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| CBZ > SEC Filings for CBZ > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
Financial Services
• Accounting
• Tax
• Financial Advisory
• Litigation Support
• Valuation
• Internal Audit
• Fraud Detection
• Real Estate Advisory
Employee Services
• Group Health
• Property & Casualty
• COBRA / Flex
• Retirement Planning
• Wealth Management
• Life Insurance
• Human Capital Management
• Payroll Services
• Actuarial Services
• Recruiting
MMP
• Coding and Billing
• Accounts Receivable Management
• Full Practice Management Services
National Practices
• Managed Networking and Hardware Services
• Technical Security Solutions
• Technology Consulting
• Project Management
• Software Solutions
• Health Care Consulting
• Mergers & Acquisitions
See the Annual Report on Form 10-K for the year ended December 31, 2008 for
further discussion of external relationships and regulatory factors that
currently impact CBIZ's operations.
Executive Summary
Revenue for the first quarter of 2009 grew by 11.7% versus the comparable period
in 2008 and earnings per share from continuing operations grew by 11.5%. Revenue
from newly acquired operations, net of divestitures, contributed $26.8 million,
or 13.6% to the growth in revenue and same-unit revenue declined by 1.9%, or
$3.8 million. CBIZ is taking a number of actions to manage costs in order to
reduce pressure on gross margin.
CBIZ acquired Mahoney Cohen & Company and Tofias PC on December 31, 2008 and
focused on integrating these businesses during the first quarter of 2009. The
integration of these two businesses into CBIZ's operations has proceeded
according to plan.
Effective January 1, 2009, CBIZ adopted the provisions of FASB Staff Position
No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1"),
which impacted the accounting associated with CBIZ's $100.0 million convertible
senior subordinated notes. The impact to CBIZ of adopting FSP APB 14-1 is
described in Notes 1 and 5 to the accompanying consolidated financial
statements.
On February 19, 2009, CBIZ's Board of Directors authorized the purchase of up to
5.0 million shares of CBIZ common stock through March 31, 2010. CBIZ purchased
0.8 million shares of its common stock at a total cost of $6.7 million during
the first quarter of 2009.
Results of Operations - Continuing Operations
Same-unit revenue represents total revenue adjusted to reflect comparable
periods of activity for acquisitions and divestitures. For example, for a
business acquired on March 1, 2008, revenue for the month of March would be
included in same-unit revenue for first quarter of both years; revenue for the
period January 1, 2009 through February 28, 2009 would be reported as revenue
from acquired businesses. Divested operations represents operations that were
sold or closed and did not meet the criteria for treatment as discontinued
operations.
Three Months Ended March 31, 2009 and 2008
Revenue
The following table summarizes total revenue for the three months ended
March 31, 2009 and 2008 (in thousands, except percentages).
THREE MONTHS ENDED MARCH 31,
% of % of $ %
2009 Total 2008 Total Change Change
Same-unit revenue
Financial Services $ 97,183 44.2 % $ 98,991 50.2 % $ (1,808 ) (1.8 )%
Employee Services 44,777 20.3 % 45,884 23.3 % (1,107 ) (2.4 )%
MMP 39,880 18.1 % 40,766 20.7 % (886 ) (2.2 )%
National Practices 10,141 4.6 % 10,151 5.1 % (10 ) (0.1 )%
Total same-unit revenue 191,981 87.2 % 195,792 99.3 % (3,811 ) (1.9 )%
Acquired businesses 28,191 12.8 % - - 28,191
Divested operations 5 - 1,371 0.7 % (1,366 )
Total revenue $ 220,177 100.0 % $ 197,163 100.0 % $ 23,014 11.7 %
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A detailed discussion of revenue by practice group is included under "Operating
Practice Groups".
Gross margin and operating expenses - Operating expenses for the first quarter
of 2009 increased by $20.1 million versus the comparable period in 2008, of
which $20.6 million was attributable to the December 31, 2008 acquisitions of
Mahoney Cohen & Company and Tofias PC. The primary components of operating
expenses for the first quarters of 2009 and 2008 are illustrated in the
following table:
2009 2008
% of % of Change in
Operating % of Operating % of % of
Expense Revenue Expense Revenue Revenue
Personnel costs 74.8 % 60.5 % 73.8 % 59.2 % 1.3 %
Occupancy costs 6.7 % 5.4 % 6.3 % 5.1 % 0.3 %
Depreciation and amortization 2.8 % 2.2 % 2.2 % 1.7 % 0.5 %
Other (1) 15.7 % 12.9 % 17.7 % 14.2 % (1.3 )%
Total operating expenses 81.0 % 80.2 % 0.8 %
Gross margin 19.0 % 19.8 % (0.8 )%
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(1) Other operating expenses include office expenses, travel and related expenses, equipment costs, professional fees and other expenses, none of which are individually significant as a percentage of total operating expenses.
The increase in operating expenses as a percentage of revenue attributable to
personnel costs consisted of an approximately 0.4% increase related to lower
losses on assets held in relation to CBIZ's deferred compensation plan, and 0.3%
related to certain compensation arrangements related to the previously mentioned
acquisitions. The increase in depreciation and amortization expense as a
percentage of revenue is the result of the previously mentioned acquisitions.
The decline in other operating expenses as a percentage of revenue for the first
quarter of 2009 verses the comparable period in 2008 occurred as a result of the
Company's cost-control efforts, and primarily relates to declines in travel and
recruiting fees. Personnel and other operating expenses are discussed in further
detail under "Operating Practice Groups".
Corporate general and administrative expenses - Corporate general and
administrative ("G&A") expenses increased by $0.4 million to $7.7 million for
the first quarter of 2009, from $7.3 million for the comparable period of 2008,
however, declined as a percentage of revenue to 3.5% from 3.7% for the first
quarters of 2009 and 2008, respectively. The primary components of G&A expenses
for the first quarters of 2009 and 2008 are illustrated in the following table:
2009 2008
% of % of Change in
G&A % of G&A % of % of
Expense Revenue Expense Revenue Revenue
Personnel costs 63.0 % 2.2 % 61.0 % 2.2 % -
Depreciation and amortization 2.3 % 0.1 % 5.2 % 0.2 % (0.1 )%
Professional services 10.8 % 0.4 % 12.2 % 0.4 % -
Other (1) 23.9 % 0.8 % 21.6 % 0.9 % (0.1 )%
Total G&A expenses 3.5 % 3.7 % (0.2 )%
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(1) Other G&A expenses include occupancy costs, office expenses, equipment and computer costs, insurance expense and other expenses, none of which are individually significant as a percentage of total G&A expenses.
Interest expense - Interest expense increased by $0.9 million to $3.5 million
for the first quarter of 2009 from $2.6 million for the comparable period in
2008. The increase in interest expense relates to higher average debt
outstanding under the credit facility in the first quarter of 2009 versus the
comparable period in 2008, partially offset by a decrease in average interest
rates. Average debt outstanding under the facility was $138.4 million and
$48.4 million and weighted average interest rates were 4.2% and 5.5% for the
first quarters of 2009 and 2008, respectively. The increase in average debt for
the first quarter of 2009 versus the comparable period in 2008 was largely
attributable to the December 31, 2008 acquisitions of Mahoney Cohen & Company
and Tofias PC which were financed through CBIZ's credit facility.
Although the convertible notes carry a fixed interest rate of 3.125%, interest
expense for the first quarter of 2009 increased by approximately $0.1 million
versus the first quarter of 2008. As required by FSP APB 14-1, CBIZ accounts for
the liability and equity components of the convertible notes in a manner that
reflects the convertible debt borrowing rate, absent the conversion feature,
when interest expense is recognized over subsequent periods. The effective
interest rate on the convertible notes is 7.8% and interest expense above the
3.125% coupon rate is non-cash. CBIZ's convertible notes and the impact of
adopting FSP APB 14-1 are further disclosed in Notes 1 and 5 of the accompanying
consolidated financial statements.
Other expense, net - Other expense, net is primarily comprised of interest
income and adjustments to the fair value of investments held in a rabbi trust
related to the deferred compensation plan. Adjustments to the fair value of
investments related to the deferred compensation contributed $1.0 million to the
decline in other expense, net for the first quarter of 2009 versus the
comparable period in 2008. These adjustments do not impact CBIZ's net income as
they are offset by the corresponding decrease to compensation expense which is
recorded as operating and G&A expenses in the consolidated statements of
operations.
Income tax expense - CBIZ recorded income tax expense from continuing operations
of $12.1 million and $11.2 million for the first quarters of 2009 and 2008,
respectively. The effective tax rate for the first quarter of 2009 was 40.2%,
compared to an effective rate of 40.1% for the comparable period in 2008.
Operating Practice Groups
CBIZ delivers its integrated services through four practice groups: Financial
Services, Employee Services, Medical Management Professionals ("MMP") and
National Practices. A brief description of these groups' operating results and
factors affecting their businesses is provided below.
Financial Services
THREE MONTHS ENDED MARCH 31,
$ %
2009 2008 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 97,183 $ 98,991 $ (1,808 ) (1.8 )%
Acquired businesses 27,510 - 27,510
Divested operations - - -
Total revenue $ 124,693 $ 98,991 $ 25,702 26.0 %
Operating expenses 93,138 71,736 21,402 29.8 %
Gross margin $ 31,555 $ 27,255 $ 4,300 15.8 %
Gross margin percent 25.3 % 27.5 %
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The increase in total revenue was primarily attributable to Mahoney Cohen &
Company and Tofias PC which were acquired on December 31, 2008. These firms
offer accounting, tax and financial advisory services to privately-held and
public companies as well as high net worth individuals. Although the Financial
Services group increased the rates realized for services, same-unit revenue for
the first quarter of 2009 declined versus the comparable period in 2008 due to a
reduction in client demand which resulted in a decrease in aggregate hours
charged to clients.
CBIZ provides a range of services to affiliated CPA firms under joint referral
and administrative service agreements ("ASAs"), including, but not limited to:
administrative functions such as office management, bookkeeping, and accounting;
preparing marketing and promotion materials; providing office space, computer
equipment, and systems support; and leasing administrative and professional
staff. Services are performed in exchange for a fee. Fees earned by CBIZ under
the ASAs are recorded as revenue in the accompanying consolidated statements of
operations and were approximately $32.6 million and $28.8 million for the three
months ended March 31, 2009 and 2008, respectively, a majority of which is
related to services rendered to privately-held clients. Typically, in the event
that accounts receivable and unbilled work in process become uncollectible by
the CPA firms, the service fee due to CBIZ is reduced on a pro rata basis. The
ASAs have terms ranging up to eighteen years, are renewable upon agreement by
both parties, and have certain rights of extension and termination.
The largest components of operating expenses for the Financial Services group
are personnel costs, occupancy costs, and travel related expenses representing
88.6% and 88.7% of total operating expenses for the first quarters of 2009 and
2008, respectively. Personnel costs increased $16.8 million for the first
quarter of 2009 compared to the same period in the prior year, of which $16.0
million was related to the acquired businesses. The remainder of the increase
was attributable to annual merit increases to existing employees, partially
offset by decreases in personnel at several units experiencing reduced client
demand. Occupancy costs increased by $1.9 million to 4.9% of revenue for the
first quarter of 2009 versus 4.2% of revenue for the comparable period in 2008.
The increase in occupancy costs relates to the acquired businesses and several
office relocations which were completed subsequent to the first quarter of 2008.
Travel related expenses decreased to 1.8% of revenue for the first quarter of
2009 from 2.0% of revenue for the comparable period of 2008, primarily as a
result of CBIZ's cost control efforts.
The decline in gross margin was primarily attributable to an increase in
amortization expense related to intangible assets associated with the
December 31, 2008 acquisitions of Mahoney Cohen & Company and Tofias PC. In
addition, bad debt expense increased to 1.3% of revenue for the first quarter of
2009 from
1.0% of revenue in the first quarter of 2008. The increase in bad debt expense was not related to an overall deterioration in the collectability of accounts receivable, but related to specific client receivables. Employee Services
THREE MONTHS ENDED MARCH 31,
$ %
2009 2008 Change Change
(In thousands, except percentages)
Revenue
Same-unit $ 44,777 $ 45,884 $ (1,107 ) (2.4 )%
Acquired businesses 681 - 681
Divested operations 5 1,371 (1,366 )
Total revenue $ 45,463 $ 47,255 $ (1,792 ) (3.8 )%
Operating expenses 37,426 38,758 (1,332 ) (3.4 )%
Gross margin $ 8,037 $ 8,497 $ (460 ) (5.4 )%
Gross margin percent 17.7 % 18.0 %
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The decrease in same-unit revenue was primarily attributable to declines in the
Company's human resources, payroll services, and wealth management and
retirement advisory businesses. Same-unit human resources revenue decreased
approximately $0.8 million due to lower client demand for recruiting and other
consulting services and same-unit payroll revenue decreased approximately $0.5
million as a result of the decline in interest rates which negatively affected
the investment income earned on payroll funds held on behalf of clients.
Same-unit revenue from the wealth management and retirement advisory businesses
was impacted by a decline in asset values in the first quarter of 2009. Group
health revenue for the first quarter of 2009 was approximately equal to revenue
in the first quarter of 2008 as the negative impact of higher rates of
unemployment were offset by an increase in the number of clients utilizing group
health benefit services. Property and casualty revenue decreased slightly in the
first quarter of 2009 versus the comparable period in 2008 due to soft market
conditions in pricing. The growth in revenue from acquired businesses was
provided by a property and casualty business in Frederick, Maryland and a
specialty recruiting business headquartered in Overland Park, Kansas, both of
which were acquired during 2008. The decline in revenue from divested businesses
relates to the sale of a specialty retirement investment advisory operation in
Atlanta, Georgia which occurred in the third quarter of 2008.
The largest components of operating expenses for the Employee Services group are
personnel costs, including commissions paid to third party brokers, and
occupancy costs, representing 84.4% and 83.1% of total operating expenses for
the first quarter of 2009 and 2008, respectively. Personnel costs decreased
$0.6 million, but increased as a percentage of revenue to 64.0% for the first
quarter of 2009 from 63.0% for the comparable period in 2008. The increase in
personnel costs as a percentage of revenue was primarily attributable to annual
merit increases and a decline in revenues at the aforementioned businesses which
have a predominantly fixed compensation structure. Occupancy costs are
relatively fixed in nature and were $2.5 million for the first quarter of 2009
and 2008.
The decline in gross margin was primarily attributable to lower interest rates
which resulted in a $0.5 million decline in investment income earned on payroll
funds. As investment revenue does not have related direct costs, changes in
investment revenue can have a significant impact on gross margin.
Medical Management Professionals
THREE MONTHS ENDED MARCH 31,
$ %
2009 2008 Change Change
(In thousands, except percentages)
Same-unit revenue $ 39,880 $ 40,766 $ (886 ) (2.2 )%
Operating expenses 35,168 36,146 (978 ) (2.7 )%
Gross margin $ 4,712 $ 4,620 $ 92 2.0 %
Gross margin percent 11.8 % 11.3 %
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Same-unit revenue decreased 2.2% for the first quarter of 2009 versus the
comparable period in 2008 due to an approximate 1% decline attributable to
existing clients and a 1% decline attributable to new business sold, net of
client terminations. Although revenue from existing clients grew by
approximately 1% as a result of an increase in volume, the growth was offset by
declines in pricing and the mix of medical specialties which collectively
totaled approximately 2%. The decline in revenue from new business sold, net of
client terminations, relates to an increase in lost business attributable to
various reasons, including physician groups losing their hospital contracts and
hospital consolidations.
The largest components of operating expenses for MMP are personnel costs,
professional service fees (primarily fees related to outside services for
off-shore and electronic claims processing), occupancy costs and office expenses
(primarily postage related to our statement mailing services), representing
87.2% and 86.3% of total operating expenses for the first quarters of 2009 and
2008, respectively. Personnel costs decreased $0.6 million to 58.1% of revenue
for the first quarter of 2009 from 58.4% of revenue for the comparable period in
2008, but was partially offset by an increase in professional service fees of
$0.2 million. MMP has reduced headcount and related personnel costs with their
expanded utilization of off-shore processing. The reductions in headcount and
personnel costs in billing operations were partially offset by annual merit
increases and some increases in internal support personnel necessary to manage
process improvements and centralization efforts. Office expenses decreased to
7.8% of revenue for the first quarter of 2009 versus 8.1% for the comparable
period of 2008, primarily as the result of a change in the frequency of
statement mailing. Occupancy costs were $2.7 million for the first quarters of
2009 and 2008.
MMP has taken various actions to maintain gross margin, including the
utilization of off-shore processing and other cost control measures. These cost
control measures have resulted in declines in various expenses for the first
quarter of 2009 versus the comparable period in 2008, including postage and
travel.
National Practices
THREE MONTHS ENDED MARCH 31,
$ %
2009 2008 Change Change
(In thousands, except percentages)
Same-unit revenue $ 10,141 $ 10,151 $ (10 ) (0.1 )%
Operating expenses 10,047 10,009 38 0.4 %
Gross margin $ 94 $ 142 $ (48 ) (33.8 )%
Gross margin percent 0.9 % 1.4 %
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Total revenue and gross margin for the businesses within the National Practices group did not change significantly for the first quarter of 2009 versus the comparable period of 2008. Approximately half of the revenue for the technology businesses is derived from recurring services provided to CBIZ's largest customer. A majority of the remaining revenue is non-recurring and project-based, and thus it is more volatile to changes in discretionary spending behaviors and general changes in the overall economy.
Throughout 2008 and continuing into the first quarter of 2009, the non-recurring
and project based revenue has been impacted by customers deferring investment
decisions in response to the deteriorating economic environment. Revenue in the
healthcare consulting business increased by $0.1 million for the first quarter
of 2009 versus the comparable period in 2008, but was offset by a decline in
revenue in the mergers and acquisitions business. The increase in revenue in the
healthcare consulting business was attributable to new services that were
introduced in 2008. There were no transactions closed by the mergers and
acquisitions business during the first quarter of 2009 or 2008.
The largest components of operating expenses for the National Practices group
are personnel costs, direct costs and occupancy costs, representing 93.9% and
92.1% of total operating expenses for the first quarters of 2009 and 2008,
respectively. Personnel costs increased $0.1 million to 77.2% of revenue for the
first quarter of 2009 from 75.7% of revenue for the comparable period in 2008.
The increase in personnel costs relates to annual merit increases and an
increase in headcount in the healthcare consulting business. The increase in
personnel costs as a percentage of revenue relates to the Company's decision to
maintain the majority of its technology workforce infrastructure in anticipation
of some larger projects that are expected to close in the latter part of 2009.
Direct costs relate to the technology businesses and consist of product costs,
sales commissions and third party labor. Direct costs increased as a percentage
of revenue by 0.8%, primarily due to a change in revenue mix more heavily
weighted with product sales in the first quarter of 2009 versus the comparable
period in 2008. Occupancy costs are relatively fixed in nature and were
$0.3 million for the first quarters of 2009 and 2008.
The decline in gross margin relates to the Company's decision to maintain the
majority of its technology workforce infrastructure and the change in revenue
mix for the technology units being more heavily weighted towards product sales,
which typically provide lower margins than service revenue. The increase in
personnel and direct costs (noted above) was substantially offset by a decline
in travel and other operating expenses as a result of the Company's cost-control
efforts.
Financial Condition
Cash and cash equivalents decreased by $0.1 million to $9.6 million at March 31,
. . .
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