CBZ

SEC Filing Summary: Century Business Services, Inc. (CBIZ)

Business Context and Reporting Period

Company: Century Business Services, Inc. (CBIZ)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Business Overview: CBIZ is a diversified services company providing professional outsourced business services through three practice groups: Accounting, Tax and Advisory (ATA); Benefits and Insurance; and National Practices (including Medical Practice Management). The company operates through 62 business units with over 160 offices across 34 U.S. states and Toronto, Canada.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 2.7% to $512.8 million, driven by organic growth in Benefits and Insurance and National Practices, offset by divestitures and a transfer of technology businesses from ATA to National Practices.
• Profitability: Net income turned positive at $15.3 million compared to a net loss of $76.8 million in 2002. The 2002 loss was significantly impacted by a one-time $80.0 million non-cash goodwill impairment charge due to the adoption of SFAS No. 142.
• Segment Performance:
  • ATA: Revenue declined slightly ($203.4M) due to divestitures and transfers; gross margin decreased to 12.4% due to higher compensation costs.
  • Benefits & Insurance: Revenue grew to $162.1M with gross margin improving to 20.8%.
  • National Practices: Revenue grew to $147.3M, led by Medical Practice Management ($75.8M). Other National Practices units saw a decline in revenue and negative gross margins due to office closures.
• Divestitures: The company sold or closed eight business operations in 2003, recording a net gain of $2.5 million on divested operations.
• Share Repurchase: CBIZ repurchased approximately 10 million shares of common stock in a tender offer during Q3 2003 at a total cost of $33.2 million.

Guidance, Outlook, and Risks

• Outlook: Management expects modest revenue growth and margin improvement in 2004, driven by staff utilization improvements, Sarbanes-Oxley consulting opportunities, and an improving economic environment. Capital expenditures are expected to be approximately $10.0 million in 2004.
• Strategic Focus: Continued selective acquisitions to enhance core service offerings and office consolidations to reduce costs (planned for Dallas, Denver, Salt Lake City, and San Jose in 2004).
• Risks:
  • Outsourcing Trend: Business depends on the continued trend of outsourcing; a reversal would materially adversely affect results.
  • Fixed Costs: High fixed operating costs (personnel, rent) make the company sensitive to revenue fluctuations.
  • Regulatory: Subject to regulations including HIPAA and Sarbanes-Oxley, which may increase compliance costs.
  • Concentration: No single customer exceeds 3% of revenue, though Edward Jones contributed 2.5% in 2003.
• Contingencies: A consolidated stockholder class-action lawsuit regarding goodwill amortization (1998-2000) was dismissed with prejudice in 2002 but remains under appeal; management does not believe it will have a material adverse effect.

Investor Verification Checklist

• Goodwill Impairment: Verify the impact of the 2002 goodwill impairment charge on historical comparability and confirm no new impairments were recorded in 2003.
• Divestiture Gains: Review the $2.5 million gain on divested operations to ensure it is not a recurring revenue stream.
• Share Repurchase Impact: Assess the effect of the $33.2 million share buyback on liquidity and the remaining capacity under the $73 million credit facility.
• Variable Interest Entities: Review the disclosure regarding Administrative Service Agreements (ASAs) with CPA firms and their potential classification as Variable Interest Entities (FIN 46).
• Days Sales Outstanding (DSO): Monitor the increase in DSO from 79 days (2002) to 82 days (2003) for signs of collection issues.