Barrett Business Services' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Barrett Business Services, Inc. (BBSI)

Q1 2012 Earnings Call

April 25, 2012 12:00 PM ET

Executives

Jim Miller – CFO

Mike Elich – President and CEO

Analysts

Jeff Martin – ROTH Capital Partners

Josh Vogel – Sidoti & Co

Presentation

Operator

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss BBSI’s Financial Results for First Quarter ended March 31, 2012. Joining us today are BBSI’s President and CEO, Mr. Mike Elich and the company’s CFO, Mr. Jim Miller. Following their remarks, we’ll open this call for questions.

Before we go further, I would like to take a moment to read the company’s Safe Harbor statement within the meaning of 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 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 May 25, 2012 starting at 3:00 p.m. Eastern Standard 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.

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

Jim Miller

Thank you, Marisa. And depending upon where you are dialing in from, good morning or afternoon, everyone. As you saw at the close of the market yesterday, we issued a press release announcing our financial results for the first quarter ended March 31, 2012. 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, or GAAP.

Most of our comments today, however, will be based upon gross revenues and various relationships to gross revenues because we believe such information is, one, more informative as to the level of our business activity; two, more useful in managing and analyzing our operations; and three, adds more transparency to the trends within our business. Comments related to gross revenues as compared to a net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses or net income.

Now turning to the first quarter results, total gross revenues increased 31% to $432 million, compared to the first quarter of 2011. California, which comprised approximately 86% of our overall first quarter gross revenues, increased 35% due to continued growth in PEO business. PEO gross revenues increased 34% to $406 million, compared to the first quarter of last year, primarily due to new clients as PEO business from new customers during the first quarter of 2012 more than tripled our lost PEO business from former customers as compared to the 2011 first quarter. Our PEO revenues from existing customers experienced approximately a 10% increase year-over-year.

Staffing revenues for the first quarter of 2012 decreased 7% to $26 million, compared to the first quarter of 2011, primarily due to a small decline in revenues of lost business from former customers, partially offset by new business and a slight increase in revenues from existing customers.

On a percentage basis, gross margin in the first quarter was 1.5%, as compared to the 1.7% for the first quarter of 2011.

Direct payroll cost, as a percentage of gross revenues in the first quarter, decreased to 84.9%, compared to 85.4% in the same quarter last year due to increases in the overall customer markup percentage as a result of price increases during the past year.

Payroll taxes and benefits for the first quarter, as a percentage of gross revenues, was 10% versus 9.6% for the same quarter a year ago. The 40 basis point increase was largely due to higher effective state unemployment tax rates in 2012, primarily in California, and to a lesser extent, in various others states in which we operate, as compared to the 2011 first quarter.

Workers’ Compensation, as a percentage of gross revenues, was 3.6%, which is up 30 basis points from the same quarter a year ago, primarily due to an increase in the provision for estimated Workers’ Comp claim cost and to higher safety incentives, which act as a partial hedge against claim costs.

SG&A expenses increased $935,000, or 11%, to $9.8 million versus Q1 of 2011, primarily due to increased management payroll and to $460,000 of incremental legal and professional fees in connection with a response to requests for a special stockholders’ meeting.

The benefit from income taxes in the first quarter was $1.1 million, which represented a tax rate of approximately 34%. We expect such a rate to continue for the balance of 2012. Consistent with our historical experience, the net loss for the first quarter is due primarily to the seasonally higher burden of employment taxes during the first several months of our fiscal year.

Now turning to the balance sheet at March 31, cash, cash equivalents and marketable securities totaled $67.9 million, compared to $81.8 million at December 31, 2011. This decrease is primarily due to the completion of BBSI repurchasing 2.5 million common shares from the estate of William Sherertz, which represents all of 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, mandatorily redeemable preferred stock for an aggregate purchase price of approximately $59.7 million, or $20 per common share.

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