business environment that that they are facing the growth is coming in a couple of different areas part of the reason that the growth in financial services is.

A little stronger year to date and through the third quarter is really as a result of the.

Extraordinary amount of activity that we're seeing in our advisory practice and if that continues largely driven by transactions and favorable outlook of our clients. We will continue to see stronger growth, but it's hard to predict those things.

Got it I appreciate that so obviously lower COVID-19 expenses in 2020, you know kind of impacts the comparison, where did a good job talking about the catch up in the second half of 2021.

While I recognize you're not providing 'twenty two guidance I'm trying to understand you know the adjusted EPS range of $1 $70 76 this year.

What should we be considering for 2022 versus just.

The normal growth of the following year.

There's still a meaningful amount of catch up.

That's going to happen in 'twenty two on the expense side.

Yeah, Hi, Chris this.

This is kind of a and I think you nailed it it's a bit of a complicated.

Analysis, when you look at 2020 versus 2021 and then flipped to 2022.

We had lower first half expenses this year, but they're normalizing in the second half so yet again in 'twenty. Two you should see a year over year comparison to some of these expenses that should be slightly higher than the full year run rate. This year, Okay, having said all that the lessons learned.

For us as we've.

Transition more to a virtual <unk> service model.

The travel and entertainment component will probably settle in.

Historically, that's been about two 5% of revenue and we think it is kind of settle in closer to one 5% of revenue and Thats a sustainable I think long term beneficial trend. The other expenses marketing will probably stabilize at historic rates and of course health care and benefits will probably stabilize at a historic.

Rates as well.

That's very helpful.

And last one for me just in terms of kind of bigger picture.

How do you view the growth prospects of our recent acquisitions versus the core business. I mean for example, you got 72 million full year revenue acquired in 2021 given cross selling and other opportunities.

Is it reasonable to think that that revenue grows more quickly than than core revenue I guess the real question is trying to understand it if.

If the kind of relatively high level of acquisitions in 'twenty and two.

'twenty, one create a little bit of potential.

I don't know revenue leverage for lack of a better term.

Yes, Chris.

Jerry.

As you know, it's hard to predict right are longer term.

Projection for that is that we will continue to grow in the 8% to 10% range and that about half of that will come in the form of organic growth and about half will come acquired.

We were in those ranges historically.

But in any given year, it's difficult to predict how much of that comes from organic versus acquired as I've mentioned.

Throughout this year and really the end of last year, and we're really encouraged by the size of our pipeline and the size of the transactions that are in our pipeline and that could lead to.

Two acquired revenue being at the higher end of those ranges.

In any given period of time, but it's very very difficult to predict.

Got it all right I'll leave it there I appreciate it guys.

Okay.

Again, if you have a question. Please press Star then one our next question will come from Marc Riddick with Sidoti and company. Please go ahead.

Good morning, everyone.

Morning, Mark Hi, Mark.

So I'm wondering if you could talk a little bit about first of all I want to thank you for the all the commentary and everything.

Investor Day event, which was really really great last last muscle and thank you for that I wanted to ask a little bit about what were what you're looking at with the acquisition pipeline and maybe if there's a way to sort of compare what youre seeing today and the opportunities that youre seeing today versus maybe historical because you've always been quite active in.

And the acquisition marketplace was is there a way to sort of compare the.

Compare and contrast, maybe what that environment is like today versus maybe some historical precedents.

Yes, Mark this is Gerry what I would say is the pipeline today compared to prior to Covid is fuller and we would attribute that to a couple of things first of all certainly within the accounting and tax side that environment is changing somewhat.

That.

Over time the firms traditional accounting firms are recognizing that it's important for them to offer a breadth and depth of services and expertise that are that are going to require some investments back into the business, particularly on the advisory side, we've been making those investments for several years.

Others are now seeing the importance of doing that until their decision is.

Do they do they make those investments themselves or do they join a firm like ours.

Who is committed to making those investments and have already begun their process. So our story is resonating.

Very well with many of the firms on the accounting space. The other thing that's that.

That the pandemic kind of shine a light on is the uniqueness just a CBS and it's the strength of our balance sheet.

<unk> of our financials that allowed us I think to weather that storm.

In different ways in many ways better than many of the other firms.

Not the least of which is how we supported our team members and kept our staff throughout that period of time and so they understand that.

The value that that would bring to them going forward and lastly is just kind of the long standing steady performance of our business and our culture and the values that we have all of which resonate with those firms and so as a result of getting out telling that story more.

We've had a very receptive audience and that's led to a much fuller pipeline today than we than we've seen.

In many years prior to this on the other side of the business I don't think the landscape has changed much that the benefits and insurance side there remain opportunities certainly on the payroll side certainly on the retirement plan services side.

In.

And some opportunities as well within benefits and insurance and property and casualty although.

That's a very competitive landscape has been is will continue to be given all the private equity.

Activity in that space so.

So that's really that's really what's leading to the pipeline that we have today.

Okay. Thank you for the color there and then I was wondering if you could switch gears a little bit I wanted to go back to you.

Your prepared remarks, making are mentioned on the retention.

Being as high as it is about 90% of this what I believe is what was stated and I was wondering if could talk a little bit about what youre seeing there and sort of you know.

Post pandemic activity wise, if youre getting a sense of.

How thats, creating cross selling opportunities maybe are you getting a sense that some of those folks that are maybe worked with you in one area and now expanding how should we think about the the level of that level of retention and how clients are seeing you are coming out of the Pandora. Thank you yes.

Yes, thanks Mark.

Question really goes to two things it goes to the retention of the clients, we have and our ability to attract new clients and what we learned through the pandemic is that we have.

Thank you.

A unique value proposition to our clients and prospects that allow us to to do both so.

So I think our clients.

We're uniquely positioned to be able to help them understand.

Some of the challenges that they were facing and some of the opportunities in front of them as a result of the breadth of our services and the depth of our expertise, which is really unmatched I think in our industry and so we were able to bring them solutions thought processes.

Analysis that that brought great value to those clients likewise.

When many of.

Others, who are clients prospects of ours were are searching for solutions, we were able to reach those clients who are those prospects.

Through our thought leadership through our Webinars.

In many ways and it drove through digital channels that we had previously not really explored as much but we had great success really beginning in the early stages of the pandemic. We continue to have great success in our in our digital outreach to prospects into the market and that also was allowing us to.

Helping to fuel growth for us so not only is that a retention tool, but it's also a growth opportunity for us.

And that covers what it would've been my next question. So I'll leave it there. Thank you.

Okay.

Again, if you have another question. Please press Star then one.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Jerry Briscoe for any closing remarks. Please go ahead Sir.

Okay. Thank you.

This month marks an important milestone for <unk> as we celebrate our 20 <unk> anniversary over.

Over the last 25 years CBS has become one of the leading providers of financial insurance and advisory services.

To our clients and other businesses across the country. We're now a team of over 5000 professionals with a network of over 100 offices in 31 states.

For those of you who joined us during our Investor Virtual Investor Day presentation last month, we featured a brief video to highlight the history of how the company was founded and.

And how we've evolved over time.

If you haven't had an opportunity to view. This presentation you will find it in the Investor Relations section of our website <unk> Dot com and.

And I encourage you to take a moment to learn more about how we got here and our plans for the future.

I want to close today as we always do by thanking our analysts and our investors for your continued support.

And finally, our performance this year and the results that we continue to achieve are only possible because of our exceptional team.

When I reflect on the past 18 months from the start of the pandemic and the changes that we've all adapted to I am inspired by how our team members continue to rise to the challenge.

The growth that we've outlined today is a product of their tireless dedication and commitment to our clients and to each other.

I'm extremely proud of what we've accomplished together.

And I want to express our gratitude to our team.

And enjoy your day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to MS. Laura You know biggest please go ahead.

Good morning, everyone and thank you for joining us for the <unk> third quarter and nine months 2021 results conference call in connection with this call today's press release and the quarterly presentation have been posted to the Investor Relations page of our website <unk> Dot com.

As a reminder, this call is being webcast and a link to the live webcast as well as an archived replay and transcript can also 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.

Reconciliations of these measures can be found in the financial tables of today's press release and in the Investor presentation on our website.

Today's conference call May also include forward looking statements, including statements regarding our business financial condition results of operations cash flows strategies and prospects.

Forward looking statements represent only estimates on the date at this conference call and are not intended to get any assurance as to actual future results.

Because forward looking statements relate to matters that have not yet or could these statements are inherently subject to risks and uncertainties. Many factors could cause future results to differ materially and see this assumes no obligation to update forward looking statements.

A more detailed description of such factors can be found in the filings with the Securities and Exchange Commission Joy.

Joining us for today's call are Jerry <unk>, President and Chief Executive Officer, and Ware Grove, Chief Financial Officer, I will now turn the call over to Jerry for his opening remarks Jerry.

Thank you Lori and good morning, everyone.

With the release of our third quarter results I am extremely proud of our performance to date.

Our results in the third quarter and throughout this year continue to demonstrate the strength and resilience of our business.

We started this year with a good deal of optimism.

Especially given the performance of the business since the onset of the pandemic.

The steadily increasing demand for our services that were experienced through the second half of last year.

And the level of confidence about the business climate that we're hearing from many of our clients.

Keeping with our optimistic outlook our performance to date has exceeded our expectations.

While we often times experienced some seasonal slowness in the third quarter that has not been the case this year.

The strong demand for our core central services that we experienced through the first half of this year.

<unk> has continued through the third quarter and our results have been bolstered by very strong performance from many of our more project oriented advisory services.

That are often viewed by our clients as being more discretionary.

And perhaps most encouraging.

<unk> performance reflected in our year to date results is coming from both of our major practice groups and across nearly all major service lines of our business.

Within our financial services group, we continued to experience strong performance from our core accounting tax and advisory businesses.

And in addition, during the third quarter, we saw a steady demand for our tax consulting services.

Robust demand across the board for our advisory services.

These results reflect the strength of our current business climate and the overall confidence and optimism of our clients.

As our clients take steps to capitalize on opportunities to accelerate growth in the future. These actions should translate into additional project based advisory work for us.

Within our government health care consulting business, we are experiencing a rate of growth in the mid single digits.

Now turning to our benefits and insurance group. We are also experienced experiencing the continuation of the strong performance that we saw for the first half of the year.

We continue to see steady demand for our core employee benefits property and casualty and retirement plan advisory businesses.

As we discussed in prior calls we've made substantial investments over the past several years to accelerate organic growth within our employee benefits business by adding to the number of producers.

We are very pleased with the results that we're seeing in this area and the impact of our efforts are evidenced in our results to date.

Within these results I also want to emphasize the importance of client retention.

We continue to see retention rates of over 90% without our employee benefits business and for many of our other businesses within our benefits and insurance group.

These levels of client retention speak to the value that our clients receive from our team and our commitment to bring them solutions that are unmatched in our industries.

Within our property and casualty business, we continue to see steady demand and production for both the commercial and program components of the business.

We've described in the past earnings call, how some industries like hospitality lodging and adventure sports were disproportionately impacted during the pandemic.

We're seeing the return of these businesses and while some are not yet back to pre pandemic levels. The trend is positive.

Our payroll business is the one area, where we continue to continue.

We continue to experience some softness.

As we've mentioned on previous calls this business serves a larger number of smaller employers.

That continued to be disproportionately impacted by current business conditions, including labor shortages.

Overall, we couldnt be more pleased with our year to date results and the performance of our business.

I will remind you that during our last earnings call, we raised our full year revenue guidance.

Thank you Jerry and good morning, everyone.

Our results for the third quarter and for the nine months ended September 30th continue to be very strong.

I wanted to take a few minutes to talk about the highlights.

With revenue up by 18, 6% in the third quarter and up by 14, 5% for the nine months demand for our core services continues to be stable and strong.

Same unit revenue for the third quarter grew by eight 3% compared with last year and for the nine months same unit revenue grew by seven 3% compared with last year.

We're seeing growth in both our financial services group as well as the benefits and insurance group.

In the third quarter total revenue in the financial services group grew by 24% and for the nine months revenue grew by 16%.

Same unit revenue in the financial services group was up by nine 2% in the third quarter and for the nine months same unit revenue was up by eight 7%.

We are seeing growth across all major service lines with particularly strong growth within our advisory business services.

Within our benefits and insurance group total.

Total revenue grew by 16, 1% in the third quarter and for the nine months total revenue grew by 12, 4%.

Same unit revenue within benefits and insurance grew by six 6% in the third quarter and for the nine months same unit revenue grew by four 4% with.

With the exception of our payroll services, where we're experiencing some slight softness we are seeing growth in all service lines. The investment in producers that has been underway for some time now is continuing to show positive results.

The acquisitions, we made last year and through the first nine months this year are performing well.

These newly acquired operations contributed 10, 3% to total revenue growth in the third quarter and contributed seven 3% to total revenue growth for the nine months.

As we presented second quarter earnings earlier. This year, we made an adjustment to eliminate the impact of the $35 million nonrecurring <unk> settlement that was announced on June 30th.

As an adjustment to eliminate the impact of the $6 $4 million.

Nonrecurring gain on sale from a divestiture that occurred in the second quarter.

As required GAAP numbers are reported in our financial statements in the earnings release includes a reconciliation schedule from GAAP numbers to the adjusted numbers.

On an adjusted basis for the nine months adjusted earnings per share was $1 84, compared with $1 41, a year earlier this was up 35%.

In the third quarter earnings per share was <unk> 41, compared with 36.

A year ago.

In line with our comments during the second quarter call earlier this year as we begin to restore a discretionary expenses such as marketing travel, whereas other healthcare benefit costs began to normalize from abnormally low COVID-19 influence levels from a year ago, we cautioned that expense headwinds.

Would impact margin in the second half this year.

As a result margin on income before tax declined in the third quarter from 11, 4% a year ago to 10, 3% this year.

This is not a reflection on the health of the business. This is simply a reflection of the year over year pandemic influenced impact on these costs, which reflect abnormally low levels a year ago.

To date. This year, we have closed five acquisition transactions that will contribute approximately $72 million of annualized revenue.

Through September 30th we've used $74 $8 million for acquisition purposes, including earn out payments on acquisitions closed in prior years.

Future earn out payments are estimated at approximately $6 6 million for the balance of this year $26 $7 million in 2022.

$19 $3 million in 2023, $22 $9 million in 'twenty, 'twenty, four and approximately $6 million in 2025.

Our continuing priority is to utilize capital to enhance growth through strategic acquisitions, and we continue to have a very active pipeline of potential acquisitions with.

With our strong cash flow, we also have the flexibility to repurchase shares.

Through September 30th we utilized approximately $85 million.

To repurchase two 7 million shares and since that time through October 26th we have repurchased an additional 258000 shares.

As a result of these share repurchases, we expect full year share count within a range of 53 and a half to 54 million shares.

With strong revenue growth and expansion of margin cash flow has continued to be strong at.

At September 30th debt outstanding on our unsecured $400 million credit line was $192 million.

With $201 $6 million of unused capacity.

Leverage under the credit facility was one two times adjusted EBITDA at September 30th.

As a reflection of cash flow adjusted EBITDA for the nine months. This year was $153 5 million up 21% from $126 9 million a year ago.

Focused primarily on facility and office improvements capital spending through September 30 was $6 5 million with $3 $2 million spent in the third quarter full.

<unk> full year spending may come in between $8 million to $10 million.

Days sales outstanding on receivables was 88 days at September 30, and this continues to reflect improvements that were gained over the past 12 months to 18 months.

Bad debt expense through September 30. This year was approximately 10 basis points of revenue compared with 41 basis points a year ago.

Our effective tax rate for nine months was approximately 24, 5%.

There are a number of unpredictable factors that can impact the tax rate either up or down, but we expect the effective rate for the full year within a range of 24 to 24, 5%.

Headwinds with higher expense levels compared to last year on the same items, we experienced in the third quarter, such as healthcare and benefits travel and marketing are expected to persist for the remainder of the year.

In addition, consider that we closed several significant business acquisitions in the financial services space in mid year. This year.

These operations will have a very positive full year impact on both revenue growth and contribution to earnings and this will provide a significant tailwind for us in 2022.

One other non operating items to point out is the impact of the timing of vacation expense accruals.

In a normal year vacation expense accruals are relieved throughout the year.

Last year as we work with clients to maintain high levels of service throughout the pandemic conditions.

Higher portion of vacation time was delayed into the fourth quarter.

As a result, there was a larger than normal fourth quarter favorable adjustment last year as vacation expense accrual was relieved.

This year vacation accruals have followed a more normal pattern. So there is no significant favorable adjustment projected in the fourth quarter.

With revenue up 14, 5% and adjusted earnings per share up 35% the health of our business is very strong as.

As we consider the unique items described above that are projected to impact the balance of the year over year comparisons our expectations for the full year are as follows.

Total revenue growth in 2021 is expected within a range of 12% to 15% over 2020 <unk>.

Adjusted earnings per share growth.

As expected within a range of 20% to 24%.

Over the $1.42 earnings per share recorded in 2020.

We expect a full year weighted average share count within a range of $53 five to 54 million shares.

And unpredictable factors can impact the tax rate either up or down, but we expect a full year effective tax rate within a range of 24 to 24, 5%.

Again, we are extremely pleased with the performance of the business. This year. Despite several headwinds I described that impact the second half comparisons. This year. The business is very healthy and there are considerable growth opportunities as we look ahead.

So with these comments, let me conclude and I'll turn it back over to Gerry.

Thank you Ware I'd like to touch on our M&A activity before we turn it over for Q&A.

As I discussed last quarter, we started this year with the strongest M&A pipeline that we've seen in our recent history.

The annualized revenue contribution from the five transactions that we've already closed this year will provide nice momentum going into 2022.

In addition, we continue to have a very strong pipeline, including some larger deals and there is still opportunity for us to close one or more of these transactions before year end.

While we are always looking ahead I'd like to take a moment to talk about the most recent group to join our team.

In early September we completed the acquisition of <unk> and accounting tax and advisory services firm based in San Francisco Bay area.

<unk> privately held businesses individuals and nonprofit organizations across the west coast and has offices in San Francisco.

San Mateo in Walnut Creek, California.

This acquisition is part of our long term growth strategy on the West coast.

<unk> complements our existing geographic footprint and increases the visibility of our brand, while adding valuable capacity and scale in this growing market.

Moreover, we always seek to find partners that share our commitment to client service and demonstrate a strong cultural fit and alignment on core values.

<unk> checks all of these boxes and more and.

And we look forward to working together to bring even greater value to our teams and our clients and to accelerate growth.

With this I will turn it over for Q&A.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.

And the first question will come from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking a couple of questions.

Yep, So same store growth for the nine months seven 3% financial services up eight seven.

P&I up four 4% so.

Do you expect the relative.

Contribution to same store growth.

To become more balanced so next few years or financial services is likely to be that you continue to be the key driver there.

So Chris this is Gerry how are you today.

I would say is there are both benefiting both sides of our business are benefiting from.

Of course subject to the business environment that theyre facing the growth is coming in a couple of different areas part of the reason that the growth in financial services is.

A little stronger year to date and through the third quarter is really as a result of the.

Got it I appreciate that.

So obviously lower COVID-19 expenses in 2020 kind of impacts the comparison, where did a good job talking about the catch up in the second half of 2021.

I recognize you're not providing 22 guidance.

So trying to understand the adjusted EPS range of $1 $70 76 this year.

<unk>.

What should we be considering for 2022 versus just.

The normal growth of the following year is there still a meaningful amount of catch up.

That's going to happen in 'twenty two on the expense side.

Yeah, Hi, Chris this.

This is kind of a and I think you nailed it it's a bit of a complicated.

Analysis, when you look at 2020 versus 2021 and then flipped to 2022.

Higher than the full year run rate this year, Okay, having said all that the lessons learned for us as we've.

Transition more to a virtual <unk> service model.

The travel and entertainment component will probably settle in.

Rick rates as well.

That's very helpful.

And last one for me just in terms of kind of bigger picture.

How do you view the growth prospects of our recent acquisitions versus the core business. I mean for example, you've got $72 million full year revenue acquired in 2021, given cross selling and other opportunities.

Is it reasonable to think that that revenue grows more quickly than core revenue I guess the real question is.

I understand it if.

If the kind of relatively high level of acquisitions in 'twenty and <unk>.

'twenty, one create a little bit of potential.

I don't know revenue leverage for lack of a better term.

Yes, Chris.

Jerry.

As you know, it's hard to predict right are longer term.

Projection for that is that we will continue to grow in the 8% to 10% range and then about half of that will come in the form of organic growth and about half will come acquired.

We were in those ranges historically.

But in any given year, it's difficult to predict how much of that comes from organic versus acquired as I've mentioned.

Throughout this year and really the end of last year, and we're really encouraged by the size of our pipeline and the size of the transactions that are in our pipeline and that could lead to.

Two acquired revenue being at the higher end of those ranges.

In any given period of time, but it's very very difficult to predict.

Got it all right I'll leave it there I appreciate it guys.

Okay.

Again, if you have a question. Please press Star then one our next question will come from Marc Riddick with Sidoti and company. Please go ahead.

Good morning, everyone.

Morning, Mark Hi, Mark.

So I'm wondering if you could talk a little bit about first of all I want to thank you for the all the commentary and everything they can from the Investor Day event, which was really really great last last muscle. Thank you for that I wanted to ask a little bit about what you're looking at with the acquisition pipeline and maybe if there's a way to sort of compare what youre seeing today in the <unk>.

Jamie.

That youre seeing today versus maybe historical because you've always been quite active in the acquisition marketplace was is there a way to sort of compare the.

Compare and contrast, maybe the what that environment is like today versus maybe some historical precedence.

Yes, Mark this is Gerry what I would say is the pipeline today compare to prior to Covid is fuller and we would attribute that to a couple of things first of all certainly within the accounting and tax side that environment is changing somewhat.

In that.

<unk>.

Others are now seeing the importance of doing that so their decision is.

Do they do they make those investments themselves or do they join a firm like ours.

Who is committed to making those investments and have already begun their process. So our story is resonating.

Very well with many of the firms on the accounting space. The other thing that's.

Net.

That the pandemic kind of shine a light on is uniqueness just a CBS and it's the strength of our balance sheet.

The strength of our financials that allowed us I think to weather that storm.

In different ways in many ways better than many of the other firms.

Not the least of which is how we supported our team members and kept our staff throughout that period of time and so they understand that.

We've had a very receptive audience and that's led to a much fuller pipeline today than we than we've seen.

And some opportunities as well within benefits and insurance and property and casualty although.

That's a very competitive landscape has been is we will continue to be given all the private equity.

Activity in that space so.

So that's really that's really what's leading to the pipeline that we have today.

Okay. Thank you for the color there and then I was wondering if you could switch gears a little bit I wanted to go back to.

Your prepared remarks, making are mentioned on the retention.

Being as high as it is about 90% of this I believe is what was stated I was wanted to talk a little bit about.

What youre seeing there and sort of.

Post pandemic activity wise.

If youre getting a sense of.

Coming out of the pandemic.

Yes, Thanks, Mark the question it really goes to two things it goes to the retention of the clients, we have and our ability to attract new clients and what we learned through the pandemic is that we have I think.

Unique value proposition to our clients and prospects that allow us to to do both.

So I think our clients, we were uniquely positioned to be able to help them understand.

Analysis that that brought great value to those clients likewise.

When many of.

Others, who aren't clients prospects of ours were are searching for solutions, we were able to reach those clients who are those prospects.

Through our thought leadership through our Webinars.

And in many ways through through digital channels that we had previously not really explored as much but we had great success really beginning in the early stages of the pandemic. We continue to have great success in our in our digital outreach to prospects into the market and that also was allowing us to.

Helping to fuel growth for us so not only is that a retention tool, but it's also a growth opportunity for us.

And that covers what it would've been my next question. So I'll leave it there. Thank you.

Okay.

Again, if you have another question. Please press Star then one.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Jerry <unk> for any closing remarks. Please go ahead Sir.

Okay. Thank you.

This month marks an important milestone for <unk> as we celebrate our 20 <unk> anniversary over.

Over the last 25 years CBS has become one of the leading providers of financial insurance and advisory services.

Our clients in other businesses across the country. We're now a team of over 5000 professionals with a network of over 100 offices in 31 states.

For those of you who joined us during our Investor Virtual Investor Day presentation last month, we featured a brief video to highlight the history of how the company was founded and how we've evolved over time.

If you haven't had an opportunity to view. This presentation you will find it in the Investor Relations section of our website <unk> Dot com and.

I encourage you to take a moment to learn more about how we got here and our plans for the future.

I want to close today as we always do by thanking our analysts and our investors for your continued support.

And finally, our performance this year and the results that we continue to achieve are only possible because of our exceptional team.

When I reflect on the past 18 months from the start of the pandemic and the changes that we've all adapted to I am inspired by how our team members continue to rise to the challenge.

The growth that we've outlined today is a product of their tireless dedication and commitment to our clients and to each other.

I'm extremely proud of what we've accomplished together.

And I want to express our gratitude to our team.

Thank you and enjoy your day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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