CBZ

CBIZ, Inc. 10-Q Filing Summary

Business Context and Reporting Period

Company: CBIZ, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: CBIZ provides professional business services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. The company serves businesses, individuals, governmental entities, and not-for-profits across the U.S. and parts of Canada.

Key Financial Metrics

All figures in thousands, except per share data.

Debt Composition: Bank debt of $115.7 million and Convertible Notes (net) of $92.8 million. The company maintains a $214.0 million credit facility with approximately $59.7 million available.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 6.5% for the quarter and 8.8% for the nine-month period compared to 2008. This growth was driven by acquisitions contributing $72.1 million (13.3%) to nine-month revenue, offsetting a 4.6% decline in same-unit revenue.
• Profitability: Net income increased 15.8% for the quarter and 9.8% for the nine-month period. Diluted EPS from continuing operations rose to $0.48 for the nine months ended September 30, 2009, from $0.45 in the prior year.
• Acquisitions: The company acquired EAO Consultants, LLC (July 2009) and MeyersDining, LLC (September 2009), adding $14.3 million in aggregate consideration. These acquisitions expanded presence in New York/New Jersey and Colorado markets.
• Expense Management: Operating expenses increased due to acquisitions and severance costs ($1.6 million in the nine months), but cost-control initiatives reduced travel, marketing, and recruiting fees.
• Accounting Changes: The company adopted FASB ASC 470-20 regarding convertible debt, resulting in restated 2008 figures with increased interest expense and adjusted equity.

Guidance, Outlook, and Risks

• Outlook: Management believes cash from operations and the credit facility provide sufficient resources for working capital, capital expenditures, and strategic acquisitions. The company continues to repurchase shares under its plan.
• Economic Impact: Same-unit revenue declined across all practice groups due to reduced client demand, lower asset valuations affecting retirement/advisory fees, and soft market conditions in insurance pricing. National Practices saw a significant revenue drop due to clients deferring technology investments.
• Liquidity Risks: The company holds $13.4 million in Auction Rate Securities (ARS) with a fair value of $10.4 million. While auctions have failed, CBIZ maintains sufficient liquidity to meet client obligations and does not anticipate the ARS illiquidity affecting operations.
• Deferred Compensation Plan: Gains in the deferred compensation plan assets increased compensation expense in operating costs but generated offsetting "Other Income," resulting in no net impact on pre-tax margin.
• Goodwill: No goodwill impairment was identified despite market capitalization declines, though management notes that future revenue or stock price declines could trigger impairment.

Key Facts for Investor Verification

• Same-Unit Revenue Decline: Verify the sustainability of the 4.6% same-unit revenue decline and the specific drivers in the Financial Services and Employee Services segments.
• Acquisition Integration: Assess the performance of the Mahoney Cohen & Company and Tofias PC acquisitions (closed Dec 2008) and the new Q3 2009 acquisitions against expectations.
• Auction Rate Securities (ARS): Monitor the fair value and liquidity status of the $13.4 million ARS portfolio and any potential credit losses.
• Debt Covenants: Confirm continued compliance with the credit facility's leverage ratio (1.55 as of Sep 30, 2009) and fixed charge coverage requirements.
• Deferred Compensation Volatility: Understand the impact of investment gains/losses in the deferred compensation plan on reported operating expenses and other income.