CBIZ Inc (CBZ) 2003 Q2 法說會逐字稿

Good morning Ladies and Gentleman and welcome to the second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session. I would now like to turn the call over to Mr. Steven Gerard. Mr. Gerard, you may begin, sir.

Thank you. Good morning, everyone. Thank you for calling in. Before I begin with my comments, I'd like to remind you of a few things. As with all of our conference calls, this call is intended to answer the questions of our shareholders and our analysts. If there are media representatives on the call, you're welcome to listen in. However, I ask that if you do have questions, you'll hold them until after the call and we'll be happy to address them at that time. This call is also being webcast, so you can access the call over our website, www.CBIZ.com. Our second quarter news release was issued this morning. You may have received two copies. The second of one is the corrected copy, as there were two words that were inadvertently deleted from the first. Please be sure you have the corrected copy. If you don't, please call our full corporate offices. Finally, remember that during the course of the call, we may make forward-looking statements. These statements represent management's intentions, hopes, beliefs, expectations and predictions of the future. Actual results can sometimes differ materially from those projected in forward-looking statements. Additional information concerning the factors that would cause actual results to differ materially from those in the forward-looking statements are contained in our SEC filings Form 10-K and press release. Joining me on the call this morning are Jerry Grisko, our President and COO, and Ware Grove, our CFO. We issued our earnings release this morning, as you all know. This has been a very active quarter for CBIZ with our revenues relatively flat, our earnings were up, and are on plan. We did complete the Dutch tender, and a couple of very important acquisitions, and we continue to focus on building our internal infrastructure. With that as a preface, I will turn it over to Ware to walk you through the numbers, and then we can get back to some of the other details about the business.

Thanks, Steve, and good morning, everyone. I'd like to take several minutes to run through some of the highlights of the numbers that we released this morning. As Steve mentioned, we accomplished a lot during the second quarter. In line with our goal to accomplish a series of targeted acquisitions in select market areas, Steve has announced several additional acquisitions. Also in June, we announced the divestiture of Health Administration Services, Inc., and as most of you already know on June 10th, we announced a modified Dutch tender offer, which we successfully concluded in July after the end of the quarter. For the second quarter, CBIZ reported total revenue of $126.1 million, which is an increase of $900,000, or slightly less than 1%, over the 125.2 million reported for the second quarter a year ago. Same year revenue was essentially flat compared with the second quarter a year ago. The revenue increase of $900,000 was primarily attributable to the impact of acquisitions net of divestitures. The acquisitions we made since second quarter a year ago are performing in line or better than our expectations and have contributed over $2 million to revenue growth is quarter. However, the divestitures made since last year have reduced revenue by approximately $1 million for net increase of $900,000 in revenue. Also for the second quarter, our operating income was $4.5 million, and has increased from $2.9 million a year ago. The operating leverage reflected in these results is due to the increased direct contribution margin from our business units compared to second quarter a year ago, combined with lower expense levels for corporate journal expense and depreciation and amortization expenses. I want to mention, however, that other income items include a $1.8 million pre-tax gain on sale, primarily from the sale of health administration services, which we announced in June. This operation contributed about $12 million to our annual revenue, but it was a fairly narrow and niche business that was not conducive to our cross-serving efforts, so it has been a candidate for sale. The profit contribution of this business has been modest. I also want to mention that there is an impairment charge of approximately $400,000, which is included in other expenses in connection with the note receivable, which we are currently restructuring. Interest expense for the second quarter was $297,000, which was less than half the amount for the second quarter a year ago. This reflects the continued reduction in debt which we have accomplished. Average debt outstanding for the quarter was $10.7 million, compared with an average debt of $47.1 million for the second quarter a year ago. It is important to know that during June CBIZ was able to pay its debt down completely, and we finished the quarter with a surplus of $2.6 million in short-term cash investments. For the second quarter, CBIZ reported net income from continued operations of $3.3 million, which is an increase over the $2.0 million we reported for second quarter a year ago. The earnings per diluted share were 3 cents per share this year compared to 2 cents per diluted share for the second quarter a year ago. Now, if you want to look at earnings adjusted for the impairment charge and excluding the gain on sale, which I just mentioned, the net income after tax adjusted for these items is approximately $2.5 million, which also calculates the 3 cents per diluted share. Looking at the six-month results through June 30th, CBIZ revenue was $272.4 million, an increase of $5 million or 1.9% over the $267.4 million reported for the six-month period a year ago. Same year revenues have increased by 1.0% for the first six months, and acquisitions have added an additional $4.5 million to revenue with the impact of divestitures reducing revenue by approximately $2.0 million. Operating income has increased to $23.2 million compared to $19.9 million a year ago. As I mentioned, in connection with the second quarter results, this increase in six-month operating results is attributable to an increased direct contribution from operations and combined with the lower expense levels for both corporate and depreciation expenses. As we announced in the first quarter conference call earlier this year, I want to remind you that the six-month numbers for corporate expense include approximately $700,000 of severance-related expense primarily was in corporate staff restructuring activities in the first quarter. Also, as you evaluate the six-month results, I want to remind you that we announced a $1.6 million impairment charge in the first quarter in connection with the note receivable, so the six-month results reflect a total of $2.0 million, no impairment charges, compared to a year ago. With these items, net income from continuing operations for the six months was $13.6 million, or 14 cents per diluted share, compared to $12.0 million, or 12 cents per diluted share for the first six months a year ago. As I mentioned earlier, CBIZ utilized our positive cash flow and completely eliminated bank debt during the second quarter. At the end of the quarter, CBIZ held a surplus of $2.6 million invested in short-term cash investments. The Dutch tender offer, which was announced on June 10th, was successfully concluded on July 9th, with a tender of almost 10 million shares at a price of $3.30 per share. These shares were purchased in mid-July and we borrowed $33 million from our bank line for this purchase. In summary, while the revenue growth has been slower than we expected for 2003 due to the weak economy, we are pleased with the results for the first six months. We have been able to leverage a modest revenue increase into a much higher rate of earnings growth. The balance sheet continues to be very strong. With the purchase of nearly 10 million shares for Dutch tender, this will have an accretive impact. The reduced share count will begin to reflect in the third quarter, but will be more fully apparent with the full-year results that we report at the end of the year. So those comments, let me conclude, and I will turn it back over to Steve.

Thank you, Ware. Just to repeat what Ware said in his summary, our revenue growth is somewhat slower than we expected. We're seeing the generally sluggish economy affect us on our special projects work and our accounting groups. Our I.T. consulting businesses are soft. Our general advisory businesses and MNA (ph) businesses are soft. Our benefits and insurance businesses continue to perform very well and are strong, so we are seeing modest improvement on the revenue line, but the hard work of all of our employees paying attention to the expenses and working on their margins has resulted in improved bottom line, and as we sit here today, we are still comfortable with the guidance that we gave earlier this year for our full-year earnings per share. With that, I'll stop and take any questions we may have from our stockholders.

Thank you. We will now begin the question and answer session. Our first question comes from Jim McDonald from First Analysis. Go ahead with your question.

Good morning, guys.

Good morning Jim, Hi, Jim.

Hi, talk a little bit more about when or what you expect for organic growth going forward, maybe if you can as much by business segment or overall.

Well, we had originally given guidance in the beginning of the year for the targeted 5 % revenue growth being primarily organic and cross-serving. It looks like we're not going to hit that revenue line quite as much as we thought we would. When the queue comes out, I think which you will find is that the generally the accounting group year-to-year is down, but not by much. Benefits and insurance are up. National practices are down. Again, we are not seeing on the consulted side of many of our businesses the special projects that we typically see.

Well, you know for the rest of the year, do you think you will be positive or kind of still flattish?

No, we think we'll be positive the rest of the year.

Thanks and specifically, you said national practices was down. How about MMP? How is that doing?

Yeah, MMP revenue, Jim, is up in the 10 to 12 % range on a year-to-year basis.

That's for the quarter?

The quarter and on a full six-month basis.

And just while we're talking about MMP, any thoughts of it being kind of a special asset in your portfolio?

Well, we think it's a very special asset in our portfolio. What's the question? We have no plans other than to continue to build MMP. It's a fine organization. It's doing very, very well, and we're very confident that it will continue to grow.

Okay. Just two quick ones, and I will let someone else ask. What was the revenue comparison for health administrative services last year versus this year, or was that reclassified out?

Well, let me find it, Jim. Yeah, it was classified out on a same year revenue basis.

But it's not in this year's or last year's numbers?

On the same year that it is in both numbers and in aggregate Jim.

It wasn't pulled out of the discontinued offers.

No, it was not.

Can you tell me the numbers that we can ---

Well, because it was sold in May on a six-month basis within the other divestitures, it accounts for reduction of about $700,000.

For that quarter?

On a year-to-date basis.

Can you tell me the amounts for the quarter must be a little more because this is similar.

I'm sorry, Jim. What was the question?

What's the amount quarter over quarter, versus last year?

For HAS?

Yeah.

Second quarter, they brought in about $2.3 million this year. Last year, we recognized for the second quarter about $3.2 million from HAS

And just one final one here. Since you didn't get all the shares you were looking for in ---- could you talk about your re-purchase plans?

Well, sure, we announced with the Dutch auction that we have authorization to purchase up to 15 million shares depending on where the price is and whether we wish to do that. We've taken in obviously 10 million on the plan so we've got another 5 million authorized for the balance of the year. At this point, we're going to continue to do what we said before, which was our top priority was to fund our acquisitions and our infrastructure build, and our second priority was to re-purchase the shares depending on how the stock price goes and depending on our other cash needs there could be additional purchases. There have been none since the close of the Dutch tender.

Our next question comes from Bill Michael from Stone & Young Brook (ph). Go ahead with your question please. Bill Michael: Good morning, gentlemen. Steve Gerard: Good morning, Bill.

Hi, I'm new to following your stock, and I was wondering if you could give us those who are new some history of the guidance that you have projected for this year, and also, any plans for changes in the balance sheet after this Dutch tender going forward? Steve Gerard: I believe that the guidance we've given for the year in earnings per share on the 16 to 18 cent range, the EBITDA (ph) guidance was 45 to 50. The free cash flow is in excess of 30. All of those numbers dramatically up from the prior year. Our plans with respect to the balance sheet is that this company continues to be a very strong cash-generating company, and if there are no other acquisitions, I would expect that the existing debt gets paid down over time, including a reduction by the end of this year, but the debt level with some part will be a function of what additional capital we use for acquisitions.

Thank you.

Mr. Park, your line is now open.

Hi, I am Park West (ph). A couple of quick questions. What makes you feel the second half is going to be positive versus flat? Is there specific information we're looking at to get that? I have a couple of follow-ups.

We have a couple businesses that are strong in the back end in the second half of the year, in particular, our work site marketing business, which has been down in the beginning of the year. We also have very, very good MIS notes to pending transactions, and our sense is that the second half will be up. Our second half will also be up by virtue of the benefit of the acquisitions that we've made so far.

Okay and then can you give us an update on progress with the branding and cross-marketing that you're doing? Thanks very much.

Our branding program continues. We are in print and voice --- print and radio in 12 or 14 markets now. We have a full array of marketing material, which is now available to all of our business units. Cross-serving year-to-date is up over last year. Although, to be fair about it, last year was the initiation of our track system so a lot of the data wasn't in by the second quarter of last year, but our cross-serving target of $7.5 million, which we did make public were on track for that, and the branding program which is, as you know, takes a long time to really take hold is continuing according to plan.

Thanks. Good luck.

Thank you.

Thank you. If there are any more questions or comments, press star one on your touchtone phone. We do have a follow-up from Jim McDonald. Please go ahead.

Hey, just want to go through some of the housekeeping details. Can you talk about operating cash flow in the quarter and/or Cap-ex for the quarter?

I can kind of give you a sense, Jim, to the extent that we started the year with bank debt at $17.5 million, we wound up the end of the first quarter at $17 million in bank debt, and we wound up the second quarter with a surplus of $2.6 million in short-term cash investments. So you can kind of back into that. The purchase on the acquisitions price that we paid out in cash has equaled approximately the disposition proceeds on the sale, so there's no net pickup nor net use from that area. The DSOs continue to be good in the low 80-day range, but there's no real pickup in the second quarter for working capital efficiencies. We just maintained the improvements, so essentially, you could back into the free cash flow with those debt numbers.

Could you just give me the Cap-ex and the receivables balance for the quarter?

Yeah. For the full six months, Jim, Cap-ex is a little bit more than $5 million, about $5.5 million, and I don't have it for the quarter at this point. The receivables balance, net of reserves, I think we will report $119 million plus, about $119.4 million.

On the debt side, is your current bank debt 33, and would you equally be kind of paying that down as cash flow continues?

Yeah, we would expect that. We do have some intramonth swings so we would expect to wind up at the end of July at approximately $30 million. So where we borrowed 33 and we may have peaked around 35 because of some intramonthly uses of cash, I think we'll wind up the month of July at about $30 million, and we would expect aside from depending on the level of acquisitions going forward, we would expect to amortize that down by another at least $5 to 10 million for balance of the year.

For modeling purposes, what's a good number for kind of background debt fees, even if you had kind of no balance outstanding?

Well, the borrowing costs are extremely low right now. Effectively, 3.5% pre-tax cost of money is probably a good way to approach that.

Is there a couple hundred thousand a quarter of amortization of fees?

Yes, approximately.

Thanks very much.

Okay.

Our next question comes from Lawrence Jenn (ph) from (inaudible). Please go head

Hi, guys. I think Jim had answered my questions. I was wondering sort of a weighted average anticipate on the 30 billion, and you said 3.5?

Yeah, that's right. In fact, it's probably lower than that right now.

Okay. So moving forward, less than three perhaps?

No, I don't see that happening. In fact, I would see it, between 3 and 3.5%.

Sounds good. Thank you.

Mr. Gerard, I'm not showing any further questions at this time.

Well, thank you, everyone, for calling in. Thank you for your continued interest in our company. Albeit a somewhat sluggish economy, we are making good progress toward our goal of hitting our bottom-line number, and I look forward to see talking to all of you for the third quarter. Thank you and good-bye.

Thank you, and ladies and gentlemen, this does conclude our second quarter earnings conference call. You may all disconnect and thank you for participating.