Barrett Business Services' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Barrett Business Services, Inc. ( BBSI)

Q4 2011 Earnings Call

February 15, 2012 12:00 pm ET

Executives

Michael L. Elich – Interim President and Chief Executive Officer

James D. Miller – Chief Financial Officer

Analysts

Jeff Martin – Roth Capital Partners

Josh Vogel – Sidoti & Company

Presentation

Operator

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss BBSI’s Financial Results for the Fourth Quarter and Full Year ended December 31, 2011.

Joining us today are BBSI’s President and CEO, Mr. Michael Elich and the company’s CFO, Mr. Jim Miller. Following their remarks, we’ll open the call for your questions.

Before we go further, I would like to take a moment to read the company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

The company remarks during today’s conference call may include forward-looking statements. These statements along with other information presented that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements.

Please refer to the company’s recent earnings release and to the company’s quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through March 14, 2012 starting at 2 P.M. Eastern Standard Time this afternoon. A webcast replay will also be available via the link provided in yesterday’s press release, as well as available on the company’s website at www.barrettbusiness.com.

Now, I would like to turn the call over to the Chief Financial Officer of BBSI, Mr. Jim Miller. Sir, please go ahead.

James D. Miller

Thank you, Christina. And depending upon where you are dialing-in from good morning or afternoon everyone. I’d like to preface my remarks about our financial results with two quick comments. First, no doubt many of you have noted documents filed with the SEC by Kimberly Sheretz widow of our former CEO, Bill Sheretz announcing her desire to replace five of our current directors with her handpicked nominees.

Our focus for today’s call is to provide you with a perspective of your management team on BBSI’s financial results for the fourth quarter of 2011, and the full year, as well as the future direction of our business. Accordingly, we do not intend to comment or answer questions about Ms. Sheretz’s public statements or her request at the Board of Directors to call a special stockholders’ meeting.

Second, I would like to mention that yesterday’s earnings release summarizes our revenues and cost of revenues on a net revenue basis as required by Generally Accepted Accounting Principles. Most of our comments today, however, will be based upon gross revenues in various relationship to gross revenues because we believe such information is one, informative as to the level of our business activity; two, more useful in managing and analyzing our operation; and three, add more transparency to the trends within our business. Comments related to gross revenues is compared to a net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses or net income.

Turning now to the fourth quarter results, total gross revenues increased 23% to $424 million compared to the fourth quarter of 2010. California, which comprised approximately 84% of our overall fourth quarter gross revenues, increased 27% due to the continued growth from new PEO customers.

Total PEO gross revenues increased 26% to $392 million, compared to the fourth quarter of last year, primarily due to the addition of new client. Our PEO revenues from existing customers experienced a slight 1% increase or approximately $3 million compared to the year ago quarter as a result of the slight increase in average hours worked. The increase in PEO revenues from existing customers represents the seventh consecutive quarter of existing customer growth.

Staffing revenues for the fourth quarter of 2011 increased 4% to $31 million, compared to fourth quarter of 2010, principally due to a small decline in revenues from existing customers particularly in our Mountain States as new business nearly offset the loss of business from former customers.

The company reported an increase to its workers' compensation reserve of approximately $8.5 million in the fourth quarter of 2011 as a result of adverse development in the estimate of the ultimate cost of our self-insured workers’ compensation claims liabilities primarily related to claim years 2005 to 2009.

The root cause for the charge was related to the prolonged recession that came to bottleneck claim closure in these prior years leading to higher than expected development in claim costs including related legal costs, now these claims are beginning to move and close. With assistance from our independent actuary, we have performed an in-depth analysis of these prior year claims and have established what we believe to be more conservative reserves for this pool.

During this process, we discovered that while we have worked with the same actuary for the past several years, we have determined the need to better understand the drivers in their various actuarial models that we can identify and respond to trends more quickly.

With the benefit of Hindsight, we also determined that the previous quarterly actuarial reviews conducted were not robust enough to monitor developments of prior years’ end results, we have moved to having a complete analysis performed each quarters similar to the actuaries full annual analysis.

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