CBZ

CBIZ, Inc. Q1 2009 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009. CBIZ, Inc. provides professional business services through four practice groups: Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. The quarter included the integration of two significant acquisitions closed on December 31, 2008 (Mahoney Cohen & Company and Tofias PC).

Key Financial Metrics

Liquidity: The company maintains a $214.0 million credit facility with approximately $38.5 million available at period end. Net cash used in operating activities was $17.8 million, consistent with seasonal patterns where receivables grow in Q1.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 11.7% year-over-year. This growth was driven by acquired businesses contributing $26.8 million (13.6% of growth). Conversely, same-unit revenue declined 1.9% ($3.8 million) due to reduced client demand and lower interest rates affecting payroll investment income.
• Expense Increases: Operating expenses rose $20.1 million, primarily due to the inclusion of the two late-2008 acquisitions. Personnel costs increased as a percentage of revenue, partially offset by cost-control measures in travel and recruiting.
• Interest Expense: Interest expense increased to $3.5 million from $2.6 million. This was due to higher average debt levels under the credit facility (financing acquisitions) and the adoption of FSP APB 14-1, which increased non-cash interest expense on convertible notes.
• Accounts Receivable: Net receivables increased $40.6 million to $169.7 million. Days Sales Outstanding (DSO) rose to 80 days from 79 days, attributed to slower collections and the inclusion of acquired businesses.

Outlook, Risks, and Unusual Items

• Accounting Changes: Effective January 1, 2009, CBIZ adopted FSP APB 14-1 regarding convertible debt, resulting in a retrospective adjustment that increased interest expense and reduced the carrying value of convertible notes. The company is also evaluating new FASB Staff Positions regarding fair value measurements and other-than-temporary impairments.
• Auction Rate Securities (ARS): CBIZ holds $13.4 million par value of ARS with a fair value of $10.1 million. Two securities are temporarily impaired (unrealized losses in equity), while one was previously written down as other-than-temporary. Management believes it has sufficient liquidity to meet client obligations despite the lack of liquidity in the ARS market.
• Share Repurchases: The Board authorized a plan to repurchase up to 5.0 million shares. During Q1 2009, the company repurchased 0.8 million shares for $6.7 million.
• Risks: Management notes risks related to the deteriorating economic environment, specifically the deferral of discretionary spending by clients in the technology sector (National Practices) and potential goodwill impairment if business conditions worsen further. However, no impairment was recorded in Q1.

Investor Verification Checklist

• Acquisition Integration: Verify the revenue contribution and margin performance of the Mahoney Cohen & Company and Tofias PC acquisitions against pro forma estimates.
• Receivables Quality: Monitor the trend in Days Sales Outstanding (DSO) and the allowance for doubtful accounts, given the 1.3% bad debt expense in Financial Services.
• ARS Liquidity: Track the status of the $13.4 million in Auction Rate Securities and any potential impact on client fund obligations or liquidity.
• Debt Covenants: Confirm continued compliance with credit facility covenants, specifically the leverage ratio (currently under 2.0) and fixed charge coverage ratio.
• Same-Unit Trends: Assess the sustainability of the 1.9% decline in same-unit revenue across the Financial Services and Employee Services segments.