CBIZ, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited, compared with Q1 2012. CBIZ provides professional business services through Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue | $234.8 million | $220.8 million; up 6.3% |
| Gross margin | $43.9 million; 18.7% of revenue | $40.8 million; 18.5% |
| Operating income | $33.9 million | $30.3 million |
| Continuing-operations income after tax | $18.3 million | $18.8 million |
| Net income | $18.3 million | $18.8 million |
| Diluted EPS | $0.37 | $0.38 |
| Non-GAAP diluted EPS | $0.54 | $0.49, excluding a $0.03 per-share gain on sale in Q1 2012 |
| Cash from operating activities | $(12.1) million | $(11.3) million |
| Cash and cash equivalents | $0.2 million | $0.9 million at Dec. 31, 2012 |
| Bank debt | $223.0 million | $208.9 million at Dec. 31, 2012 |
Amounts are in U.S. dollars. Q1 2013 investing activities provided $8.9 million, versus using $13.7 million in Q1 2012; financing activities provided $2.5 million, versus $26.6 million. Cash declined $0.7 million during Q1 to $0.2 million.
At March 31, current assets were $378.9 million and current liabilities $259.0 million, including client funds and corresponding obligations. The $275 million unsecured credit facility had $223.0 million drawn and approximately $47.6 million available after letters of credit and guarantees. Convertible notes had a $123.1 million carrying amount ($130.75 million principal, including $750,000 of older notes); the $130 million notes mature in October 2015. The company reported compliance with debt covenants.
Changes versus prior comparable period
- Revenue rose $14.0 million, principally from acquired businesses, which contributed $14.3 million; same-unit revenue declined 0.1%.
- By practice group, same-unit revenue increased 0.8% in Financial Services and 2.1% in National Practices, while it declined 0.8% in Employee Services and 3.2% in MMP. MMP gross margin fell to 7.3% from 8.3%.
- Operating income improved, while GAAP net income and diluted EPS edged down. Q1 2012 included a $2.6 million gain on sale of operations, primarily related to the prior sale of the wealth management business.
- Interest expense increased to $4.4 million from $4.1 million, mainly reflecting higher average credit-facility borrowings; the weighted-average facility rate fell to 3.0% from 3.3%.
- Q1 operating cash use reflects seasonal working-capital needs, especially higher receivables. Net receivables rose to $193.2 million from $155.0 million at year-end; days sales outstanding was 90, versus 74 at year-end and 90 a year earlier.
Outlook, commentary, and risks
- The filing provides no specific full-year revenue or earnings guidance. Management says Q1 results are not necessarily indicative of full-year results because of seasonality and other factors; it expects the usual seasonal pattern of Q1 operating cash use followed by stronger cash flow in Q2 and Q3 as tax-season receivables are collected.
- Management said available operating cash and credit-facility capacity should meet foreseeable business needs, including working capital and capital expenditures. The company cited acquisitions and share repurchases as potential strategic uses of funding.
- The board authorized repurchases of up to 5.0 million shares from April 1, 2013 through March 31, 2014; none were repurchased in Q1. On May 1, 2013, CBIZ acquired Associated Insurance Agents, expected to contribute $3.8 million in annual revenue to Employee Services.
- Material operating considerations include MMP reimbursement and procedure-mix pressure, client losses and competition; competitive pricing, economic and regulatory changes, revenue seasonality and receivables collection; dependence on key employees; and systems and professional-liability risks.
- CBIZ is defending several lawsuits arising from audits performed by an affiliated CPA firm, including claims related to Mortgages Ltd. and Medical Capital. The filing describes alleged damages in certain cases but says the company cannot predict outcomes or estimate possible loss. Management considers the allegations without merit and does not expect resolution to materially adversely affect the company. The Victims Recovery case was settled without a monetary payment; other proceedings remained pending, with court rulings reported through May 7, 2013.
- Other notable items: contingent acquisition liabilities increased by $0.9 million due to higher projected results of acquired businesses. Management reported no Q1 goodwill impairment trigger and stated disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether revenue growth from acquisitions translates into sustained same-unit growth, particularly in MMP and Employee Services.
- Receivables collection, unbilled revenue, DSO, and the expected seasonal conversion of Q1 working-capital use into cash.
- Credit-facility availability, leverage and covenant compliance, refinancing needs ahead of the June 2015 facility maturity, and sensitivity to interest rates. The filing estimates a 100-basis-point rate change would alter annual interest expense by approximately $1.8 million.
- Developments and potential financial exposure in the pending lawsuits; the filing does not provide a clear estimate of possible loss.
- The composition and calculation of non-GAAP EPS adjustments, and the performance and integration of acquisitions, including the subsequent AIA acquisition.