BBSI Reports Third Quarter 2012 Financial Results

10/23/2012 Print Version

37% Increase in Gross Revenues Drives Diluted Earnings per Share of $0.81

Oct 23, 2012 (Marketwire via COMTEX) -- Barrett Business Services, Inc. ("BBSI" or the "Company") (NASDAQ: BBSI), a leading provider of business management solutions, reported financial results for the third quarter ended September 30, 2012.

Third Quarter 2012 Financial Highlights vs. Year-Ago Quarter

Net revenues increased 30% to $111.1 million

Gross revenues increased 37% to $558.0 million

Net income increased to $5.8 million or $0.81 per diluted common share, compared to net income of $5.4 million or $0.54 per diluted common share

Third Quarter 2012 Financial Results

Net revenues in the third quarter of 2012 increased 30% to $111.1 million, compared to $85.4 million in the third quarter of 2011.

Total non-GAAP gross revenues in the third quarter of 2012 increased 37% to $558.0 million, compared to $406.0 million in the third quarter of 2011 (see "Reconciliation of Non-GAAP Financial Measures" below). The increase is due primarily to the continued build in the Company's Professional Employer Organization (PEO) client count and same-store-sales growth.

Net income in the third quarter of 2012 increased to $5.8 million or $0.81 per diluted common share, compared to net income of $5.4 million or $0.54 per diluted common share in the year-ago quarter. The third 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 third quarter of 2011 was $4.2 million or $0.42 per diluted common share (see "Reconciliation of Non-GAAP Financial Measures" below).

On September 30, 2012, the Company's cash, cash equivalents and marketable securities totaled $50.7 million, compared to $81.8 million at December 31, 2011. In March 2012, BBSI completed the repurchase of approximately 2.5 million common shares from the Estate of William W. Sherertz, which represented all the common shares held by the estate, 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.

On September 21, 2012, the Company redeemed the preferred shares in exchange for $34.8 million, using a combination of cash on hand and availability under a new revolving credit facility provided by its principal bank. At September 30, 2012, the Company had no outstanding borrowings on its revolving credit facility.

Management Commentary

"The momentum we realized in the first half of the year grew stronger in the third quarter, as seen by our 37% year-over-year increase in gross revenues," said Michael Elich, president and CEO of BBSI. "We attribute these results to BBSI's maturing brand and strong referral channels that have helped drive new clients along with our ability to retain them. BBSI's operations-driven, results-orientated approach continually supports the evolution of our client's businesses and is responsible for our 90% retention rate.

"These results have also been supported by the proactive investments we have made in our operational infrastructure and professional talent, which have evolved BBSI into a much more mature company. Looking towards the fourth quarter, we expect the drivers that were responsible for the growth of our business during the quarter to continue while we remain prudent with our investment back into the overall organization."

Fourth Quarter 2012 Outlook

For the fourth quarter of 2012, the Company expects gross revenues to range between $585 million and $590 million, compared to $423.6 million for the fourth quarter of 2012. Diluted income per common share in the fourth quarter of 2012 is expected to range between $0.75 and $0.78, compared to a net loss per common share of $0.01 in the year-ago quarter. Diluted loss per common share in the fourth quarter of 2011 reflected an increase to the Company's workers' compensation reserve of approximately $8.5 million as a result of adverse loss development, partially offset by 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 the effect of these items, diluted income per common share in the fourth quarter of 2011 was $0.41.

Conference Call

BBSI will host a conference call tomorrow, Wednesday, October 24, 2012 at 12:00 p.m. Eastern time (9:00 a.m. Pacific time) to discuss its third 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.

Date: Wednesday, October 24, 2012
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#: 4568021

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 through November 24, 2012.

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay pin number: 4568021

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)
  Third Quarter Ended Nine Months Ended
(in thousands) September 30, September 30,
  2012 2011 2012 2011
 Staffing services $36,195 $34,589 $92,793 $93,439
 Professional employer services  521,836  371,382  1,391,357  1,010,496
  Total revenues  558,031  405,971  1,484,150  1,103,935
Cost of revenues:            
 Direct payroll costs  470,950  344,719  1,256,477  939,746
 Payroll taxes and benefits  42,915  30,321  125,239  90,970
 Workers' compensation  22,602  14,778  57,972  38,187
  Total cost of revenues  536,467  389,818  1,439,688  1,068,903
Gross margin $21,564 $16,153 $44,462 $35,032

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

  Three Months Ended September 30,
  Gross Revenue    Net Revenue
(in thousands) Reporting Method Reclassification  Reporting Method
  2012 2011 2012  2011  2012 2011
 Staffing services $36,195 $34,589 $-  $-  $36,195 $34,589
 Professional employer services  521,836  371,382  (446,962)  (320,587)  74,874  50,795
  Total revenues $558,031 $405,971 $(446,962) $(320,587) $111,069 $85,384
Cost of revenues $536,467 $389,818 $(446,962) $(320,587) $89,505 $69,231

  Nine Months Ended September 30,
  Gross Revenue    Net Revenue
(in thousands) Reporting Method Reclassification  Reporting Method
  2012 2011 2012  2011  2012 2011
 Staffing services $92,793 $93,439 $-  $-  $92,793 $93,439
 Professional employer services  1,391,357  1,010,496  (1,195,159)  (873,769)  196,198  136,727
  Total revenues $1,484,150 $1,103,935 $(1,195,159) $(873,769) $288,991 $230,166
Cost of revenues $1,439,688 $1,068,903 $(1,195,159) $(873,769) $244,529 $195,134

The Company is presenting non-GAAP net income because it believes it is more reflective of its actual operating results in 2011 due to the effect of the non-recurring nature of the life insurance proceeds on the Company's 2011 income tax rate. A reconciliation of GAAP net income to non-GAAP operating performance is provided in the table below:

  Third Quarter Ended
(in thousands, except per share amounts) September 30,
  2012 2011
  GAAP GAAP Adjustments non-GAAP
Income before taxes $8,603 $6,272 $  6,272
Provision for income taxes  2,791  858 1,213  2,071
Net income $5,812 $5,414   $4,201
Basic income per share $.83 $.54   $.42
Weighted average basic shares outstanding  7,007  10,060    10,060
Diluted income per share $.81 $.54   $.42
Weighted average diluted shares outstanding  7,184  10,100    10,100

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 fourth 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, 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
  September 30, December 31,
(in thousands) 2012 2011
Current assets:      
 Cash and cash equivalents $22,181 $49,571
 Marketable securities  15,575  16,878
 Trade accounts receivable, net  71,018  46,520
 Income taxes receivable  3,432  4,133
 Prepaid expenses and other  1,536  5,897
 Deferred income taxes  5,943  5,958
  Total current assets  119,685  128,957
Marketable securities  12,991  15,395
Property, equipment and software, net  16,601  15,007
Restricted marketable securities and workers' compensation deposits  9,967  9,923
Other assets  3,140  3,027
Workers' compensation receivables for insured claims  1,568  2,968
Goodwill, net  47,820  47,820
  $211,772 $223,097
Liabilities and Stockholders' Equity      
Current liabilities:      
 Accounts payable $2,135 $1,639
 Accrued payroll, payroll taxes and related benefits  77,533  52,340
 Income taxes payable  2,969  -
 Other accrued liabilities  355  300
 Workers' compensation claims liabilities  20,839  18,718
 Safety incentives liabilities  8,678  6,321
  Total current liabilities  112,509  79,318
Long-term workers' compensation claims liabilities  39,931  30,596
Long-term workers' compensation liabilities for insured claims  858  1,879
Deferred income taxes  8,152  8,152
Customer deposits and other long-term liabilities  1,655  1,497
Stockholders' equity  48,667  101,655
  $211,772 $223,097

Barrett Business Services, Inc.
Consolidated Statements of Operations
  (Unaudited) (Unaudited)
(in thousands, except per share amounts) Third Quarter Ended Nine Months Ended
  September 30, September 30,
  2012 2011 2012 2011
 Staffing services $36,195 $34,589 $92,793 $93,439
 Professional employer service fees  74,874  50,795  196,198  136,727
  Total revenues  111,069  85,384  288,991  230,166
Cost of revenues:            
 Direct payroll costs  27,158  26,292  69,653  70,833
 Payroll taxes and benefits  42,915  30,321  125,239  90,970
 Workers' compensation  19,432  12,618  49,637  33,331
  Total cost of revenues  89,505  69,231  244,529  195,134
Gross margin  21,564  16,153  44,462  35,032
Selling, general and administrative expenses  12,745  9,879  33,058  27,577
Depreciation and amortization  372  334  1,076  1,000
Income from operations  8,447  5,940  10,328  6,455
Life insurance proceeds  -  -  -  10,000
Other income, net  156  332  568  1,052
Income before taxes  8,603  6,272  10,896  17,507
Provision for income taxes  2,791  858  3,554  3,098
Net income $5,812 $5,414 $7,342 $14,409
Basic income per common share $.83 $.54 $.92 $1.42
Weighted average basic common shares outstanding  7,007  10,060  7,959  10,152
Diluted income per common share $.81 $.54 $.91 $1.41
Weighted average diluted common shares outstanding  7,184  10,100  8,069  10,198

Company Contact:

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

Investor Relations:

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