BBSI Reports Second Quarter 2012 Financial Results

7/24/2012 Print Version

Jul 24, 2012 (Marketwire via COMTEX) --Barrett Business Services, Inc. (BBSI) (NASDAQ: BBSI), a leading provider of business management solutions, reported financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Financial Highlights vs. Year-Ago Quarter

Net revenues increased 26% to $95.5 million

Gross revenues increased 35% to $494.1 million

Net income of $3.7 million or $0.53 per diluted common share, compared to net income of $3.4 million or $0.34 per diluted common share

Second Quarter 2012 Financial Results

Net revenues in the second quarter of 2012 increased 26% to $95.5 million, compared to $76.0 million in the second quarter of 2011.

Total non-GAAP gross revenues in the second quarter of 2012 increased 35% to $494.1 million, compared to $366.9 million in the second quarter of 2011 (see "Reconciliation of Non-GAAP Financial Measures" below). The increase was attributed primarily to the continued build in the Company's Professional Employer Organization (PEO) client count and same-store-sales growth.

Net income in the second quarter of 2012 was $3.7 million or $0.53 per diluted common share, compared to net income of $3.4 million or $0.34 per diluted common share in the year-ago quarter. The second quarter of 2011 included the benefit of a lower annual effective income tax rate resulting from the non-taxable $10 million of key man life insurance proceeds received following the passing of the Company's former president and CEO. Excluding the tax rate benefit, non-GAAP net income for the second quarter of 2011 was $2.9 million or $0.28 per diluted common share (see "Reconciliation of Non-GAAP Financial Measures" below).

On June 30, 2012, the Company's cash, cash equivalents and marketable securities totaled $68.0 million, compared to $81.8 million at December 31, 2011. In March of 2012, BBSI completed the repurchase of 2.5 million common shares from the Estate of William W. Sherertz, which represents all the common shares held by the estate of the Company's former president and CEO, as well as 500,000 common shares from Nancy Sherertz, for a combination of $24.9 million in cash and $34.8 million of nonconvertible, non-voting, redeemable preferred stock for an aggregate purchase price of approximately $59.7 million or $20.00 per common share. The Company anticipates borrowing funds through a bank line of credit to redeem the preferred shares during the third quarter of 2012.

Management Commentary

"The 35% increase in gross revenues represents our tenth consecutive quarter of year-over-year double-digit sales growth and an all-time record level of quarterly gross revenue," said Michael Elich, president and CEO of BBSI. "The results of another record quarter are attributed to the return we are realizing from our investment back into the organization, which is supporting continued pipeline growth and rewarding execution in the field. While we continue to mature our product offering, organizational culture and brand offering to our client base, we are seeing continued strength in our pipeline of new client additions while also maintaining very strong client retention."

Third Quarter 2012 Outlook

For the third quarter of 2012, the Company expects gross revenues to range between $525 million and $530 million, compared to $406.0 million for the third quarter of 2011. Diluted income per common share in the third quarter of 2012 is expected to range between $0.70 and $0.73, compared to diluted income per common share of $0.54 in the year-ago quarter. Diluted income per common share in the third quarter of 2011 included a favorable income tax rate benefit related to the effect of a much lower annual effective income tax rate attributable to the life insurance proceeds as previously discussed. Without this benefit, diluted income per common share in the third quarter of 2011 was $0.42.

The range of anticipated diluted earnings per common share for the third quarter of 2012 excludes an accrual of a dividend on the redeemable preferred stock as the Company currently plans to redeem the preferred stock in full before September 28, 2012, in which event, no dividend would be payable. As discussed above, the Company anticipates redeeming the preferred shares using a bank line of credit. A reconciliation of expected gross revenues to expected GAAP net revenues for the third quarter of 2012 is not included because PEO revenues and the cost of PEO revenues for the period cannot be reasonably estimated.

Conference Call

BBSI will host a conference call tomorrow, Wednesday, July 25, 2012 at 12:00 p.m. Eastern time (9:00 a.m. Pacific time) to discuss its second quarter 2012 results. The Company's president and CEO Michael Elich and CFO James Miller will host the call, followed by a question and answer period.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

Time: 12:00 p.m. Eastern time (9:00 a.m. Pacific time)
Dial-In Number: 1-877-941-4774
International: 1-480-629-9760
Conference ID#: 4551898

The conference call will be broadcast live and available for replay at and via the investor relations section of the Company's website at

A replay of the call will be available after 3:00 p.m. Eastern time on the same day and until August 25, 2012.

International replay number: 1-858-384-5517
Replay pin number: 4551898

Reconciliation of Non-GAAP Financial Measures

In addition to the results prepared in accordance with generally accepted accounting principles ("GAAP"), the Company is disclosing non-GAAP gross revenues and non-GAAP net income.

The Company reports its PEO revenues on a net basis because it is not the primary obligor for the services provided by the Company's PEO clients to their customers. The gross revenues and cost of revenues information below, although not in accordance with GAAP, is presented for comparison purposes and because management believes such information is more informative as to the level of the Company's business activity and more useful in managing its operations.

  (Unaudited) (Unaudited)
  Second Quarter Ended Six Months Ended
(in thousands) June 30, June 30,
  2012 2011 2012 2011
 Staffing services $30,387 $30,518 $56,598 $58,850
 Professional employer services  463,671  336,380  869,521  639,114
  Total revenues  494,058  366,898  926,119  697,964
Cost of revenues:            
 Direct payroll costs  418,594  312,385  785,527  595,027
 Payroll taxes and benefits  39,332  28,886  82,324  60,649
 Workers' compensation  19,791  12,346  35,370  23,409
  Total cost of revenues  477,717  353,617  903,221  679,085
Gross margin $16,341 $13,281 $22,898 $18,879

A reconciliation of non-GAAP gross revenues to net revenues is as follows:

  Three Months Ended June 30,
  Gross Revenue    Net Revenue
(in thousands) Reporting Method Reclassification  Reporting Method
  2012 2011 2012  2011  2012 2011
 Staffing services $30,387 $30,518 $-  $-  $30,387 $30,518
 Professional employer services  463,671  336,380  (398,558)  (290,885)  65,113  45,495
  Total revenues $494,058 $366,898 $(398,558) $(290,885) $95,500 $76,013
Cost of revenues $477,717 $353,617 $(398,558) $(290,885) $79,159 $62,732
   Six Months Ended June 30,
   Gross Revenue      Net Revenue
(in thousands)  Reporting Method  Reclassification   Reporting Method
   2012  2011  2012   2011   2012  2011
 Staffing services $56,598 $58,850 $-  $-  $56,598 $58,850
 Professional employer services  869,521  639,114  (748,197)  (553,182)  121,324  85,932
  Total revenues $926,119 $697,964 $(748,197) $(553,182) $177,922 $144,782
Cost of revenues $903,221 $679,085 $(748,197) $(553,182) $155,024 $125,903

The Company is presenting non-GAAP net income because it believes it is more reflective of its actual operating results due to the non-recurring nature of the life insurance proceeds. A reconciliation of GAAP net income to non-GAAP operating performance is provided in the table below:

(in thousands, except per share  Second Quarter Ended
amounts) June 30,
  2012 2011
  GAAP GAAP Adjustments non-GAAP
Income before taxes $5,631 $4,345 $- $4,345
Provision for income taxes  1,888  896  565  1,461
Net income $3,743 $3,449    $2,884
Basic income per share $.54 $.34    $.28
Weighted average basic shares outstanding  6,995  10,196     10,196
Diluted income per share $.53 $.34    $.28
Weighted average diluted shares outstanding  7,078  10,245     10,245

About BBSI

BBSI (NASDAQ: BBSI) is a leading provider of business management solutions, combining human resource outsourcing and professional management consulting to create a unique operational platform that differentiates it from competitors. The Company's integrated platform is built upon expertise in payroll processing, employee benefits, workers' compensation coverage, risk management and workplace safety programs, and human resource administration. BBSI's partnerships help businesses of all sizes improve the efficiency of their operations. BBSI works with more than 3,000 clients across all lines of business in 23 states. For more information, please visit

Forward-Looking Statements

Statements in this release about future events or performance, including gross revenues and earnings expectations for the third quarter of 2012, are forward-looking statements which involve known and unknown risks, uncertainties and other factors that may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Factors that could affect future results include economic conditions in the Company's service areas, the effect of changes in the Company's mix of services on gross margin, the Company's ability to retain current clients and attract new clients, the availability of financing or other sources of capital, including the impact of such availability on the Company's plans to redeem its preferred stock, future workers' compensation claims experience, the effect of changes in the workers' compensation regulatory environment in one or more of the Company's primary markets, the collectability of accounts receivable, and the effect of conditions in the global capital markets on the Company's investment portfolio, among others. Other important factors that may affect the Company's future prospects are described in the Company's 2011 Annual Report on Form 10-K. Although forward-looking statements help to provide complete information about the Company, readers should keep in mind that forward-looking statements are less reliable than historical information. The Company undertakes no obligation to update or revise forward-looking statements in this release to reflect events or changes in circumstances that occur after the date of this release.

Barrett Business Services, Inc.
Condensed Balance Sheets
  June 30, December 31,
(in thousands) 2012 2011
Current assets:      
 Cash and cash equivalents $36,358 $49,571
 Marketable securities  14,240  16,878
 Trade accounts receivable, net  63,433  46,520
 Income taxes receivable  3,432  4,133
 Prepaid expenses and other  2,914  5,897
 Deferred income taxes  5,931  5,958
  Total current assets  126,308  128,957
Marketable securities  17,439  15,395
Property, equipment and software, net  15,832  15,007
Restricted marketable securities and workers' compensation deposits  9,932  9,923
Other assets  3,035  3,027
Workers' compensation receivables for insured claims  1,601  2,968
Goodwill, net  47,820  47,820
  $221,967 $223,097
Liabilities and Stockholders' Equity      
Current liabilities:      
 Accounts payable $1,913 $1,639
 Accrued payroll, payroll taxes and related benefits  68,385  52,340
 Income taxes payable  193  -
 Other accrued liabilities  350  300
 Workers' compensation claims liabilities  19,670  18,718
 Safety incentives liabilities  7,541  6,321
  Total current liabilities  98,052  79,318
Long-term workers' compensation claims liabilities  35,231  30,596
Long-term workers' compensation liabilities for insured claims  864  1,879
Deferred income taxes  8,152  8,152
Mandatorily redeemable preferred stock  34,800  -
Customer deposits and other long-term liabilities  1,502  1,497
Stockholders' equity  43,366  101,655
  $221,967 $223,097

Barrett Business Services, Inc.
Consolidated Statements of Operations
(in thousands, except per share  (Unaudited) (Unaudited)
amounts) Second Quarter Ended Six Months Ended
  June 30, June 30,
  2012 2011 2012 2011
 Staffing services $30,387 $30,518 $56,598 $58,850
 Professional employer service fees  65,113  45,495  121,324  85,932
  Total revenues  95,500  76,013  177,922  144,782
Cost of revenues:            
 Direct payroll costs  22,843  23,093  42,495  44,541
 Payroll taxes and benefits  39,332  28,886  82,324  60,649
 Workers' compensation  16,984  10,753  30,205  20,713
  Total cost of revenues  79,159  62,732  155,024  125,903
Gross margin  16,341  13,281  22,898  18,879
Selling, general and administrative expenses  10,549  8,871  20,313  17,698
Depreciation and amortization  357  331  704  666
Income from operations  5,435  4,079  1,881  515
Life insurance proceeds  -  -  -  10,000
Other income, net  196  266  412  720
Income before taxes  5,631  4,345  2,293  11,235
Provision for income taxes  1,888  896  763  2,240
Net income $3,743 $3,449 $1,530 $8,995
Basic income per common share $.54 $.34 $.18 $.88
Weighted average basic common shares outstanding  6,995  10,196  8,435  10,198
Diluted income per common share $.53 $.34 $.18 $.88
Weighted average diluted common shares outstanding  7,078  10,245  8,511  10,246

Company Contact:

Michael L. Elich
President and CEO
Tel 1-360-828-0700

Investor Relations:

Liolios Group, Inc.
Scott Liolios or Cody Slach
Tel 1-949-574-3860