CBIZ, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. CBIZ provides professional business services through Financial Services, Employee Services, Medical Management Professionals (MMP), and National Practices. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $183.1 | $180.1 | $393.0 | $389.5 |
| Operating income | $16.3 | $15.2 | $47.1 | $44.1 |
| Income from continuing operations | $6.9 | $7.0 | $25.0 | $23.9 |
| Net income | $6.6 | $5.4 | $24.5 | $21.4 |
| Diluted EPS, continuing operations | $0.14 | $0.11 | $0.50 | $0.39 |
| Diluted EPS, net income | $0.13 | $0.09 | $0.49 | $0.35 |
- Revenue rose 1.7% in Q2 and 0.9% year to date. Q2 same-unit revenue increased 0.8%; first-half same-unit revenue declined 0.4%, with acquired businesses more than offsetting that decline.
- Gross margin was 12.7% in Q2 versus 12.1%; for the first half it was 16.2% versus 15.3%. Operating margin was approximately 8.9% versus 8.4% in Q2 and 12.0% versus 11.3% for the first half.
- First-half operating cash flow was $23.0, down from $25.7. Investing used $29.7, including $18.6 of net client-fund activity and $10.9 in acquisition-related contingent payments. Cash and cash equivalents ended at $0.2.
- At June 30, current assets were $296.0 and current liabilities $195.1, a reported excess of $100.9. This includes client funds and related obligations. The company had $19.9 of restricted cash and $64.8 of available credit-facility capacity.
- Bank debt was $149.0, up from $118.9 at year-end. Convertible notes had $130.75 principal outstanding, including $130.0 of 2010 Notes and $0.75 of remaining 2006 Notes; the balance-sheet carrying value of convertible notes was $118.5. First-half interest expense increased to $9.3 from $6.6.
Changes, outlook, and notable items
- Financial Services’ first-half same-unit revenue fell 0.6%, with client hours down about 5%, partly offset by a 2% rise in effective rates. MMP same-unit revenue fell 3.1% for the half and 6.2% in Q2, reflecting client losses, pricing and reimbursement pressure, and lower procedure volumes. Management expected MMP same-store revenue to remain below 2010 levels, while not expecting the client losses to represent a continuing trend through the rest of 2011.
- National Practices revenue grew strongly from merger-and-acquisition success fees and healthcare consulting; Employee Services faced weakness in employee benefits and property-and-casualty lines, partly offset by growth in specialty life insurance, retirement advisory, and human capital services.
- First-half continuing-operations EPS included an approximately $0.02-per-share gain related to the wealth-management divestiture. The 2010 comparison included an approximately $0.02-per-share lease-restructuring charge. Cash earnings per diluted share, a company-defined non-GAAP measure, were $0.29 for Q2 and $0.78 for the first half.
- CBIZ repurchased $39.25 of 2006 convertible notes in June, funding the transaction primarily through increased bank borrowing. The $275 credit facility was amended to extend maturity to June 2015, lower borrowing and unused commitment fees, and provide more covenant flexibility. Management stated it believed the company was in covenant compliance and had resources to meet foreseeable needs.
- On August 1, 2011, after quarter-end, CBIZ acquired Thompson Dunavant and Multiple Benefit Services, with trailing revenue of approximately $15.7 and $3.5, respectively. Management did not expect the acquisitions to significantly contribute to 2011 earnings.
- Risks and contingencies include seasonal working-capital needs, receivable collection (DSO was 80 days versus 72 at year-end), variable-rate debt, and ongoing Arizona litigation related to Mortgages Ltd. matters. Management said it believed the allegations were without merit and did not expect a material adverse effect, but outcomes remain uncertain. One auction-rate security remained at $3.9 fair value versus $4.4 par, with maturity in 2037.
- No specific full-year earnings or revenue guidance was provided in the supplied filing text. Results are subject to seasonality, economic and interest-rate changes, competition, regulatory changes, and other disclosed risks.
Investor verification priorities
- Assess whether MMP’s revenue and client-retention pressures continued after Q2, and whether pricing and reimbursement declines stabilized.
- Review receivables, unbilled revenue, DSO, and operating cash conversion, especially given the low unrestricted cash balance and seasonal working-capital profile.
- Confirm debt levels, credit-facility availability, covenant headroom, and exposure to interest-rate increases; the filing estimates a 100-basis-point move would change annual interest expense by about $1.1.
- Separate recurring operating performance from the wealth-management sale gain, contingent-earnout adjustments, deferred-compensation investment effects, and other non-GAAP cash-earnings adjustments.
- Track the Arizona litigation, the remaining auction-rate security, and performance and integration of the two post-quarter acquisitions.