Case

ProBusiness Services, Inc. (PRBZ)

Case outline

ProBusiness Services, Inc. is a medium size company with 790 employees, providing employee payroll and payroll tax administration outsourcing for large employers. It also offers human resource information services. The company has followed an aggressive client acquisition strategy, with revenues growing from $ 4 millions in 1994 to $ 74 millions in 1999, or at a compound rate of growth of 79% each year over five years. Client acquisition requires significant marketing efforts but especially a lengthy installation of the service that can require up to six months. This client installation is not billed. ProBusiness derives its revenue from fees for payroll administration and from interest earned on payroll tax funds temporarily held in marketable securities. While ProBusiness devotes 80% or more of its revenue to client installation, it also commits 12% of revenue to research and development for further human resource software development. In addition to internally developed software, ProBusiness has also been absorbing companies competing in related business.

In 1996, ProBusiness acquired Dimension Solutions, Inc. for approximately $ 1.3 millions in cash and preferred shares. In 1997, ProBusiness acquired Bene Sphere Administrators, Inc. for approximately $ 4.5 millions in cash and common stocks. In 1999, ProBusiness acquired Clemco, Inc. which owned Conduit Software, Inc., a developer and provider of employee relationship management applications, for 1.7 million common shares and incurred a transaction cost of $ 3.5 millions in connection with the acquisition.

ProBusiness was formed in 1986, and has incurred losses ever since. In 1997, it went successfully through an initial public offering of 3.8 million shares at $7.33 per share, plus an additional 0.5 million shares for over-allotment. In 1998, it went through a second public offering of 2.8 million shares at $ 27, plus an additional 0.4 million shares for over-allotment. The price of the stock has ranged between $ 7 and $ 32. ProBusiness has set aside 4.5 millions shares of common stock for various employee stock option and stock purchase plans to be exercised at market prices, of which 2 millions shares were exercised at prices ranging from $1.34 to $2.88.

Financial data:

Condensed financial statements without notes are presented for selected years in following tables:

Table T-PRBZ.1 - ProBusiness Services, Inc. Balance Sheets

Table T-PRBZ.2 - ProBusiness Services, Inc. Income Statements

Normalized statements and selected ratios based on above financial statements are presented in

 

Table T-PRBZ.3 - ProBusiness Services, Inc. Normalized Balance Sheets

Table T-PRBZ.4 - ProBusiness Services, Inc. Normalized Income Statements

Table T-PRBZ.5 - ProBusiness Services, Inc. Ratios

Information sources:

Visit company web site at http://www.probusiness.com

SEC 10-K file available at http://www.sec.gov/cgi-bin/srch-edgar or http://www.edgar-online.com/

ProBusiness stock is traded on NASDAQ under the symbol PRBZ. Find stock quotes and recent news from http://finance.yahoo.com/ or http://www.quote.com/ or from the exchange.

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