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8-K - FORM 8-K - CBIZ, Inc. | l41887e8vk.htm |
EX-99.1 - EX-99.1 - CBIZ, Inc. | l41887exv99w1.htm |
Exhibit 99.2
CORPORATE PARTICIPANTS
Steven Gerard
CBIZ, Inc Chairman and CEO
CBIZ, Inc Chairman and CEO
Jerry Grisko
CBIZ, Inc President and COO
CBIZ, Inc President and COO
Ware Grove
CBIZ, Inc CFO and SVP
CBIZ, Inc CFO and SVP
CONFERENCE CALL PARTICIPANTS
Josh Vogel
Sidoti & Company Analyst
Sidoti & Company Analyst
Jim MacDonald
First Analysis Securities Analyst
First Analysis Securities Analyst
Bill Sutherland
Boenning & Scattergood Inc. Analyst
Boenning & Scattergood Inc. Analyst
Vincent Colicchio
Noble Financial Group Analyst
Noble Financial Group Analyst
PRESENTATION
Operator
Welcome to the CBIZ fourth quarter and year end 2010 results conference call. My name is
Christine and I will be your operator for todays conference. 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.
Steven Gerard CBIZ, Inc Chairman and CEO
Thank you, Christine and good morning everyone. Thank you for calling in to our fourth quarter
and year end 2010 conference call. Before I begin my comments Id like to remind you of a few
things. As with all of our conference calls, this call is intended to answer the questions of our
Shareholders and Analysts. If there are media representatives on the call, youre welcome to listen
in. However, I ask that if you do 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 webcast and you can access the call off
of our website. You should have all received a copy of the release, which we issued this morning.
If you did not, it will be posted on our website or you can access our Corporate Office for a copy.
And finally, remember that during the course of this call we will make forward-looking statements.
These statements represent Managements intentions, hopes, beliefs, expectations, and predictions
of the future. Actual results can and sometimes do differ materially from those projected in
forward-looking statements. Additional information concerning the factors that would cause actual
results to differ materially from those in forward-looking statements is contained in our SEC
filings, Form 10K and prior press releases. Joining me on the call this morning is Jerry Grisko,
our President and Chief Operating Officer, and Ware Grove, our Chief Financial Officer.
A word of caution as we go through the call, the entire Independence, Ohio area has been hit with a
blackout and we have lost complete power in all of the buildings surrounding our office including
ours. So we are following our recovery model and having this call from a remote location. I mention
this so that anyone who has been calling our office for information or follow-up, you will not be
able to get through and anyone who is trying to access via e-mail, you will not be able to get
through at this time until the e-mail service is converted. So, I give you this update and we will
respond to everybody as soon as the Independence, Ohio area gets its power back.
This morning prior to the open, we were pleased to report our full year 2010 results which were
consistent with the guidance that we had been giving last year and reporting on a comparable basis
earnings per share of $0.52 equal to
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the prior year. Of particular note were the challenges that we
and our clients faced in 2010. Both our Financial Services and Employee Services groups reported
year-over-year gains in revenue and in contribution and the cost controls that were put in place in
our Medical Practice business resulted in a very strong second half of 2010. Most important to us
was the fact that we reported sequentially, four consecutive quarters of improved same business
same store revenue and the fourth quarter was only down 1%. What Im going to do now is turn it
over to Ware to give you the details, and then come back and talk a little bit about 2011, our
expectations and some of the factors affecting our businesses.
Ware Grove CBIZ, Inc CFO and SVP
Thanks Steve. As is our normal practice I want to take a few minutes to run through the
highlights of the numbers we released this morning for the fourth quarter and year end of December
31, 2010. As we expected at the beginning of the year, 2010 was a challenging year. The general
business environment for the small and mid-size businesses that are typically served by CBIZ
continue to be characterized by persistently high unemployment and low levels of business
investment or expansion throughout the year. As we noted in earlier quarterly conference calls,
however, we have seen sequential improvements as the year progressed and we continue to see
improvements through the fourth quarter of 2010.
Given the challenge to growing revenue during the year, we took steps within all of our business
groups to align our cost structure and our resources with client service needs and we continue to
focus on carefully managing all costs. In the fourth quarter ending December 31, 2010, total
revenue increased by $2.9 million or by 1.8% compared with fourth quarter a year ago. Same unit
revenue declined by 1.0%, and as I noted even though this represents a decline, the trend
throughout the year represents a sequential improvement compared with earlier quarters throughout
2010. During the fourth quarter, we were pleased to record positive same unit revenue growth of
1.8% within our Financial Services group compared to a year ago. Same unit revenue for our Medical
Management Professionals group declined by 1.5% in the fourth quarter and this represents an
improving trend within this group.
The Employee Services group continues to be impacted by high unemployment levels, combined with a
continuing soft market for property and casualty insurance which impacts our ability to achieve
revenue growth in this group. As a result, the same unit revenue declined by 4.5% in the fourth
quarter in this group compared with a year ago.
Now during the fourth quarter of 2010, in November, we announced the acquisition of her Kirkland
Russ Murphy & Tapp, a financial services firm with about $12 million of revenue that is located in
Tampa, Florida. We are pleased to welcome this firm to the CBIZ team and as we announced in
November, we expect the impact in 2011 will be accretive to earnings per share. I want to point
out, however, that with the seasonal nature of the accounting business, it is not unusual to report
a loss in the second half of the year. And operating losses in November and December, in this new
business unit, negatively impacted our combined earnings per share by about $0.01 in the fourth
quarter of 2010.
That, combined with lower contribution from the Employee Services group for the reasons I mentioned
earlier, we recorded a loss of $0.02 per share in the fourth quarter compared with a year ago. As
we look at the full year results, I want to remind you that previously announced lease
restructuring charges that were incurred with in connection with the acquisition of our Boca Raton
financial services firm in January and the charge relating to the early retirement of debt that was
incurred in September, combined these charges impacted earnings per share by $0.04 for the full
year of 2010. Excluding these two items, CBIZ achieved earnings per share of $0.52 which is in-line
with the guidance we have provided since July of last year. Excluding the impact of these two
items, pre-tax income for 2010 would be $48.6 million, or 6.6% of revenue compared with 7.0% a year
ago.
Now there was a 60 basis point decline in margin attributable to the performance of our Medical
Management Professionals group in 2010, and the new Tampa unit resulted in a decline of 7 basis
points in the fourth quarter, plus there were 28 basis points of decline attributable to the
additional interest costs in 2010 compared to 2009. Now, for the full year of 2010, revenue was
$732.5 million, a decline of slightly less than 1.0% from a year ago. Acquisitions
contributed approximately 2.7% to revenue growth and the same unit revenue declined by 3.6% for the
full year ended December 31, 2010.
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Same unit revenue in our Financial Services group declined by 2.9% or $11 million for the full
year, but you will note in our segment data that despite the seasonal loss incurred in our newly
acquired Tampa unit in the fourth quarter, the contribution from this group increased by
approximately $2.8 million in 2010 compared with 2009. This is a result of the hard work of
associates located in our units throughout the US as we have become more efficient at serving
client needs with fewer resources and lower cost.
Within our Employee Services group, same unit revenue declined by 1.9% in 2010 versus 2009. As
mentioned earlier, our benefits and payroll services have been impacted by persistently high levels
of unemployment and we continue to see a soft market in property and casualty insurance, which
impacts our revenue. On a positive note, our retirement advisory business has grown during the past
year as a result of the increase in underlying planned asset values. And we have seen revenue
growth in our HR and Recruiting Services. Contribution in this segment also increased slightly for
the full year, again, thanks to the hard work and dedicated CBIZ associates located in our various
operating units throughout the US.
As we commented throughout 2010, revenue in our MMP group has been impacted by general industry
trends resulting in lower volumes of medical procedures, along with a shift in a mix of procedures
that resulted in a lower volume of the higher value radiology procedures such as MRIs and CAT
scans. Same unit revenue within this group declined by 7.6% for the full year of 2010, which
amounted to a $12.2 million decline in revenue compared with a year ago. As a result, the gross
margin contribution of this group declined by $4.3 million in 2010, and this decline impacted our
overall earnings per share by approximately $0.05 per share for the full year of 2010 compared with
2009. I want to remind you, as Steve commented, the cost management efforts we undertook within
this group earlier in the year. And you will note the gross margin contribution increased
substantially in the fourth quarter compared to a year ago despite slightly lower revenues in the
fourth quarter of this year. And as is the case with our other operating groups, the team at MMP
has done a very nice job responding to a tough business environment.
Cash flow in 2010 continues to be strong as cash earnings per share increased from $0.99 a year
ago, to $1.02 per share in 2010. A schedule outlining the cash earnings and cash earnings per share
calculation is included as an attachment to our release.
Days sales outstanding on our receivables was 72 days at year-end 2010 and that compares to 67 days
a year ago. The increase in day sales outstanding this year was primarily a result of the growth in
the Litigation Support and Bankruptcy Consulting engagements where receivables tend to age longer
than our typical engagements. We spent $2.8 million on capital spending for the full year of 2010
of which $700,000 was spent in the fourth quarter. Now the financing transactions that we
accomplished in the third quarter of 2010 essentially refinanced the 3.125% convertible notes for
the upcoming call date of June 1, 2011. With the issuance of the new 4.875% notes that are due
October 1, 2015, we immediately retired $60 million of the $100 million balance on the 3.125%
notes.
We used a portion of the proceeds to buy back stock and we also paid down bank debt with the
balance of the proceeds. So, with the $118.9 million balance on our $275 million unsecured bank
credit facility at December 31, 2010, we have the capacity to pay down the $40 million balance
remaining on the 3.125% notes on the upcoming June 1, 2011 date. I should note that we have the
necessary financing capacity to address future acquisition opportunities as they occur. During
2010, we closed on four new acquisitions. We are always reviewing a number of potential
opportunities and we expect to close our normal three to five transactions again during 2011.
During 2010, we used approximately $53 million for acquisitions including earnout payments on
acquisitions closed in prior years. Assuming a full earnout payment for acquisitions already closed
through the end of 2010, future earnout payments are expected to be approximately $17.5 million in
2011, $29 million in 2012, and the remaining $5.5 million expected in 2013. Now, our cash flow is
expected to continue to be strong as we look into 2011. In addition to funding future earnout
payments that I just described, our priority and utilizing capital will continue to be focused on
making new strategic acquisitions. Now also as a result of the share repurchase activities that
occurred in the third quarter of 2010, share count for the full year of 2011 is expected to be
approximately 50 million shares. a reduction from 58.2 million shares reported for the full year of
2010.
As mentioned earlier in 2010, the share purchase transactions that occurred in the third quarter
are expected to have an accretive impact of approximately $0.05 per share in 2011. Now you will
also note that the effective tax rate in
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2010 was 37.6% and thats a result of a utilizing some net
operating loss carry forwards that we previously announced and discussed at the end of the second
quarter. The plan rate for 2011 calls for a 40% effective rate and that will negatively impact
reported earnings per share by approximately $0.02 per share in 2011 compared with the effective
rate that we just reported of 37.6% for 2010. Again, looking ahead to 2011, we expect a generally
improving business environment for small and mid-sized businesses in the US. We think that today
high unemployment levels will be slow to improve, however, we expect a moderate increase in
expansion and business investment activity in 2011 that will result in modest growth opportunities
within our Financial Services and Employee Services segments in 2011.
The level and mix of procedures impacting our MMP business appears to have stabilized through the
second half of 2010. Although achieving revenue growth in this segment will be a challenge looking
ahead into 2011 due to continuing pressures on reimbursement rates, particularly in the radiology
specialization. As we have noted, we have carefully managed cost throughout our business during the
past year. And these efforts position us to leverage our cost structure even as we expect modest
revenue growth in 2011. We expect to achieve revenue growth at a modest rate within 2011, but we
also expect to achieve growth in earnings per share within a range of 10% to 15% over what we will
call the normalized $0.52 per share that we achieved in 2010.
Cash earnings per share in 2011 are expected to increase within the same 10% to 15% range over the
$1.02 cash earnings per share reported in 2010. And so, with these comments I will turn it back
over to Steve so we can wrap up our comments and open it up for questions.
Steven Gerard CBIZ, Inc Chairman and CEO
Thank you Ware. Let me reiterate a couple of points that Ware touched on. In terms of
acquisitions, we expect our acquisition program to continue the way it has been, three to five
transactions a year. The pricing on those havent dramatically changed but we see many
opportunities in the market place. I think we are far more optimistic as we sit here today than we
were a year ago as to what the business prospects were. As I noted in the press release, our
clients are feeling better about themselves, they are more optimistic. But I would caution everyone
that the small to mid-sized companies have not yet decided to, or shown any willingness to, invest
or expand, and thats what we are waiting to see.
So, if we look across our business segments, as Ware pointed out, we believe we are going to see
some amount of modest improvement in revenue on our Financial Services side. We are going to see
strengthening businesses on our Employee Services side. Our Medical Practice business, I would
expect would continue to have a revenue challenge due to reimbursement rate changes, but we expect
their bottom line contributions to be improved year-over-year. The one caution I would make to
everyone is that in our Employee Services group we announced that we sold our Wealth Management
business. That will have a $5 million to $6 million revenue impact in 2011 and it will have a
negligible impact on operating earnings. But having year-over-year comparables in the Employee
Services business may be a little bit more difficult because of that sale. With that, let me open
it up for questions and come back with some final comments at the end.
QUESTION AND ANSWER
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions)
The first question comes from Josh Vogel from Sidoti & Co. Please go ahead.
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Josh Vogel Sidoti & Company Analyst
Good morning Steve and Ware. Thanks for taking my questions. Steve, you just mentioned the
year-over-year drag in employee services from the wealth management business. Was that really hit
up in Q4? Because if you look at the prior three quarters revenue wasnt down that much
year-over-year and I am curious why it accelerated in Q4? Or if there were maybe some one-time
projects or work that hit up in fourth quarter of 09?
Steven Gerard CBIZ, Inc Chairman and CEO
Josh, there was absolutely no impact in 2010 in either the fourth quarter or the full year
from the sale of the wealth management business. The decline in the employee services really had
more to do with the continued unemployment issues, the pressures that they are facing, as well as
some timing issues on the carrier bonuses, but it wasnt related in any way to wealth management.
Josh Vogel Sidoti & Company Analyst
Okay, shifting gears a little bit. Do you have an idea, regarding the full acquisitions
completed in 2010, what you expect them to contribute to revenue in 2011? I just want to get a
better sense of same unit trends.
Ware Grove CBIZ, Inc CFO and SVP
Well, yes, Josh, as we made four acquisitions in 2010, one was closed in January. So we will
lap that and that becomes same unit growth in 2011 versus 2010. The Tampa acquisition that we
announced was about $12 million in revenue minus the November, December stub, which is nominal.
That will contribute to growth in 2011. The other two, one was made in January and the other one
was made in midyear its very small, its probably less than $1 million incremental value in
2011.
Josh Vogel Sidoti & Company Analyst
Okay. And I know now we are into the busy season here in the tax world. I was wondering if you
could maybe comment on same unit revenue trends you saw through the first six weeks in financial
services.
Steven Gerard CBIZ, Inc Chairman and CEO
We typically dont comment on month over month results. I would say this, that across CBIZ we
are very comfortable with the way January came in.
Josh Vogel Sidoti & Company Analyst
Okay, great. And just lastly, bad debt expense in Q4 and your expectations for 2011? Do you
have that Ware?
Ware Grove CBIZ, Inc CFO and SVP
Yes, Josh. You may remember when I talked about this in the past, typically bad debt expense
is 65 basis points, more or less, and it was generally in that range for 2010. For the full year it
was about 63 basis points of revenue and in the fourth quarter it was 61 basis points of revenue.
And we expect generally that same level in 2011.
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Josh Vogel Sidoti & Company Analyst
Okay. Thank you very much.
Steven Gerard CBIZ, Inc Chairman and CEO
Okay, let me follow up on a Joshs question. We have been saying all year that our clients
remain stable. They just werent growing. I think the fact that we recorded 60 basis points bad
debt was further evidence of the fact that our clients actually came through the recession
reasonably well from a collection standpoint. We are very comfortable with the 60 to 65 basis
points because thats where the business should be in a more normal time. Next question.
Operator
The next question comes from Jim MacDonald from First Analysis. Please go ahead.
Jim MacDonald First Analysis Securities Analyst
Good morning. I hope you get your power back. On the MMP business, could you give a little
more color on what youre seeing from the new reimbursement rates it?
Steven Gerard CBIZ, Inc Chairman and CEO
There continues to be pressure, Jim, on the radiology side of the business not made up by any
uptick in ER or anesthesia. We are starting to see a recovery, or we saw in the third and fourth
quarter a recovery of the higher modality procedures. So we are coming back to, were not back to
where we were two years ago, but we are heading in the right direction.
The first quarter tends to not give us a particularly good indication because of the preponderance
of high deductible plans where people tend to put off the big operations and stuff until later in
the year for whatever reason they may have. So, the point is that theyre heading in the right
direction, but its too early to call yet what the full year impact is going to be. I think what we
are comfortable in saying is that even on relatively flat revenue we expect a significant
improvement in the bottom line.
Jim MacDonald First Analysis Securities Analyst
All right. And, moving over to the ES group, any recent view on the whole broker commission
issue?
Steven Gerard CBIZ, Inc Chairman and CEO
Yes, the impact of the medical loss ratio on the Brokerage industry is still yet to be
determined. It obviously will have some impact at some point. It isnt clear if it is going to have
a dramatic impact on us this year because theres only one or two carriers that seem to be
implementing anything in the short run. Everybody else is taking a wait and see attitude. In
addition to which, we re-up our clients early, tend to be December re-up. So, it may not affect as
quite as bad.
But most importantly our approach to the market has always been you pay for the consulting services
that we give you, were just not a broker that takes the percentage of premium. And that resonates
with exactly the direction that
this is going in. So, its hard to I wish I had a better answer. Its hard to tell at this point
whether it will have an impact. I dont believe it will have a material impact in 2011.
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And as you are aware, this whole question of what is included and what is not is under review
anyway. So, at this point we are not giving any guidance that it will either help us or hurt us but
it is certainly something we are paying very close attention
Jim MacDonald First Analysis Securities Analyst
Now Ill just ask you one more tough one. Any view on same-store sales this year that you can
talk about when youre going to break back into positive?
Steven Gerard CBIZ, Inc Chairman and CEO
These arent tough questions, these are the right questions. We are expecting to begin to
compare positively this year. Im not going to say its going to be first quarter versus second
quarter because we just dont know and so much of the business is first quarter driven. But the
trends are such that we are clearly heading in the right direction and we should be posting
positive comparables in most of our businesses in 2011 at some point.
Jim MacDonald First Analysis Securities Analyst
Thanks.
Operator
The next question comes from Bill Sutherland from Boenning & Scattergood. Please go ahead.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Thanks and good morning everybody. Steve, or Ware, can you just clear up the issue with
employee services and Q4 with the negative 4.5% same unit trend? Maybe you could rank order what
caused it to tilt down that much?
Ware Grove CBIZ, Inc CFO and SVP
Yes, Jim, its just been kind of lapping and had an increase in the impact on unemployment and
the benefits and payroll impact that has on our Payroll and Benefits services. Property and
Casualty continues to be a soft market. Thats probably two thirds of the reduction right there.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Ware, Im sorry to interrupt you but it seems like those were the key issues when the decline
was more moderate.
Ware Grove CBIZ, Inc CFO and SVP
Yes, I understand. The other thing, Bill, that exacerbated it in the fourth quarter was the
timing, as Steve commented, some of the carrier commission payments that come in, come in around
the end of the year or the first part of next year. We recognize those on a cash basis so the
timing is critical and that also was responsible for a piece of it as well. So, thats just a
timing issue.
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Steven Gerard CBIZ, Inc Chairman and CEO
Yes, and I think its also fair to add weve had some degree of pricing pressure as our
clients are shopping business. Weve had some degree of client loss. So, its not totally external
but its primarily driven by those factors.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Okay. Most of my others have been asked. Can you remind us, I guess, where the break down
within employee services by the type of offerings? Just really rough, back of the envelope.
Steven Gerard CBIZ, Inc Chairman and CEO
Yes, about 40% of it is benefits, and about 15% to 20% is Property and Casualty. About the
same percent as retirement advisory. So thats 70% to 80% of it right there. And then we have
Payroll and HR Recruiting and other services like that round it out.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Okay. And the last thing I was going to ask you is as you look at the acquisition picture, how
is it looking as far as the number of deals and are you leading in one or more of the segments to
acquire?
Steven Gerard CBIZ, Inc Chairman and CEO
The acquisition pipeline remains as strong as it normally is. We are typically going to do the
3 to 5 or 6 transactions we do each year. They will probably this year be primarily in Financial
Services and Employee Services as there is nothing currently on the board for the MMP business.
Its unlikely that we will see any impact to have a material effect in the first six months of the
year, so any impact is probably at the back end. But also let me remind everyone that when we give
guidance we dont include the impact of acquisitions.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Right. Last one for you, Steve, was MMP and your confidence in the margin rebound. What are
going to be the key factors for that if the revenues are flat or even softer?
Steven Gerard CBIZ, Inc Chairman and CEO
I think what youve seen in the second half of the year was a better balancing of our
resources namely headcount and continued improvement we are getting out of the new systems that
weve put in place. They go hand-in-hand but we are seeing a better utilization of resources to
face off against any declines in revenue.
Bill Sutherland Boenning & Scattergood Inc. Analyst
Not an incremental step up in your push off-shore?
Steven Gerard CBIZ, Inc Chairman and CEO
No, Im expecting it to come, quite frankly, more from the technology and the lower headcount.
The off-shoring continues to be important to us, but I dont think it will be a significant step up
in 2011.
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Bill Sutherland Boenning & Scattergood Inc. Analyst
Great. Thanks everybody .
Operator
(Operator Instructions)
The next question comes from Vincent Colicchio from Noble Financial Group. Please go ahead.
Vincent Colicchio Noble Financial Group Analyst
Most of mine were answered. Steve, why was the substantial improvement in the MMP business
quarter to quarter? Is there any noticeable improvements? Give us some color on that if you could.
Steven Gerard CBIZ, Inc Chairman and CEO
Yes, thats primarily the result of the cost measures that they put in place at midyear when
it was clear that the trends that we saw in the first quarter were going to continue during the
year, so thats really headcount reduction, better use of technology, which drove a better bottom
line and....
Ware Grove CBIZ, Inc CFO and SVP
...and the revenue decline, Vince, was much more severe year over year in the first couple of
quarters and thats really stabilized I think in the fourth quarter for the reasons that Steve
talked about earlier.
Steven Gerard CBIZ, Inc Chairman and CEO
Yes, some of the high modality items, which Ware touched on, the MRI, CAT scan some of the
diagnostic stuff that were done, which really crashed in the first quarter of last year started to
come back a little bit. Now its not back to pre-2010 levels, but it is picking up so we are seeing
a slightly higher number of procedures for the higher dollar amounts as well as the very effective
cost containment program that they put in place midyear.
Vincent Colicchio Noble Financial Group Analyst
And, Ware do you have same unit revenue for national practices in this quarter?
Ware Grove CBIZ, Inc CFO and SVP
I do. Its a very small piece and remember, we have our Edward Jones contract in there which
is fairly stable, but we also have a small healthcare consulting plus our merger acquisition
advisory business which is very lumpy. So, for the fourth quarter, that segment was down 6.4% but
that was only $486,000. Again, its not a big piece of the total, for the full year, that segment
was down 0.8%.
Vincent Colicchio Noble Financial Group Analyst
Okay, thats helpful. Thank you. Thats all my questions.
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Operator
There are no additional questions at this time. Please go ahead with any final remarks.
Steven Gerard CBIZ, Inc Chairman and CEO
Okay, I thank everybody for dialing in and I again, thank our staff for their hard work in
2010. I know it was a difficult year and a changing environment and so I appreciate all the support
and all the efforts you all of our staff has given. As we look out in 2011 we are, again,
cautiously optimistic that the markets that we are in will be improving and that we will be able to
take appropriate advantage of that. With that we sign off and we look forward to talking to you
after the first quarter report. Thank you all.
Operator
Thank you for participating in the CBIZ fourth quarter and year end 2010 results conference
call. This concludes the conference for today. You may all disconnect at this time.
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