CBIZ, Inc. 10-Q Summary: Period Ended June 30, 2005
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2005, for CBIZ, Inc. (formerly Century Business Services, Inc.). CBIZ is a diversified professional services firm operating through three primary practice groups: Accounting, Tax and Advisory (ATA); Benefits and Insurance (B&I); and National Practices (including Medical Practice Management). The company recently announced a name change effective August 1, 2005, and an affiliation with Kreston International to expand global service capabilities.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2005 | Six Months Ended June 30, 2005 |
|---|---|---|
| Revenue | $139.6 million | $295.0 million |
| Net Income | $3.3 million | $11.5 million |
| Diluted EPS | $0.04 | $0.15 |
| Operating Income | $6.9 million | $24.4 million |
| Gross Margin | 13.0% | 15.6% |
| Cash from Operations | N/A | $19.9 million |
| Bank Debt Outstanding | $50.3 million | $50.3 million |
| Available Credit Facility | $27.1 million | $27.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 12.7% year-over-year for the quarter and 9.8% for the six-month period. Same-unit revenue grew 7.9% for the quarter, driven by ATA, Medical Practice Management, and National Practices, partially offset by a 1.2% decline in Benefits & Insurance same-unit revenue.
- Profitability: Net income rose 40% for the quarter ($3.3M vs. $2.4M) but declined 18% for the six-month period ($11.5M vs. $14.0M) due to higher consolidation charges and discontinued operations losses in the first half of 2005.
- Expenses: Operating expenses increased 11.3% for the quarter. Consolidation and integration charges were $0.8 million for the quarter and $2.8 million for the six months, compared to $0.7 million and $1.0 million in the prior year periods, respectively.
- Discontinued Operations: The company recorded a loss from discontinued operations of $1.1 million for the quarter and $3.0 million for the six months, related to the closure of underperforming units in the ATA and National Practices groups.
Guidance, Outlook, and Risks
- Strategic Initiatives: CBIZ continues to consolidate offices in fragmented markets (Denver, Chicago) and plans co-location in Atlanta and San Diego. The company is actively pursuing acquisitions to strengthen market share.
- Share Repurchases: The Board authorized a plan to repurchase up to 5.0 million shares. During the six months ended June 30, 2005, the company repurchased approximately 1.9 million shares for $7.6 million. An additional 550,000 shares were repurchased in July 2005.
- Seasonality: The business is highly seasonal, with a disproportionate amount of revenue earned in the first half of the year due to tax season (ATA) and insurance commission timing (B&I).
- Risks: Key risks include the impact of regulatory changes on insurance compensation arrangements, the collectibility of accounts receivable, and the integration of acquired businesses. The company maintains a $100 million credit facility with covenants regarding net worth, leverage, and fixed charge coverage, which it believes it is currently meeting.
Investor Verification Checklist
- Discontinued Operations: Verify the final sale price and timing of the Benefits & Insurance unit classified as held for sale, as a gain is expected in late 2005.
- Accounts Receivable: Monitor Days Sales Outstanding (DSO), which stood at 75 days as of June 30, 2005, up from 73 days at year-end 2004.
- Consolidation Charges: Track the execution of office consolidations in Denver and Chicago to ensure projected cost savings are realized.
- Benefits & Insurance Margin: Review the recovery of gross margins in the B&I segment, which declined 2.0% year-over-year for the six-month period due to client loss and pricing pressures.
- Debt Covenants: Confirm ongoing compliance with the $100 million credit facility covenants, particularly the fixed charge coverage ratio, given the increased interest expense.