CBIZ, Inc. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. 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 2011 | Q1 2010 |
|---|---|---|
| Revenue | $209.9 million | $209.4 million |
| Net Income | $17.9 million | $16.0 million |
| Diluted EPS (Continuing Ops) | $0.36 | $0.27 |
| Gross Margin | $40.5 million (19.3%) | $37.9 million (18.1%) |
| Operating Income | $30.8 million | $28.9 million |
| Cash Flow from Operations | ($3.8) million (Used) | ($7.9) million (Used) |
| Total Debt (Bank + Convertible) | $342.8 million | $314.4 million |
| Cash & Equivalents | $0.2 million | $3.3 million |
Note: Debt figures include $132.8M bank debt, $130M 2010 Convertible Notes, and $40M 2006 Convertible Notes.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased slightly by 0.2% ($0.5 million). This was driven by $5.2 million in revenue from acquired businesses, offset by a 1.2% decline in same-unit revenue ($2.5 million) due to decreased client demand in Financial Services and Employee Services.
- Profitability: Operating expenses decreased 1.2% to $169.4 million, improving the gross margin percentage to 19.3% from 18.1%. Net income increased 12.0% year-over-year.
- Divestitures: The company sold its individual wealth management business in Q1 2011, recognizing a pre-tax gain of $2.3 million. This divestiture reduced revenue in the Employee Services segment compared to the prior year.
- Interest Expense: Interest expense rose 55.1% to $4.9 million, primarily due to the issuance of $130 million in 2010 Convertible Notes and higher rates on the credit facility.
- Working Capital: Accounts receivable increased by $31.6 million to $169.7 million, reflecting the seasonal nature of the Financial Services practice group (tax season).
Outlook, Risks, and Unusual Items
- Capital Structure: On April 11, 2011, CBIZ amended its $275 million credit facility to extend the maturity to June 2015, reduce interest rates, and adjust leverage ratio limits. The company has approximately $91.9 million available under this facility.
- Share Repurchase: The Board authorized the repurchase of up to 5.0 million shares of common stock through March 31, 2012. No shares were repurchased in Q1 2011.
- Legal Proceedings: CBIZ is a defendant in multiple lawsuits in Arizona related to the bankruptcy of Mortgages Ltd. Plaintiffs seek damages for alleged auditor-type liabilities. Management believes the allegations are without merit and expects no material adverse effect.
- Investment Risks: The company holds Auction Rate Securities (ARS) with a par value of $9.4 million and a fair value of $6.6 million. One ARS was sold in April 2011 at a loss; the remaining impairment is deemed temporary.
- Non-GAAP Measure: Management reported "Cash Earnings" of $0.49 per diluted share, excluding non-cash charges such as depreciation, amortization, and stock-based compensation.
Investor Verification Checklist
- Verify the collectability of the $169.7 million accounts receivable balance, noting the Days Sales Outstanding (DSO) increased to 87 days.
- Monitor the resolution of the Arizona litigation regarding Mortgages Ltd. and potential liability exposure.
- Assess the fair value recovery of the remaining Auction Rate Securities (ARS) held for clients.
- Review the impact of the $130 million 2010 Convertible Notes on future interest expense and cash flow.
- Track the performance of the MMP and National Practices segments, which showed significant margin expansion, versus the Financial Services segment which faced same-unit revenue declines.