CBIZ, Inc. Q1 2007 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2007. CBIZ, Inc. is a diversified services company providing professional business services to small and medium-sized businesses, individuals, and governmental entities. Operations are organized into four practice groups: Financial Services, Employee Services, Medical Management Professionals (CBIZ MMP), and National Practices.
Key Financial Metrics
| Metric | Q1 2007 | Q1 2006 |
|---|---|---|
| Revenue | $183.2 million | $167.5 million |
| Net Income | $14.3 million | $12.0 million |
| Diluted EPS | $0.21 | $0.16 |
| Gross Margin | $37.1 million (20.3%) | $32.2 million (19.2%) |
| Operating Income | $25.5 million | $21.5 million |
| Cash & Equivalents | $7.7 million | $2.9 million |
| Total Debt | $129.2 million | $100.0 million |
| Operating Cash Flow | ($12.7 million) used | ($22.4 million) used |
Note: Debt includes $100.0 million in Convertible Senior Subordinated Notes and $29.2 million in Bank Debt.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 9.3% year-over-year, driven by an 8.0% increase in same-unit revenue and $2.5 million from acquired businesses.
- Profitability: Net income rose 18.7% to $14.3 million. Gross margin percentage improved to 20.3% from 19.2% due to revenue growth outpacing fixed cost increases.
- Debt Structure: Bank debt increased by $29.2 million to fund seasonal working capital needs. The company maintains $100.0 million in convertible notes issued in 2006 at a fixed rate of 3.125%.
- Share Repurchases: The company repurchased 2.5 million shares of common stock for $17.6 million during the quarter.
- Discontinued Operations: The company sold a Financial Services operation in Q1 2007, resulting in a net loss of $0.2 million on disposal. A second operation (Employee Services) remains classified as held for sale.
Outlook, Risks, and Management Commentary
- Acquisitions: CBIZ acquired an accounting firm in Phoenix, Arizona, in Q1 2007. Additionally, effective May 1, 2007, the company acquired Ichthus Consulting, Inc. (ICON) to be merged into the CBIZ MMP practice group.
- Regulatory Environment:
- Insurance Brokerage: CBIZ is cooperating with inquiries from state insurance regulators and Attorneys General regarding compensation arrangements. Management believes arrangements are lawful but notes future regulatory action could impact revenue.
- Medical Billing: Changes in Medicare/Medicaid reimbursement rules and managed care plans may adversely affect revenue and margins in the CBIZ MMP segment.
- Cash Flow Seasonality: The company experienced a net use of cash from operating activities ($12.7 million), which is typical for the first quarter due to the seasonal buildup of accounts receivable in the Financial Services segment. Days Sales Outstanding (DSO) improved to 80 days from 82 days in the prior year.
- Liquidity: Management believes cash from operations and the $61.7 million available under the credit facility are sufficient to meet foreseeable business requirements.
Investor Verification Checklist
- Verify the impact of ongoing regulatory inquiries into insurance brokerage compensation arrangements on future revenue streams.
- Monitor the integration and performance of the newly acquired Phoenix accounting firm and Ichthus Consulting (ICON).
- Assess the collectibility of accounts receivable, which increased by $27.1 million to $133.4 million, noting the DSO of 80 days.
- Review the status of the Employee Services operation classified as "held for sale" and potential proceeds from its divestiture.
- Track the company's leverage ratio compliance under the credit facility, particularly given the $29.2 million drawdown in Q1.