Barrett Business Services' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Barrett Business Services, Inc. (BBSI)

Q2 2012 Earnings Call

July 25, 2012 12:00 pm ET

Executives

Mike Elich - President & CEO

Jim Miller - CFO

Analysts

Jeff Martin - Roth Capital Partners

Josh Vogel - Sidoti

Kevin Casey - Casey Capital

Presentation

Operator

Good day ladies and gentlemen and thank you for participating in today’s conference call to discuss BBSI’s financial results for the second quarter ended June 30, 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 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’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 August 25, 2012 starting at 3:00 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.

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

Jim Miller

Thank you, George 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 second quarter ended June 30, 2012. The 35% increase in gross revenues represents our tenth consecutive quarter of year-over-year double-digit sales growth and is also an all-time quarterly revenue record for us.

We attribute these results in parts to building with within our organization and a robust performance of our three sales channels, customer referrals, referral networks and internal sales staff.

Results are also attributed to the returns we’re realizing from our investment back in the organization which are supporting this continued pipeline growth and rewarding execution in this field. While we continue to mature our product offering, organizational culture and brand offering to our client base, we are seeing continued strength in our pipeline of new client additions while also maintaining very strong client retention.

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 based on gross revenues and various relationships, pure gross revenues because we believe such information is, one, more informative as to the level of our business activities, two, more useful in managing and analyzing our operations and three, add more transparency to the trends within our business. Comments related to gross revenues is compared to net revenue basis of reporting, have no effect on gross margin dollars, SG&A expenses or net income.

Now turning to the second quarter results, as I mentioned, total gross revenues increased 35% to $494 million over the second quarter of 2011. California, which comprised approximately 86% of our overall second quarter gross revenues, increased 39% due to considerable growth in PEO business.

Overall PEO gross revenues increased 38% to $464 million over the second quarter of last year primarily due to new clients as PEO business from new customers more than tripled our lost PEO business from former customers as compared to the 2011 second quarter. Our PEO revenues from existing customers experienced approximately a 7% increase year-over-year due to increases in both headcount and hours worked.

Staffing revenues for the second quarter of 2012 were flat at $30.4 million primarily due to the addition of new business and small increase in revenue from existing customers echoing the amount of lost business from former customers.

On a percentage basis gross margin in the second quarter was 3.3 percentage compared to 3.6% in the second quarter of 2011. The key components of this quarter’s gross margin are as follows: Direct PEO cost as a percentage of gross revenues in the second quarter increased to 84.7% compared to 85.1% in the same quarter last year due to increases in the overall customer market percentages as a result of price increases which we began to see flow through during much of the 2012 second quarter.

Workers compensation expense as a percentage of gross revenues was 4% which is up 60 basis points from the same quarter a year ago primarily due to an increase in the provision for estimated workers comp claim cost and a higher safety incentive. We continue to work closely with our third-party actuary as well as monitor our own internal data to evaluate our workers comp reserves.

Looking ahead to the balance of 2012, we anticipate that 4% level of gross revenues for workers compensation expense to continue. SG&A expenses increased 19% to $10.6 million versus Q2 of 2011 primarily due to increases in management payroll and profit sharing as well as to the variable expense components within the SG&A as the course of this business grow. Our tax rate is currently at 33.5% and we expect this rate to remain at similar levels for the balance of 2012.

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