BBSI Reports Third Quarter 2012 Financial Results
- 37% Increase in Gross Revenues Drives Diluted Earnings per Share of $0.81 -
VANCOUVER, Washington, October 23, 2012 – 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 http://public.viavid.com/index.php?id=101945 and via the investor relations section of the Company's website at www.barrettbusiness.com.
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 | |||||||||||||
| Revenues: | ||||||||||||||||
| 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:
| (Unaudited) | ||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||
| Gross Revenue | Net Revenue | |||||||||||||||||||||||
| (in thousands) | Reporting Method | Reclassification | Reporting Method | |||||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| 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 | ||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| Gross Revenue | Net Revenue | |||||||||||||||||||||||
| (in thousands) | Reporting Method | Reclassification | Reporting Method | |||||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| 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:
| (Unaudited) | ||||||||||||||||
| 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 www.barrettbusiness.com.
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
(Unaudited)
| September 30, | December 31, | |||||||
| (in thousands) | 2012 | 2011 | ||||||
| Assets | ||||||||
| 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 | |||||||||||||
| Revenues: | ||||||||||||||||
| 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
BBSI@liolios.com