UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2008
CBIZ, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 0-25890 | 22-2769024 | ||
| (State or other jurisdiction | (Commission | (IRS Employer | ||
| of incorporation) | File Number) | Identification No.) |
| 6050 Oak Tree Boulevard, South, Suite 500 | ||
| Cleveland, Ohio | 44131 | |
| (Address of principal executive offices) | (Zip Code) |
216-447-9000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On July 31, 2008, CBIZ, Inc. (the “Company”) issued a press release announcing its financial
results for the three and six month periods ended June 30, 2008. A copy of the press release is
furnished herewith as Exhibit 99.1. A transcript of CBIZ’s earnings conference call held on July
31, 2008 is furnished herewith as Exhibit 99.2. The exhibits contain, and may implicate,
forward-looking statements regarding the Company and include cautionary statements identifying
important factors that could cause actual results to differ materially from those anticipated.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | Press Release of CBIZ, Inc. dated July 31, 2008, announcing its financial results for the three and six month periods ended June 30, 2008. | ||
| 99.2 | Transcript of earnings conference call held on July 31, 2008, discussing CBIZ’s financial results for the three and six month periods ended June 30, 2008. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
August 5, 2008
| CBIZ, INC. | ||||||
| By: Name: |
/s/ Ware H. Grove
|
|||||
| Title: | Chief Financial Officer | |||||
3
Exhibit 99.1
|
 |
FOR IMMEDIATE RELEASE
|
CONTACT: | Ware Grove | ||
| Chief Financial Officer | ||||
| -or- | ||||
| Lori Novickis | ||||
| Director, Corporate Relations | ||||
| CBIZ, Inc. | ||||
| Cleveland, Ohio | ||||
| (216) 447-9000 |
CBIZ REPORTS SECOND-QUARTER AND FIRST-HALF 2008 RESULTS
SECOND-QUARTER REVENUE UP 12.2%; EPS FROM CONTINUING OPERATIONS UP 20%
FIRST-HALF REVENUE GROWS 11.3%; EPS FROM CONTINUING OPERATIONS UP 22%
FIRST-HALF REVENUE GROWS 11.3%; EPS FROM CONTINUING OPERATIONS UP 22%
Cleveland, Ohio (July 31, 2008)—CBIZ, Inc. (NYSE: CBZ) today announced second-quarter
and first-half results for the period ended June 30, 2008.
CBIZ reported revenue of $175.7 million for the second quarter ended June 30, 2008, an
increase of 12.2% over the $156.7 million reported for the second quarter of 2007.
Same-unit revenue increased by 5.8%, or by $9.0 million. Revenue from newly acquired
operations contributed $10.0 million to revenue growth in the second quarter. CBIZ
reported net income from continuing operations for the second quarter of 2008 of $7.5
million, or $0.12 per diluted share, compared with $6.5 million, or $0.10 per diluted
share in the second quarter of 2007.
During the first half of 2008, CBIZ repurchased approximately 3.8 million shares of
its common stock and since June 30, the Company has repurchased approximately 550,000
additional shares at a total cost of approximately $37.4 million to date. At June 30,
2008, the outstanding balance of the Company’s $150 million unsecured credit facility
was at $60 million.
For the six-month period ended June 30, 2008, CBIZ reported revenue of $373.1 million,
an increase of 11.3%, or $38.0 million over the $335.1 million reported for the
comparable six-month period a year ago. Same-unit revenue increased by 5.4%, or $17.9
million, for the first six months of 2008 compared to the same period a year ago.
Acquisitions, net of divestitures, contributed $20.1 million to revenue growth for the
first half of 2008. Net income from continuing operations was $24.7 million for the
first six months of 2008, or $0.39 per diluted share, compared with $21.3 million for
the first six months of 2007, or $0.32 per diluted share.
“The second quarter of 2008 represents the twentieth consecutive quarter of same-unit
revenue growth for CBIZ,” stated Steven L. Gerard, Chairman and CEO. “In this
economic environment we are very pleased to record continued strong growth in
revenues and earnings through the first six months of this year. We completed three
acquisitions in the first half of 2008 and we continue to work on a full pipeline of
potential additional acquisitions. Cash flow continues to be strong and we are on
track to achieve our goals for
2008 which include revenue growth of 10% and growth in earnings per share of at least
20% for the full year 2008 compared with 2007,” concluded Mr. Gerard.
CBIZ will host a conference call later this morning to discuss its results. The call
will be webcast in a listen-only mode over the Internet for the media and the public,
and can be accessed at www.cbiz.com. Shareholders and analysts wishing to
participate in the conference call may dial 1-800-640-9765 several minutes before
11:00 a.m. (ET). If you are dialing from outside the United States, dial
1-847-413-4837. A replay of the call will be available starting at 1:00 p.m. (ET)
July 31 through midnight (ET), August 4, 2008. The dial-in number for the replay is
1-877-213-9653. If you are listening from outside the United States, dial
1-630-652-3041. The access code for the replay is 22198855. A replay of the webcast
will also be available on the Company’s web site at www.cbiz.com.
CBIZ, Inc. provides professional business services that help clients better manage
their finances, employees and technology. As the largest benefits specialist, one of
the largest accounting, valuation and medical practice management companies in the
United States, CBIZ provides its clients with financial services which include
accounting and tax, internal audit, merger and acquisition advisory, and valuation.
Employee services include group benefits, property and casualty insurance, payroll,
HR consulting and wealth management. CBIZ also provides information technology,
hardware and software solutions, healthcare consulting and medical practice
management. These services are provided throughout a network of more than 140 Company
offices in 34 states.
Forward-looking statements in this release are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, the Company’s ability to adequately
manage its growth; the Company’s dependence on the current trend of outsourcing
business services; the Company’s dependence on the services of its CEO and other key
employees; competitive pricing pressures; general business and economic conditions;
and changes in governmental regulation and tax laws affecting its insurance business
or its business services operations. A more detailed description of such risks and
uncertainties may be found in the Company’s filings with the Securities and Exchange
Commission.
6050 Oak Tree Boulevard, South • Suite 500 • Cleveland, OH 44131 • Phone (216) 447-9000 • Fax (216) 447-9007
Page 2 of 5
CBIZ, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and per share data)
FINANCIAL HIGHLIGHTS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and per share data)
| THREE MONTHS ENDED | ||||||||||||||||
| JUNE 30, | ||||||||||||||||
| 2008 | % | 2007 (1) | % | |||||||||||||
Revenue |
$ | 175,734 | 100.0 | % | $ | 156,658 | 100.0 | % | ||||||||
Operating expenses |
154,883 | 88.1 | % | 138,259 | 88.3 | % | ||||||||||
Gross margin |
20,851 | 11.9 | % | 18,399 | 11.7 | % | ||||||||||
Corporate general and administrative expense |
7,791 | 4.5 | % | 7,408 | 4.7 | % | ||||||||||
Operating income |
13,060 | 7.4 | % | 10,991 | 7.0 | % | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(1,888 | ) | -1.1 | % | (1,694 | ) | -1.1 | % | ||||||||
Gain on sale of operations, net |
221 | 0.2 | % | 10 | 0.0 | % | ||||||||||
Other income, net (2) |
335 | 0.2 | % | 1,988 | 1.3 | % | ||||||||||
Total other income (expense), net |
(1,332 | ) | -0.7 | % | 304 | 0.2 | % | |||||||||
Income from continuing operations before income tax expense |
11,728 | 6.7 | % | 11,295 | 7.2 | % | ||||||||||
Income tax expense |
4,255 | 4,792 | ||||||||||||||
Income from continuing operations |
7,473 | 4.3 | % | 6,503 | 4.2 | % | ||||||||||
Loss from operations of discontinued businesses, net of tax |
(196 | ) | (556 | ) | ||||||||||||
Gain on disposal of discontinued businesses, net of tax |
9 | 3,883 | ||||||||||||||
Net income |
$ | 7,286 | 4.1 | % | $ | 9,830 | 6.3 | % | ||||||||
Diluted earnings per share: |
||||||||||||||||
Continuing operations |
$ | 0.12 | $ | 0.10 | ||||||||||||
Discontinued operations |
— | 0.05 | ||||||||||||||
Net income |
$ | 0.12 | $ | 0.15 | ||||||||||||
Diluted weighted average common shares outstanding |
62,440 | 66,459 | ||||||||||||||
Other data from continuing operations: |
||||||||||||||||
EBIT (3) |
$ | 13,395 | $ | 12,979 | ||||||||||||
EBITDA (3) |
$ | 17,193 | $ | 16,393 | ||||||||||||
| (1) | Certain amounts in the 2007 financial data have been reclassified to conform to the current year presentation. | |
| (2) | Includes a net loss of $131 and a net gain of $1,201 attributable to assets held in the Company’s deferred compensation plan for the three months ended June 30, 2008 and 2007, respectively. These net gains do not impact the Company’s “income from continuing operations before income tax expense” as they are directly offset by compensation to the Plan participants. Compensation is included in “operating expenses” and“corporate general and administrative expense.” | |
| (3) | EBIT represents income from continuing operations before income taxes, interest expense and the gain on the sale of operations, net. EBITDA represents EBIT before depreciation and amortization expense of $3,798 and $3,414 for the three months ended June 30, 2008 and 2007, respectively. The Company has included EBIT and EBITDA data because such data is commonly used as a performance measure by analysts and investors and as a measure of the Company’s ability to service debt. EBIT and EBITDA should not be regarded as an alternative or replacement to any measurement of performance under generally accepted accounting principles. |
6050 Oak Tree Boulevard, South • Suite 500 • Cleveland, OH 44131 • Phone (216) 447-9000 • Fax (216) 447-9007
Page 3 of 5
CBIZ, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and per share data)
FINANCIAL HIGHLIGHTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and per share data)
| SIX MONTHS ENDED | ||||||||||||||||
| JUNE 30, | ||||||||||||||||
| 2008 | % | 2007 (1) | % | |||||||||||||
Revenue |
$ | 373,086 | 100.0 | % | $ | 335,102 | 100.0 | % | ||||||||
Operating expenses |
313,213 | 84.0 | % | 282,297 | 84.2 | % | ||||||||||
Gross margin |
59,873 | 16.0 | % | 52,805 | 15.8 | % | ||||||||||
Corporate general and administrative expense |
15,043 | 4.0 | % | 16,090 | 4.8 | % | ||||||||||
Operating income |
44,830 | 12.0 | % | 36,715 | 11.0 | % | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(3,605 | ) | -1.0 | % | (2,966 | ) | -0.9 | % | ||||||||
Gain on sale of operations, net |
241 | 0.1 | % | 105 | 0.0 | % | ||||||||||
Other income (expense), net (2) |
(1,012 | ) | -0.3 | % | 2,595 | 0.8 | % | |||||||||
Total other expense, net |
(4,376 | ) | -1.2 | % | (266 | ) | -0.1 | % | ||||||||
Income from continuing operations before income tax expense |
40,454 | 10.8 | % | 36,449 | 10.9 | % | ||||||||||
Income tax expense |
15,753 | 15,100 | ||||||||||||||
Income from continuing operations |
24,701 | 6.6 | % | 21,349 | 6.4 | % | ||||||||||
Loss from operations of discontinued businesses, net of tax |
(194 | ) | (945 | ) | ||||||||||||
(Loss) gain on disposal of discontinued businesses, net of tax |
(440 | ) | 3,690 | |||||||||||||
Net income |
$ | 24,067 | 6.5 | % | $ | 24,094 | 7.2 | % | ||||||||
Diluted earnings (loss) per share: |
||||||||||||||||
Continuing operations |
$ | 0.39 | $ | 0.32 | ||||||||||||
Discontinued operations |
(0.01 | ) | 0.04 | |||||||||||||
Net income |
$ | 0.38 | $ | 0.36 | ||||||||||||
Diluted weighted average common shares outstanding |
63,320 | 67,236 | ||||||||||||||
Other data from continuing operations: |
||||||||||||||||
EBIT (3) |
$ | 43,818 | $ | 39,310 | ||||||||||||
EBITDA (3) |
$ | 51,433 | $ | 46,096 | ||||||||||||
| (1) | Certain amounts in the 2007 financial data have been reclassified to conform to the current year presentation. | |
| (2) | Includes a net loss of $1,919 and a net gain of $1,513 attributable to assets held in the Company’s deferred compensation plan for the six months ended June 30, 2008 and 2007, respectively. These net gains and losses do not impact the Company’s “income from continuing operations before income tax expense” as they are directly offset by compensation to the Plan participants. Compensation is included in “operating expenses” and “corporate general and administrative expense.” | |
| (3) | EBIT represents income from continuing operations before income taxes, interest expense and gain on the sale of operations, net. EBITDA represents EBIT before depreciation and amortization expense of $7,615 and $6,786 for the six months ended June 30, 2008 and 2007, respectively. The Company has included EBIT and EBITDA data because such data is commonly used as a performance measure by analysts and investors and as a measure of the Company’s ability to service debt. EBIT and EBITDA should not be regarded as an alternative or replacement to any measurement of performance under generally accepted accounting principles. |
6050 Oak Tree Boulevard, South • Suite 500 • Cleveland, OH 44131 • Phone (216) 447-9000 • Fax (216) 447-9007
Page 4 of 5
CBIZ, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and ratios)
FINANCIAL HIGHLIGHTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(In thousands, except percentages and ratios)
| THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||
| JUNE 30, | JUNE 30, | |||||||||||||||
| 2008 | 2007 (1) | 2008 | 2007 (1) | |||||||||||||
Revenue |
||||||||||||||||
Financial Services |
$ | 74,955 | $ | 69,112 | $ | 173,760 | $ | 161,144 | ||||||||
Employee Services |
47,307 | 42,837 | 94,562 | 87,874 | ||||||||||||
Medical Management Professionals |
41,899 | 32,116 | 82,665 | 61,724 | ||||||||||||
National Practices |
11,573 | 12,593 | 22,099 | 24,360 | ||||||||||||
Total |
$ | 175,734 | $ | 156,658 | $ | 373,086 | $ | 335,102 | ||||||||
Gross margin |
||||||||||||||||
Financial Services |
$ | 9,517 | $ | 9,298 | $ | 37,610 | $ | 35,549 | ||||||||
Employee Services |
8,505 | 8,063 | 17,319 | 17,868 | ||||||||||||
Medical Management Professionals |
5,581 | 4,521 | 10,255 | 7,463 | ||||||||||||
National Practices |
773 | 1,618 | 920 | 2,437 | ||||||||||||
Operating expenses — unallocated (2) |
(3,525 | ) | (5,101 | ) | (6,231 | ) | (10,512 | ) | ||||||||
Total |
$ | 20,851 | $ | 18,399 | $ | 59,873 | $ | 52,805 | ||||||||
SELECT BALANCE SHEET DATA AND RATIOS
| JUNE 30, | DECEMBER 31, | |||||||
| 2008 | 2007 (1) | |||||||
Cash and cash equivalents |
$ | 11,622 | $ | 12,144 | ||||
Restricted cash |
$ | 18,331 | $ | 15,402 | ||||
Accounts receivable, net |
$ | 132,699 | $ | 115,333 | ||||
Current assets before funds held for clients |
$ | 182,409 | $ | 161,681 | ||||
Funds held for clients — current and non-current |
$ | 75,087 | $ | 88,048 | ||||
Goodwill and other intangible assets, net |
$ | 281,721 | $ | 268,388 | ||||
Total assets |
$ | 599,582 | $ | 577,992 | ||||
Current liabilities before client fund obligations |
$ | 100,296 | $ | 95,922 | ||||
Client fund obligations |
$ | 76,700 | $ | 88,048 | ||||
Convertible notes |
$ | 100,000 | $ | 100,000 | ||||
Bank debt |
$ | 60,000 | $ | 30,000 | ||||
Total liabilities |
$ | 375,724 | $ | 351,546 | ||||
Treasury stock |
$ | (248,244 | ) | $ | (214,883 | ) | ||
Total stockholders’ equity |
$ | 223,858 | $ | 226,446 | ||||
Debt to equity (3) |
71.5 | % | 57.4 | % | ||||
Days sales outstanding from continuing operations (4) |
69 | 64 | ||||||
Shares outstanding |
62,223 | 64,637 | ||||||
Basic weighted average common shares outstanding |
62,544 | 65,061 | ||||||
Diluted weighted average common shares outstanding |
63,320 | 66,356 | ||||||
| (1) | Certain amounts in the 2007 financial data have been reclassified to conform to the current year presentation. | |
| (2) | Represents operating expenses not directly allocated to individual business units including incentive compensation, gains or losses attributable to assets held in the Company’s deferred compensation plan, stock based compensation, and certain advertising expenses. | |
| (3) | Ratio is convertible notes and bank debt divided by total equity. | |
| (4) | DSO is provided for continuing operations and represents accounts receivable (before the allowance for doubtful accounts) and unbilled revenue (net of realization adjustments) at the end of the period, divided by trailing twelve month daily revenue. The Company has included DSO data because such data is commonly used as a performance measure by analysts and investors and as a measure of the Company’s ability to collect on receivables in a timely manner. DSO should not be regarded as an alternative or replacement to any measurement of performance under generally accepted accounting principles. DSO at June 30, 2007 was 72 days. |
6050 Oak Tree Boulevard, South • Suite 500 • Cleveland, OH 44131 • Phone (216) 447-9000 • Fax (216) 447-9007
Page 5 of 5
Exhibit 99.2
CORPORATE PARTICIPANTS
Steven Gerard
CBIZ – Chairman and CEO
CBIZ – Chairman and CEO
Jerry Grisko
CBIZ – President and COO
CBIZ – President and COO
Ware Grove
CBIZ – CFO
CBIZ – CFO
CONFERENCE CALL PARTICIPANTS
Josh Vogel
Sidoti & Company — Analyst
Sidoti & Company — Analyst
Jim Macdonald
First Analysis — Analyst
First Analysis — Analyst
Vincent Colicchio
Noble Financial — Analyst
Noble Financial — Analyst
Robert Kirkpatrick
Cardinal Capital — Analyst
Cardinal Capital — Analyst
William DiTullio
Boenning & Scattergood — Analyst
Boenning & Scattergood — Analyst
Ted Hillenmeyer
Northstar Partners — Analyst
Northstar Partners — Analyst
PRESENTATION
Good morning, Ladies and Gentlemen, and welcome to the CBIZ second quarter 2008 results conference
call. At this time, all participants are in a listen-only mode. Later we will conduct a question
and answer session. Please note that this conference is being recorded.
I will now turn the call over to Mr. Steven Gerard. Mr. Gerard, you may begin.
Thank you, John. Good morning everyone, and thank you for calling into CBIZ’s second quarter 2008
conference call. Before I begin my comments I’d like to remind you of a few things. As with all our
conference calls, this call is intended to answer the questions of our shareholders and analysts.
If there are media representatives on the call, you’re welcome to listen in. However, I ask that if
you have questions you hold them until after the call and we will be happy to address them at that
time.
This call is also being web cast and you can access the call over our website at www.cbiz.com. You
should have all received a copy of the release which was issued this morning. If you did not, you
can access it on our website or you can call our corporate office.
Finally, remember that during the course of this call we may make forward-looking statements. These
statements represent management’s intentions, hopes, beliefs, expectations and predictions of the
future. Actual results can and sometimes do, differ materially from those projected in the
forward-looking statements. Additional information concerning the factors that could cause actual
results to materially differ from those in the forward-looking statements are contained in our SEC
filings, our Form 10-K and our press release.
Joining me on the call this morning is Jerry Grisko, our President and Chief Operating Officer and
Ware Grove, our Chief Financial Officer.
Before the open this morning, we were pleased to release our second quarter results, which
continued to show growth in both revenue and earnings per share. Our revenue for the quarter was up
over 12% and our earnings per share from continuing operations were up over 20%.
I will turn the call over to Ware now to give you the details and then I will come back and talk
about some of the other information we wish to impart.
Thank you, Steve. And good morning, everyone. Let me take a few minutes to review the highlights of
the numbers we released this morning for the second quarter and year-to-date results for 2008.
Total revenue for the second quarter was $175.7 million, an increase of $19.1 million, and as Steve
commented, 12.2% growth compared with revenue in the second quarter a year go. Same unit revenue
increased by 5.8% in the second quarter and the revenue increase attributed to newly acquired
business was 6.4% or $10.0 million, compared with the second quarter a year ago.
We were very pleased that this quarter represents the 20th consecutive quarter of same unit revenue
growth for CBIZ. In the second quarter this year, same unit growth in our Financial Services group
increased by 8.5%, increased by 5.0% in our Employee Services group and increased by 6.5% in our
Medical Management Professionals group. And for our National Practices group, which is primarily
comprised of our technology services business units, same unit revenue declined by 8.1% for the
second quarter, compared with the second quarter a year ago.
We have completed three acquisitions so far in 2008 that generate approximately $9.4 million of
revenue annually. I also wanted to remind you that we acquired Healthcare Business Resources, a $30
million emergency medicine billing business, in the fourth quarter of 2007. These acquisitions are
performing well and they are expected to make a significant contribution to our revenue growth in
2008, as evidenced by the 6.4% contribution to revenue growth in the second quarter this year. We
have always described our long term revenue growth goal as a strategy that is a blend between same
unit organic growth complimented by acquisitions. The mix between these sources of growth will be
variable on a year-to-year basis, primarily depending upon the number and size of acquisitions that
we can complete.
Now for the second quarter, net income from continuing operations was $7.5 million, and fully
diluted earnings per share was $0.12 per share compared with $0.10 per share from continuing
operations for the second quarter a year ago.
For the first six months of 2008 total revenue was $373.1 million, an increase of 11.3% or $38
million over the total revenue recorded for the first six months a year ago. Same unit revenue
increased by 5.4% for the first six months and the revenue from newly acquired businesses
contributed $20.1 million to revenue, or an increase of 5.9% compared with the first six months a
year ago. As I previously mentioned, the contribution to revenue from newly acquired businesses in
2008 will be relatively strong throughout the year.
For the first six months of 2008 same unit revenue grew by 7.8% in our Financial Services group,
grew by 3.7% in our Employee Services group and grew by 7.0% in our Medical Management
Professionals group. And for the first half the same unit revenue declined by 9.3% in our National
Practices group, which again is comprised primarily of our technology services business units.
For the first six months net income from continuing operations was $24.7 million or $0.39 per share
on a fully diluted basis. This compares with $21.3 million or $0.32 per share for the first six
months of 2007. Now as you look at the results for the first six months, you will note that the tax
rate is lower this year compared with last year. This is the result of a favorable determination on
several IRS audit issues that have been pending and for the full year of 2008. We now expect the
effective tax rate to be approximately 39%, which is slightly less than the 40% rate we had talked
about in previous calls.
As we outlined in the earnings release, we have continued to opportunistically repurchase shares of
our common stock in the open market throughout 2008. During the first quarter we had repurchased
approximately 2.5 million shares and through the end of the second quarter we had repurchased
approximately 3.8 million total shares. We have had a 10b5-1 program in place since June 15th and
we have repurchased an additional 550,000 shares through this program since the end of the quarter.
The total cost of the 4.3 million shares repurchased year-to-date in 2008 is approximately $37.4
million. With this repurchase activity to date, we now expect the fully diluted share count will be
approximately 63 million shares for the full year.
With respect to cash used for acquisitions, including earn-out payments on acquisitions closed in
prior years, we have invested approximately $21.4 million through June 30th of 2008. Capital
spending through June 30th was approximately $2.6 million for the first six months and we would
expect capital spending to be approximately $6 million to $7 million for the full year.
Given the challenging economic environment we have been operating in for 2008, we are constantly
closely monitoring and managing our client receivables. Through June 30th, however, cash flow
continues to be very strong and the days sales outstanding on our receivables has actually improved
to 69 days at June 30th, 2008 compared with 72 days at June 30th, 2007.
The outstanding balance on our $150 million unsecured credit facility was $60 million at June 30th,
2008. We began 2008 with a $30 million balance outstanding on this facility, so there has been an
additional $30 million use of this facility for the first six months. When you consider the
approximate $37 million used for share repurchases combined with the $21.4 million used for
acquisitions, for a total of about $58 million of non-operating use of funds for these two
purposes, this illustrates that the underlying operating cash flow continues to be healthy for
CBIZ. With only $60 million currently outstanding on our facility, this gives us ample flexibility
to fund operating needs, plus address acquisition or share repurchase opportunities going forward.
As we have stated previously, our first priority is to utilize capital for strategic acquisitions
and we currently have a number of potential acquisitions under development.
We are pleased to report strong first half results for 2008. Looking toward the balance of the
year, we are on target to achieve our goal of a 10% increase in revenue, with at least a 20%
increase in earnings per share from continuing operations. And that’s compared with the normalized
$0.43 per share that we reported for 2007, when you exclude the $0.07 per share impact of the
non-recurring gain that we announced in the fourth quarter of 2007.
So with those comments, I’ll conclude and I’ll turn it back over to Steve.
Thank you, Ware. I am very pleased with our top line and bottom line results for the quarter and
the six months, as we have reported a good mix of organic and acquisition growth, which is
consistent with both our 2008 and longer term guidance.
While we’ve achieved our goals and are confident of our ability to meet or exceed our full year
targets, we continue to be somewhat impacted by the softness in the property and casualty business,
the lower asset valuations in our wealth management business, somewhat higher processing costs in
our MMP business due to our transition to more off-shoring and some collection interruption from
the implementation of the National Physician Identifier, as well as the obvious weakness in our
technology business. I also want to emphasize that based on our continued successful performance,
we are continuing to make investments in both people and technology, which are necessary for the
future growth and success of the Company. A combination of these intentional investments in people
and technology, coupled with the various external market issues I mentioned earlier, have resulted
in year-to-date operating margins somewhat below what we’re striving for. However, let me remind
you that our plan for 2008 was not only a revenue growth of at least 10% and a growth in earnings
per share of at least 20%, but a pretax margin improvement continuing the trend of the last four
years.
Based upon the operating plans of our various business units, our pipeline of pending business, and
our ability to continue to leverage our G&A, we believe that we will also achieve our margin goals
for 2008. With that, I’d like to stop and I’d be happy to take questions from our shareholders and
analysts.
QUESTION AND ANSWER
Thank you. We will now begin the question and answer session. [OPERATOR INSTRUCTIONS] Our first
question comes from Josh Vogel from Sidoti & Company. Please go ahead.
Great. Thank you. Good morning, guys. My first question is on the pricing environment. I was mostly
concerned for Financial Services and Employee Services, what you were seeing on that end?
This is a difficult economic time for everyone. I would characterize the pricing, except for the
property and casualty which we talked about on the first quarter call and I’ve just mentioned
again, I would say that the pricing for the balance of our benefits and insurance business is
relatively unchanged. There are always competitive pressures, but there haven’t been dramatic
market shifts. The pricing in our Financial Services business, quite frankly is relatively
unchanged also. Don’t forget that a substantial part of our businesses are contracted towards the
end of last year in terms of when our clients on the Financial Services side engage us for taxes
for the next year or for audits for the next year, so that pricing tends to get somewhat locked in.
I would characterize the pricing across the board as being somewhat higher competitive pressure,
but other than property and casualty, we’re not seeing dramatic pricing, downward pricing pressure.
Okay. So maybe as you look out towards the end of this year and as you look to lock in business for
2009, do you think that the pricing environment is going to be a little bit more difficult?
I think it may be too soon to tell. I think the negotiations may be a little bit more difficult,
but I’m not envisioning dramatic changes in pricing going into next year.
Okay. Great. And what about on the wage side? Are you seeing rapid wage inflation or has that been
pretty steady as well?
No. That’s been very steady. The wage inflation has not gone up. Now there continues to be pressure
in our Financial Services group, primarily among our more senior accounting professionals. As in
any professional group, the best people are always in demand, so there’s a little bit more pressure
there. But across the board we’re not seeing dramatic inflation salary pressure in our workforce.
Okay. Good. And you’ve done a great job layering in the acquisitions, with the three this year and
the healthcare billing in Q4. Is there any way to quantify what you think those three businesses
are going to add to the bottom line for full year ‘08?
We haven’t really quantified bottom line impact, Josh. Typically our acquisitions are accretive and
they tend to have a marginally higher incremental contribution in the core business, just because
we can leverage the add-ons.
Okay. And just lastly, what percent of your total business is in California?
I don’t know off the top of my head. I would have to get back to you. Is there a particular reason
why you’re asking that question?
I was just curious because the economy there is probably one of the hardest hit markets in the U.S.
and I’m just trying to gauge the exposure there.
We would have to try and calculate that across all of our major business groups and I’d be happy to
do that. Let me say this to you, it’s not a disproportionate amount of our business. We have strong
accounting groups there and insurance groups, and very little MMP business out there, so I would
guess that there’s no disproportionate contribution there. And our accounting groups, in particular
in Northern California, in the L.A. area and Southern California, are among the most well
positioned of our businesses anywhere, with very strong client bases. So I wouldn’t expect a
dramatic downturn in the California economy to have a disproportionate impact on them.
Okay. That’s helpful. Thank you very much.
Our next question comes from Jim Macdonald from First Analysis. Please go ahead.
Hi, guys. Can we expand on the margins a little more? I mean, any economic impact on margins? Any
impact of the Physician Identifier shift in MMP? I mean, it seemed like margins were sort of [flat]
across the board. But on the flip side your corporate unallocated was much lower than usual.
I’ll address the margins and Ware can talk about the unallocated. He gets the hard questions. MMP
probably saw some disruption in collections from the May 23rd implementation of the NPI, the
National Physician Identifier, as some of the carriers struggled to match up the claims with the
doctor groups. We reviewed that and we said, I think to you and others, that that was a short term
issue which would resolve itself in the third quarter. So to the extent that there was any revenue
dislocation there, and we think there was some, we’ll see that picked up. With respect to the
margin in our other businesses, I think we’ve explained the obvious margin deterioration in the
Employee Services group as being primarily in the property and casualty arena and the asset based
fee area. And on the Financial Services side we’ve seen some expenses for people as we build up
that business. And we’ve had some timing issues of some contingent revenue that came in the second
quarter of 2007 that isn’t going to come in until the third and fourth quarter of 2008, which is
one of the reasons why we try and emphasize that to look at us quarter by quarter isn’t as
applicable as perhaps some other companies because we do have timing on both the insurance side and
the accounting side of what we could call normal business. It just tends to come in one quarter
versus the other.
So the margin issues across the board, and the margins were off, as I indicated in my introduction,
in all of our businesses for the quarter. But I would reiterate what I said, which is we do expect
to hit our goals for the full year. There’s enough on our plate to make it up.
Yes, Jim. This is Ware. Let me go through our deferred compensation impact. You talked about the
unallocated expenses up in the gross margin table that we provide on page 3 of the attachment to
the press release and the fact that the unallocated expenses are lower this year compared to last
year. That’s primarily driven by the impact of the deferred compensation accounting. We now have
about $24 million in assets in that rabbi trust. And just to run you through how this works again,
as the value of those assets gain in market value, that generates additional compensation expense
which is then offset in the other income or loss
expense line. So there is no net pretax impact or no net bottom line, but it does impact the gross
margins and the operating income.
Now for the second quarter this year, and even for the first half this year, we’ve seen market
declines in those assets. It was a fairly modest decline in the second quarter, and for the year to
date there is about a 10% decline or about a $2 million decline in the value of those assets. So
when you look at the other income and expense line, you’ll see that in that line. But it’s also up
above
in that unallocated line. So the extent that we have market reductions that reduce expense up
in the operating income area and then it creates a loss or an expense down below. Is that clear? I
know this is kind of complicated area.
Yes. I mean, it’s sort of clear. Although you didn’t seem to have that much of an impact of the
rabbi trust in the second quarter?
No. It really wasn’t. It was maybe, if you calculate the all in impact to the operating income
margin, maybe 7 basis points.
Right. So I’m just wondering; that seems like a relatively small amount to impact the corporate
unallocated so largely.
Well, when you’re comparing it against last year, last year remember we were in a different market
and we have some gains which would have increased expenses last year compared to the reduction in
expenses. So the year-to-year comparison is really probably what you’re looking at.
Okay. Thanks. And then let me ask on the MMP, we started down that path. Any estimate of how much
revenue will shift Q2 to Q3 because of the NPI shift? And on that, given some of the Medicare
billing issues, will that shift any revenue from Q3 to Q4, or will that all be maintained in Q3?
It’s actually a little bit hard for us to calculate. The best estimate that we’re able to come up
with, and the range is very wide, is somewhere between $200,000 and $500,000 of revenue that may be
attributable to the NPI. And we tend to know that as the claims processing ages. Assuming those
numbers are correct, and again I appreciate the range is very wide, we would expect to pick up the
bulk of it in the third quarter. And possibly a little bit more in the fourth quarter, based on the
ability of the carrier to straighten out their bookkeeping.
And have you been impacted by the Medicare physician billing rate issues and lack of...
What happened there, as you may know, is that the legislative reduction was effective July 1. It
took them about two weeks to have a bill go through both Houses of Congress to get rid of that
reduction. It then sat on the President’s desk. He vetoed it. They went back to the Congress and
they overrode his veto. That’s caused a little bit of clerical problems because some claims may
have to have been re-filed. But it wasn’t significant because there’s a normal two week delay in
the processing of those anyway.
So it didn’t have any significant impact in the second quarter. And there may be a little bit of an
overtime or clerical expense to correct some of the billing that may have been done in that two
week period of time. But I don’t expect it will be material. In fact I don’t expect we’ll even
comment on it in the third quarter.
Okay. And then just one other one. On the convertible, the new accounting rules for that, have you
made any estimates of the impact of that in 2009?
No. We haven’t yet, Jim. We’ll be looking at that in the second quarter. And of course, I’m sorry,
in the second half of this year. And of course that’s in effect as of January 1st, 2009. If we’re
not ready to disclose and have a conversation about some of the details at the end of the third
quarter, certainly by the end of the year we would have some information for you.
Okay. But is my estimate of $0.03 to $0.04 impact way out of line?
You know I really can’t say at this stage. We’re still looking at it, so I don’t really know that I
have a comment on that yet.
Okay. Thanks very much.
Our next question comes from Vincent Colicchio from Nobel Financial. Please go ahead.
Ware, a question for you. What portion of your reoccurring revenue contracts will expire in the
second half of the year? Is that a large number or no?
It’s Steve, Vince. Let me explain it this way. We have an 80 plus percent reoccurring business, as
you know. But our definition of reoccurring revenue is the insurance and the accounting businesses
that we do year after year after year. By example, if we’ve been doing your taxes for 7 years, we
expect we’ll do it on the 8th year. That business tends to be re-upped every year. There is no
guarantee that it will be, but the track record over the last 10 years is that over 80% is renewed.
So that’s where we talk about our reoccurring revenue.
Our MMP business tends to have two and three year contracts, and those are on a rolling basis with
no significant amount rolling off in any one given year. Our Edward Jones business, which is our
largest single client, is a three year contract. That contract is up this fall and we are
discussing the new contract with Edward Jones with a very, very high degree of confidence that a
new contract will be in place going forward.
So the specific question is you can’t really look at our “reoccurring business” on a contractual
basis because every year it gets redone.
That’s helpful. On the MMP business you had mentioned competition from offshore providers. I know
you’ve talked about potentially off-shoring a portion of your processing. Could you give us an
update there, on both what’s happening on the competitive front and what your plans are in
response?
Well, sure. I think the comment I made was that we have slightly higher costs in the last two
quarters because we are transitioning more and more of our business offshore. And in that
transition, while we are benefiting from the lower item processing costs, we still haven’t reduced
the headcount in a commensurate way. So we have a little bit of a double up until we make sure it’s
all going well. We’re off-shoring today about 35% of our coding, which is one of a multi-step
process. And we’re in the process of looking at a number of our other processes to see whether
they’re applicable for off-shoring. So this is an investment we’re making now that we think will
have benefits in the future.
The pricing and the competitive pricing in MMP continues to be very fierce. There are a number of
billing companies out there. We are a market leader so we are a target. And I would say we have as
much, if not more competitive pricing pressure in our MMP business as we do anyplace else. The
offset of it is we’re probably the best in the business, so we have a client service and a
processing capability that a lot of people don’t have and that helps us retain business. But it
isn’t easy on a day to day basis. We are seeing competition from the other major billing companies.
And we’re not seeing a lot of competition yet from offshore companies taking over the entire
billing process, although that is certainly possible in the future.
And you’re preparing for that obviously?
We are preparing for that.
Okay. One housekeeping item I may have missed, Ware. What was the cash from operations?
I didn’t really talk about the cash from operations, but think of it this way: we’ve used roughly
$30 million of additional funds on our credit facilities for the first half; we have spent from
non-operating uses between acquisition investments and share repurchase investments roughly $58
million; so in round terms, roughly $30 million has come from the underlying operations in the
first half.
Okay. Thanks, guys. Nice quarter in a tough market.
Robert Kirkpatrick from Cardinal Capital is on the line with a question. Please state your
question.
Good morning and let me add my congratulations as well. Any investment banking deals done during
the quarter? Or is that about as quiet as we expected it?
We closed the acquisition of EFL on the first of April, I think. Are you talking about our
acquisitions or our M&A business?
I was talking about your M&A business. Excuse me.
I’m sorry; my mistake. Nothing closed in the second quarter. No. It was quiet for the quarter. I
think we expected it to be quiet. There are number of opportunities, but you know what the
mortality rate is. We’ll just have to see.
Okay. And has there been any change in provision for bad debts with the deterioration in the
economy, at least as reported by the public press?
Yes. We’ve taken a slightly more conservative view on AR aging, and so we have made a very modest
increase in the bad debt allowance for the first half compared to last year.
Okay. And then Steve or Ware, how much is remaining on your current share buyback authorization?
Well, we’ve got 5 million shares authorized through March of ‘09. I think we’ve used roughly 1.5
million to 2 million shares of that authorization to date.
Robert Kirkpatrick — Cardinal Capital — Analyst
Thank you so much. I would assume that if the quarter were to be as aggressive as you were in the
last quarter, that we might need to see another authorization. Is that the initial inclination?
Again, as you know, the authorizations are just bookkeeping. The fact is that we will continue to
use our cash, first priority is acquisitions. Our acquisition pipe line is as strong, if not
stronger than it’s ever been, so that’s probably the first priority. If for some reason that
strength dissipates, you can expect that we would continue to invest in our stock at the current
price, and do it opportunistically. But it’s too soon to judge what the quarter is going to look
like.
Great. And then do you have much in the way of earn-out payments for the balance of this year?
No, we don’t. Many of the large transactions we did in prior years have now fully gone through
their earn-out phases. So from here on out we have fairly moderate obligations.
Great. Thank you very much, gentlemen.
Our next question comes from William DiTullio from Boenning & Scattergood. Please go ahead.
Good morning. Thank you for taking my call. Could you just give us an update on cross serving
revenue, where that stands for the year?
Yes. I’d be happy to. Our cross serving revenue continues on track. We’re about 45% of our full
year target and this is typically the percentage we are at, at this point every year. The reporting
tends to get a little bit back ended. So cross serving continues. Our goal that we published — our
cross serving last year was a little over $19 million. We’ve put forth a goal of $21 million and as
we sit here today we’re on track.
Great. And you said that your acquisition pipeline looks very strong. Could you just give us a
little more color and what kind of spaces you’re looking at and what kind of size deals possibly we
could expect?
We continue to look at acquisitions in our three major business segments, Financial Services,
Employee Services and Medical Management business, and we have acquisition possibilities in each of
them. They range in very, very broad range of sizes from very small to reasonably large, and we’re
actively pursuing quite a number of them.
Okay. Great. Well congratulations on a strong quarter, guys. Thanks.
Our next question comes from Ted Hillenmeyer from Northstar Partners. Please go ahead.
Yes. How much of a headwind is the soft P&C market for your internal growth in Employee Services?
That’s definitely a factor. I think if you read the literature, people have generally acknowledged
roughly a 10% decline in pricing on P&C products. In our book of business it’s probably been less
than that, maybe half of that, depending on the clients and the carrier and the line of coverage.
But we’ve also been successful as to working with our clients in this soft market to have them take
advantage to buy up additional coverage. So to the extent that deductibles are now going down and
or more coverage is being obtained, our total revenue growth is actually positive in that area on a
year to year basis, and clearly less than it would have been otherwise.
So was it a drag on the same store number for Employee Services?
No. It was about in line with the same store number. Clearly, had the environment been better, the
same store number would have been better because of the P&C market. But the growth in the P&C
revenue was generally in line with the overall Employee Services revenue growth.
And when you say buy additional coverage, is that higher amounts or a longer period? And is that
robbing from potentially future years?
Well, you know, people go through renewals and the thought process on a year to year basis. And
it’s not uncommon for a risk manager to take advantage or a company to take advantage of a soft
market to gain more coverage either with more gross amounts combined with lower deductibles.
But it’s not doing a two year deal versus a one year deal?
No.
No. Typically not.
And our property and casualty business as a percentage of the total Employee Services business is
maybe 15%. So your question as to headwinds, there is clearly an impact and it’s softened our
margin. If we had been carrying the same margin on the same revenue as we did a year ago, it would
have made up the margin shortfall in the Employee Services, or a good part of it. But it is not by
itself a crippler, given the total size of the Employee Services group.
Okay. And then can you just discuss the National Practices technology group? You mentioned it was
down and in what areas? Can you remind me; is the M&A in that bucket?
Yes. M&A is in that bucket, our healthcare consulting firm is in that bucket, but the majority of
it is our technology business. It’s about $40 million of annual revenue and half of that, or a
little under half of that, is the Edward Jones contract which is performing very, very well. The
balance of that is hardware, software installation, network monitoring and that tends to be project
business. And that’s the kind of business that gets soft when the economy slows up because that
tends to be investment by clients into either new technology or upgrades. And so our software
installation business is down, our hardware business is down and our networking business is, at
best, flat.
So while we have some opportunities in this area, and it is a good business for us historically, we
will carry that business for a while and suffer some margin hits as that market right-sizes itself.
Okay. And then on the earn-outs, are you able to just give me a general ballpark of the magnitude
and in general how acquisitions are structured with earn-outs?
Oh sure. Every acquisition is different, but the best rule of thumb is that typically about half of
the consideration is paid at closing and the balance over a two or three year period, based on
hitting certain performance measures. And as the time goes on, as most of our acquisitions have hit
their performance measures, they earn the earn-out and they get paid in the subsequent year.
And where in terms of what’s left and might be recognized; and where does that sit on the balance
sheet and how does it flow through the income statement?
Well we really don’t book it on the balance sheet until the earn-out is actually earned and the
contingencies that the earn-out needs to meet are met. At that point in time we would book a
liability on the balance sheet, and of course when it’s paid, the cash would relieve that
liability. So there is no P&L impact; it’s just a balance sheet impact on the earn-outs.
Traditionally many of our investments in acquisitions have closed in the first half of the year.
And therefore, as we go through the first, second or third anniversary of those acquisitions, the
earn-out calculations are made and paid. So generally the earn-out payments are in the first half
of the year. So with $21 million, $22 million paid year to date on acquisitions and earn-outs,
about half of that would be earn-outs for prior year acquisitions and about half of it for initial
payments on the acquired businesses in the first half of this year. But as I commented earlier, we
have very few earn-outs left for the balance of the year and many of the acquisitions that
triggered some larger earn-outs, which is a good thing quite frankly, are now behind us.
Appreciate it, guys. Thanks.
And our next question comes from Jim Macdonald. Please go ahead.
Yes. Just a quick one. You mentioned softness on the projects in the IT group, but what are you
seeing on the projects related to the Financial Services business? The late in the year projects?
Given the visibility that we have, we think that the, what we call the project-related, namely the
non-committed in the third and fourth quarter seems to be on track with what our expectations are.
We don’t have, as you know, visibility down to the little transactions, but basically it looks to
us like our Financial Services group is going to be well-employed in the third and fourth quarter
with the pipeline of what we have.
Okay. Thanks.
[OPERATOR INSTRUCTIONS] And at this time I show no questions.
Okay. Well I’d like to thank our analysts and our shareholders for their continued support.
Obviously our employees who are listening in for their great work. As someone on the call said,
great results in a difficult environment and that’s the best way to summarize where we’re at. This
is a tough market and we’re doing extremely well. And we’re very proud of everybody who works for
the Company. And the outlook for the rest of the year is at least on target with our guidance, if
not better. So we thank everybody and look forward to the third quarter call.
Thank you, Ladies and Gentlemen. This concludes today’s conference. Thank you for participating.
You may now disconnect.