Barrett Business' CEO Discuss Share Repurchase Of Outstanding Common Shares Conference Call (Transcript)

Barrett Business Services, Inc. (BBSI)

Share Repurchase of Outstanding Common Shares Call

March 12, 2012 10:00 am ET

Executives

Michael L. Elich – Interim President and Chief Executive Officer, Chief Operating Officer, Director

James D. Miller – Chief Financial Officer, PAO, Vice President - Finance, Treasurer, Secretary

Analysts

Jeff Martin – ROTH Capital Partners LLC

Josh Vogel – Sidoti & Company, LLC

Presentation

Operator

Good morning, everyone, and thank you for participating in today’s conference call to discuss BBSI Share Repurchase Transaction. 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’d 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’s 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 material from those implied by these forward-looking statements.

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

I would like to remind everyone that this call will be available for replay through April 1, 2012, starting at 1 P.M. Eastern Time this afternoon. A webcast replay will also be available via the link provided in today’s press release, as well as available on the company’s website at www.barrettbusiness.com.

I would now like to turn the conference call over to the Chief Financial Officer of BBSI, Mr. Jim Miller. Please go ahead, sir.

James D . Miller

Thank you, Erin, and good morning, everyone. As you saw this morning we issued a press release announcing our agreement to repurchase approximately 3 million common share or roughly 30% of our outstanding common shares for $59.7 million.

As a result of this transaction, we will acquire approximately 2.5 million shares from the Estate of William W. Sherertz, which represents all of the shares held by the Estate, and 500,000 shares from Nancy Sherertz. We intend to purchase these shares due to a combination of $24.9 million of cash and the remainder in nonconvertible, non-voting, redeemable preferred stock for an aggregate purchase price of approximately $59.7 million or $20 per share.

Following the completion of the transactions, we expect to have approximately 7 million common shares outstanding, $56.9 million in cash and investments and 34,800 shares of nonconvertible, non-voting, redeemable preferred stock outstanding with a liquidation value of $34.8 million.

The nonconvertible, non-voting, redeemable preferred stock will not have a trading market. The initial preferred dividend rate of 5% per year and is payable at the company’s option in cash or additional preferred shares. The dividend rate has an escalation cost or by the rate increases by 2% each given in April 1, 2013. So for example in the first year, the dividend is 5%, which escalates to 7% in the second year and 9% in the third year and so forth, and solely preferred stock is redeemed by the company.

During the year one, the dividend equates to approximately 1.7 million annually or 435,000 per quarter through March of 2013. The preferred stock dividend will have similar characteristics of non-tax deductible interest expense. The escalation in the dividend rate encouraged the company to explore other potential sources of financing, which we intend to pursue.

Following the transaction, our total debt-to-EBITDA using a normalized 2011 EBITDA will equate to a ratio of approximately 2.3. Our current ratio is approximately 1.3x and our debt-to-equity ratio is approximately 0.8x.

Now, I would like to turn the call over to the CEO of BBSI, Mike Elich, who will comment further on the share repurchase transaction and I believe that we’re well positioned to drive shareholder value throughout 2012 and beyond. Mike?

Michael L . Elich

Good morning and thank you, Jim. I wanted to thank all of you for getting on the call this morning. I know it’s a quick turn. I wanted to take time this morning to just expand a little bit on the detailed comments that Jim made by asking a couple of questions that I’ve had to answer for myself over the last few weeks or months.

One of them would be why do we do the purchase? When we look at the current market valuation, the available strategic options for the company, and the level of capital and existing cash flow and we believe that this purchase of shares the majority of which have been basically out of the public float was an attractive investment for all shareholders.

Now, the second question for me was why did you pay a premium? This was not a transaction that could be accomplished empowered or for a company of our size and daily volume. Based upon our internal operating plan, extreme analysis that we did, projected cash flows at a cash balance, the board and management believe the $20 is a good price and transaction will be accretive to all shareholders.

The third was, how does the proxy fight play into this decision. And I’d like to say that the proxy fight itself did not quite drive our decision to repurchase the shares. If anything, it was a mirror catalyst to bring all parties together to reach a mutually agreed upon outcome, which I think is best for all shareholders.

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