CBIZ Inc (CBZ) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter earnings report conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded. Now I'd like to turn the call over to Mr. Steven Gerard. Mr. Gerard, you may begin.

Thank you, and good morning, everyone, and thank you for calling in. Before I begin with my comments, I'd like to remind you of a few things. As with all our conference calls this call is intended to answer the questions of our shareholders and 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 hold them until after the call and we'll be happy to address them at that time. This call is also being webcast, and you can access the call over our Website, www.CBIZ.com.

You should have all received a copy of the press release which was issued this morning. If you did not, please call our corporate office at 216-447-9000. And we'd be pleased to send you a copy.

Finally, please remember that during the course of the call we may make forward-looking statements. These statements represent management 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 factors that would cause actual results to differ materially from those in forward-looking statements are contained in our SEC filings, form 10K, and press releases.

Joining me on the call this morning are Jerry Grisko, our President and Chief Operating Officer, and Ware Grove, our Chief Financial Officer.

Before the open this morning CBIZ was pleased to announce our fourth quarter 2003 and full year 2003 operating results. We reported a net income after tax of $15.3 million, or 17 cents a share. We also reported an increase in the same business unit revenue and continued strong cash flow. Last year at this time we forecasted for 2003 earnings per share in the 16 to 18-cent range and we reported this morning 17 cents. We reported -- we forecasted EBIDTA of $45 million, and we came in at $45 million. We forecasted that we would be out of debt by the third quarter and were actually out of debt before the buyback on June 6th. We also forecasted that we expected our revenue to be up in the 5% range, and while the same business revenue was up only 2.7 range -- only 2.7%, we are very pleased with the operating results for last year. With that introduction, I'd like to turn it over to Ware to give you more of the details.

Thanks, Steve. And good morning, everyone. As Steve mentioned, we're happy with the results reported for the fourth quarter and for the full year of 2003. CBIZ made very nice progress in many areas during 2003, and I want to take several minutes to review the highlights of the numbers we released earlier today.

For the full year 2003 CBIZ reported revenue of $512.8 million, which is an increase of $13.6 million, or 2.7% over full year revenue for 2002. You will note from the segment information included in the earnings release that CBIZ recorded revenue increases in both the medical management practice business and in the benefits insurance business. Revenue in the accounting, tax, and advisory business segment, which is primarily focused on tax and consulting services, was down slightly due to the net impact of several divestitures. On a same unit basis revenue for this group was essentially flat. In the national practice area, where I.T. consultant and merger and acquisition businesses continue to be soft, revenue declined.

Same unit revenue for the fourth quarter in 2003 was up 5.0%, an increase of $5.9 million over the fourth quarter a year ago. This is noteworthy when you consider the large M & A transaction we recognized a year ago which resulted in $3.1 million of fees in the fourth quarter of 2002. For the full year same unit revenue increased by 2.7%, or by $15.1 million.

For 2003 acquisitions resulted in an increase of $9.4 million of revenue. And the impact of the various divestitures completed since a year ago resulted in a revenue decline of $9.0 million. As we have previously mentioned, the decline in revenue primarily reflects the divestiture of health administration services, which we announced in the second quarter 2003.

Looking at the full year results operating income increased to $27.2 million, a 42% increase over the $19.1 million reported for the full year 2002. Given the total revenue growth at 2.7% for the full year, we are pleased to be able to report a 42% improvement in operating income. It is important to note that CBIZ reported a gain on the sale of divested operations of approximately $2.5 million for the full year compared with approximately $900,000 a year ago. Also, as was mentioned in the earnings release, the results for 2003 include a note impairment charge of approximately $2.4 million, which is included in the other expense net line. This impairment charge relates to a note that CBIZ received in connection with an asset sale dating back to 1997. And with this charge the value of this note has been written down completely.

Considering all these items, CBIZ reported net earnings after tax from continuing operations of $15.5 million, which was 17 cents per diluted share. This compares with $8.1 million, which was 8 cents per diluted share, reported for the full year of 2002. We are very pleased to report this 92% increase in net income from continuing operations over the prior year results.

Cash flow for 2003 continued to be strong. In July of 2003 CBIZ completed a Dutch auction tender offer, which resulted in the repurchase of approximately 10 million shares at a cost of approximately $33 million. Cash flow generated in 2003 enabled CBIZ to fund this transaction and still reduce debt to $14 million at December 31st, 2003, from $17.5 million a year ago. For a net reduction of $3.5 million after funding the $33 million share repurchase transaction in mid-year.

The balance sheet reflects the impact of the share repurchase where the shares repurchased effectively reduced stockholders' equity. With bank debt at $14 million at the end of 2003, the debt to equity ratio is at 5.0%. Day sales outstanding on receivables was calculated at 82 days at the end of 2003. On the acquisition front, CBIZ continues to acquire businesses in order to strengthen our existing services and to complement our presence in those markets where we already have a presence. We are pleased with the performance of these new operations in 2003, each of which is performing in line or ahead of our expectations. With these acquisitions we have been able to strengthen our benefits and insurance offerings in the Washington, D.C. market, the Florida market, and in the Salt Lake City and Denver markets. In addition, our accounting and advisory services have been strengthened in Orange County, California, and throughout the U.S. with the addition of Harborview, which primarily focuses on internal audit outsourcing services.

As I mentioned earlier, these newly acquired operations have added approximately $9.4 million of revenue in the full year 2003. Divestitures have also impacted revenue in 2003 and have resulted in a decline of $9.0 million for the full year. So there is a slight positive impact to revenue from acquisitions net of the impact from divestitures in 2003.

Looking forward into 2004, CBIZ's balance sheet is very strong. Our cash flow continues to be very strong. And we expect the financial performance of the business will continue to improve. We're optimistic about our business prospects in 2004, but we are uncertain about the strength of the economic environment as we go into the year.

In light of this, for 2004 we expect revenue will increase in the range of 4% to 6%, and we again will be able to leverage this revenue increase into a larger increase in net income. As a result we expect earnings per share will improve between 25% to 30% from the 17 cents per share we reported for 2003. We also expect to generate positive cash flow during 2004, and we expect EBIDTA will be approximately $50 million for 2004. So with these comments I will conclude and I'll turn it back over to Steve.

Thank you, Ware. I'd like to make a few additional comments, and then we'll open it up for questions.

Our cross-serving initiative, which is key to our revenue growth and is one of the three prongs of our top-line growth, exceeded our plan. We generated $7.7 million of incremental first-year revenue, and we exceeded the 6 1/2 million that we did last year and the 7.5 goal that we set for ourselves. As we look forward to 2004, we will once again aggressively be looking for accretive acquisitions in our primary business segments. And we have taken aggressive steps to turn around a number of the businesses and national practices, particularly the M & A business and the technology business, as well as a continued emphasis on the growth and profitability of our payroll business, all of which we expect will result in positive results for those businesses and the company for next year. With that I'd like to stop and turn it over to our shareholders and analysts to ask any questions that they have.

Thank you. We will now begin the question and answer session. If you have a question, you will need to press star 1 on your touch-tone phone. You will hear an acknowledgement you've been placed in queue. If your question has been answered and you wish to be removed from the queue, please press the pound sign. Your questions will be queued in the in order that they are received. If you're using a speaker phone, please pick up the handset before pressing the numbers. Once again, if there are any questions, please press star 1 on your touch-tone phone. The first question is from Todd van Fleet from first analysts. Please go ahead.

Hi. Good morning. I'm hoping you can comment on the margins just directionally even if you can for the various business units on a year to year basis.

Let me -- the margin in the medical practice management segment is relatively steady on a year to year basis, and that's in the mid teens range. You've heard us talk about some intermediate term goals to improve margins across the board. And we saw some nice improvements in the benefits and insurance group. But we saw a slight decline in the accounting services area. While revenue on a same unit basis for accounting services was flat on a full-year basis, it did fall somewhat short over internal expectations and the margin did not improve in that area. And then of course with the national practice area, with soft businesses in both the I.T. consulting area and the mergers and acquisition area, we still have some work left to do in that area.

And so in that international practices segment you expect somewhat of a turnaround perhaps in 2004, or is it just kind of you don't expect the rate of decline to be as it was in 2003?

No, we expect a rather significant turnaround in 2004. As I mentioned before, we've taken some very decisive action in both our M & A area and in our payroll area, and we expect that our technology business is on a much stronger footing, and those were the three areas that actually caused us to sustain losses in those groups. So we think that those will turn around this year.

Thank you.

Once again, if there are any additional questions, please press star 1 on your touch-tone phone. The next question is from David Bow from Paradigm Capital Management. Please go ahead, sir.

Hi. What actions did you take in the M & A and payroll?

In our M & A area we dramatically downsized the business unit to a size that is now capable of handling the deal flow that we have. The M & A business last year lost significant money, and based on the transactions which have already closed they will be break even to profitable this year. Payroll was -- we announced early last year that we were investing heavily in turning the payroll business around including the operations. That investment has been completed. Payroll ran at a loss in 2003. We expect it will be profitable in 2004.

Okay. In the press release you made some comments about, you know, the economy. And I was just wondering, what's the tone that you're getting from, you know, our small business customers about the economy?

We're still -- we are not seeing the small business owner enjoying the kind of purported increases that you're reading about nationally. We see a very cautious client base. Investment has not opened up substantially. There is a little bit more activity but not a lot. People are still -- the small business owner still seems to be very concerned in anything that may be happening nationally really hasn't trickled down to the small businesses. So we think we're going to generate growth on our own. We don't think it will be a buoyant market for us.

And how do you see the valuations of potential acquisitions out there? Are they still reasonable or --

Well, the acquisitions that we make are reasonable. It depends on the group -- the industry you're looking at. The premiums for the insurance and the benefit groups has been very high. We don't see that coming down very much. The premium for the -- for the multiples for the accounting groups have been rather steady. So we haven't seen any significant decline in the seller's expectation over the last six months.

Great. Thanks a lot.

The next question is from Peter press with Parker asset management. Please state your question.

Good morning. Can you tell us a little bit about capex and G&A for '04? And I have a follow-up.

Yeah. Capex is projected to be in the $10 million range, as it was in '03. It'll be approximately $10 million in 2004. And G&A, we've seen some declines in the last couple years, but we think it's going to level out right around 16 1/2 to $17 million on a going forward basis. As some of these new investments roll in and we begin to depreciate those.

And you're way ahead of target in terms of generating free cash flow, and you're already at 14 million of bank debt as of the end of '03. Is it -- at what point in time does it make sense for the board to reevaluate looking at doing another buyback? Thanks.

I think you should be aware that the management and the board reviews the question of what to do with the cash at every board meeting. And the fact is that our number one priority for growth is acquisitions. We are aware that there are a lot of shares outstanding, and it is something we review every quarter to see what's the best use of our cash and how we want to commit that cash.

Thanks. Good luck.

Thank you.

Once again, if there are any additional questions, please press star 1 on your touch-tone phone. Todd van fleet from First Analysts is online with a question. Please go ahead.

Just a quick follow-up to the last question. The cap ex for the fourth quarter was about, you know, in the neighborhood of 2 1/2 million, right?

Yes. That's correct.

Okay. Thank you.

Once again, if there are any further questions, please press star 1 on your touch-tone phone. Peter from Parker Asset Management is back online with a question. Please go ahead, sir.

Hi. Just two quick follow-ups. Number one, is there an expected difference between accrued and cash tax this is year, and second question, do you have a target for DSOs at the end of the year?

There's no significant difference between accrued and cash this year. And our target for DSOs in '03 was 75 days. We didn't get there. That remains our target. We're going to be working a little harder this year to get the number down.

Thanks.

Once again, if there are any further questions, please press star 1 on your touch-tone phone. Mr. Gerard, at this time I'm showing we have no further questions.

Okay. Well, thank you. I'd like to thank, first, all of our employees who worked so hard this year. Those of you who are listening. I'd like to thank our shareholders and those who follow the company for their continued support. We had a very good year in 2003, and you have management's word that we're going to work even harder to improve in 2004. With that I'd like to thank you for your continued support and look forward to talking to you at the next conference call.

Thank you, ladies and gentlemen. That does conclude today's teleconference. Thank you for participating. You may now disconnect.