CBIZ, Inc. Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. CBIZ, Inc. provides professional business services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. The company operates primarily in the United States and parts of Canada.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Revenue | $210.2 million | $216.5 million |
| Net Income | $16.0 million | $18.2 million |
| Diluted EPS | $0.26 | $0.29 |
| Gross Margin | $37.9 million (18.0%) | $42.5 million (19.6%) |
| Operating Income | $29.0 million | $34.8 million |
| Cash and Equivalents | $5.4 million | $9.6 million |
| Bank Debt Outstanding | $139.5 million | $110.0 million (Dec 2009) |
| Convertible Notes | $100.0 million | $100.0 million |
Liquidity: The company had approximately $37.4 million available under its $214.0 million credit facility as of March 31, 2010. The leverage ratio was 1.90, within the covenant limit of 2.0.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 2.9% year-over-year. Same-unit revenue declined 5.6% ($12.2 million) due to decreased client demand and pricing pressures, partially offset by $6.0 million in revenue from newly acquired operations.
- Margin Compression: Gross margin percentage decreased to 18.0% from 19.6%. Operating expenses increased as a percentage of revenue to 82.0% from 80.4%, driven by a $1.4 million restructuring charge related to the Goldstein Lewin & Company acquisition and higher personnel costs.
- Segment Performance:
- Financial Services: Revenue down 2.6%; gross margin improved to 26.6% due to cost reductions.
- Employee Services: Revenue up 3.1%; gross margin improved to 20.6%.
- MMP: Revenue down 11.4%; gross margin collapsed to 3.5% from 11.8% due to client terminations and reimbursement pressures.
- Acquisitions: Acquired Goldstein Lewin & Company and National Benefit Alliance for an aggregate consideration of approximately $25.3 million (including $10.0 million in contingent consideration).
- Discontinued Operations: Sold two businesses resulting in a pre-tax loss of approximately $0.8 million.
Outlook, Risks, and Management Commentary
- Seasonality: Management notes that the first quarter typically results in a net use of cash from operations due to seasonal receivable growth, which is historically recovered in the second and third quarters.
- Capital Allocation: The Board authorized a share repurchase plan for up to 5.0 million shares through March 31, 2011. No repurchases were made in Q1 2010.
- Investment Risks: The company holds $13.4 million in par value of Auction Rate Securities (ARS). Due to market dislocation, these are classified as non-current. Two holdings have temporary impairments, while one has an other-than-temporary impairment. Management believes it has sufficient liquidity to meet client obligations despite the lack of liquidity in ARS.
- Legal and Contingencies: The company recorded a $1.4 million restructuring charge and increased legal reserves. Management does not believe pending legal proceedings will have a material adverse effect.
Investor Verification Checklist
- Same-Unit Revenue Trends: Verify the sustainability of the 5.6% same-unit revenue decline and the impact of pricing pressures in the MMP and Financial Services segments.
- Acquisition Integration: Monitor the performance of the two Q1 2010 acquisitions and the realization of the $10.0 million contingent consideration liability.
- ARS Liquidity: Track the status of the $13.4 million Auction Rate Securities portfolio and any potential further impairments or liquidity constraints.
- Cost Management: Assess the effectiveness of restructuring efforts in stabilizing operating expense ratios, particularly in light of the $1.4 million charge.
- Cash Flow Seasonality: Confirm the expected recovery of operating cash flows in Q2 and Q3 to offset the $7.9 million net cash used in operating activities in Q1.