BBSI Reports Third Quarter 2016 Financial Results

VANCOUVER, WA--(Marketwired - Nov 8, 2016) - 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, 2016.

Third Quarter 2016 Financial Summary vs. Year-Ago Quarter

• Net revenues up 13% to $225.1 million.
• Non-GAAP gross revenues up 17% to $1.2 billion.
• Net income of $10.2 million or $1.38 per diluted share, compared to net income of $11.0 million or $1.49 per diluted share. Net income in the third quarter of 2016 included a $0.30 per diluted share expense for the settlement of a November 2014 class action shareholder lawsuit.

"We are seeing consistency in our performance, which speaks to the depth of our operational teams," said Michael Elich, president and CEO of BBSI. "In the third quarter, we saw 9.1% same-customer sales growth and added 200 net new clients, supporting 17% gross revenue growth. Additionally, we continued to make progress on key initiatives, including paying off our term loan with Wells Fargo and adding a new member to our board of directors. We will continue to execute on our plan as we look towards 2017 and beyond."

Third Quarter 2016 Financial Results Net revenues in the third quarter of 2016 increased 13% to $225.1 million compared to $198.7 million in the third quarter of 2015.

Total non-GAAP gross revenues in the third quarter of 2016 increased 17% to $1.2 billion compared to $1.1 billion in the same year-ago quarter (see "Reconciliation of Non-GAAP Financial Measures" below). The increase was primarily due to the continued build in the Company's client count and same-customer sales growth.

Net income for the third quarter of 2016 was $10.2 million or $1.38 per diluted share, compared to net income of $11.0 million or $1.49 per diluted share in the year-ago quarter. The third quarter of 2016 included a $0.30 per diluted share expense for the recent settlement of a November 2014 class action shareholder lawsuit.

At September 30, 2016, the Company's cash, cash equivalents, investments and restricted cash and investments increased 7% to $325.6 million compared to $305.3 million at December 31, 2015. Total debt was reduced significantly to $4.7 million compared to $19.8 million at the end of 2015 due to the full pay down of the Company's $40.0 million term loan.

Outlook Parting from the previous outlook of $3.50 per diluted share, the Company expects diluted earnings per share in 2016 to be $3.00, which includes an estimate of $8.2 million (approximately $0.76 per diluted share) for legal and accounting costs associated with financial restatements, changing auditors, outside investigations and legal proceedings related to securities law issues, and $3.3 million (approximately $0.30 per diluted share) for the shareholder litigation settlement. The Company reported $3.47 diluted earnings per share in 2015. 

Conference Call BBSI will conduct a conference call tomorrow, November 9, 2016 at 12:00 p.m. Eastern time (9:00 a.m. Pacific time) to discuss its financial results for the third quarter ended September 30, 2016. The Company's President and CEO Michael Elich and CFO Gary Kramer will host the call, followed by a question and answer period.

Date: Wednesday, November 9, 2016 Time: 12:00 p.m. Eastern time (9:00 a.m. Pacific time) Toll-free dial-in number: 1-877-681-3367 International dial-in number: 1-719-325-4845 Conference ID: 7180987

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 .

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=121606 and via the investor relations section of the BBSI website at www.barrettbusiness.com .

A replay of the conference call will be available after 3:00 p.m. Eastern time on the same day through December 9, 2016.

Toll-free replay number: 1-844-512-2921 International replay number: 1-412-317-6671 Replay ID: 7180987

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.

The Company reports its Professional Employer Services revenues on a net basis because it is not the primary obligor for the services provided by the Company's co-employed 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)
				Three Months Ended						Nine Months Ended
Non-GAAP (in thousands)				September 30,						September 30,
				2016			2015			2016			2015
Gross Revenues:
	Professional employer services			$	1,184,159		$	1,010,757		$	3,314,641		$	2,798,039
	Staffing services				47,874			46,617			121,806			128,130
		Total gross revenues			1,232,033			1,057,374			3,436,447			2,926,169
Gross Cost of revenues:
	Direct payroll costs				1,036,769			886,984			2,889,278			2,457,193
	Payroll taxes and benefits				82,888			75,237			269,533			235,122
	Workers' compensation				62,817			52,263			175,437			145,555
		Total gross cost of revenues			1,182,474			1,014,484			3,334,248			2,837,870
Gross margin				$	49,559		$	42,890		$	102,199		$	88,299

A reconciliation of net revenues to non-GAAP gross revenues is as follows:

				(Unaudited)
				Three Months Ended September 30,
				Net Revenue												Gross Revenue
				Reporting Method												Reporting Method
(in thousands)				(GAAP)						Non-GAAP Adjustments						(Non-GAAP)
				2016			2015			2016			2015			2016			2015
Revenues:
	Professional employer services			$	177,229		$	152,108		$	1,006,930		$	858,649		$	1,184,159		$	1,010,757
	Staffing services				47,874			46,617			-			-			47,874			46,617
		Total revenues		$	225,103		$	198,725		$	1,006,930		$	858,649		$	1,232,033		$	1,057,374
Cost of revenues				$	175,544		$	155,835		$	1,006,930		$	858,649		$	1,182,474		$	1,014,484

				(Unaudited)
				Nine Months Ended September 30,
				Net Revenue												Gross Revenue
				Reporting Method												Reporting Method
(in thousands)				(GAAP)						Non-GAAP Adjustments						(Non-GAAP)
				2016			2015			2016			2015			2016			2015
Revenues:
	Professional employer services			$	497,682		$	418,954		$	2,816,959		$	2,379,085		$	3,314,641		$	2,798,039
	Staffing services				121,806			128,130			-			-			121,806			128,130
		Total revenues		$	619,488		$	547,084		$	2,816,959		$	2,379,085		$	3,436,447		$	2,926,169
Cost of revenues				$	517,289		$	458,785		$	2,816,959		$	2,379,085		$	3,334,248		$	2,837,870

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. The Company works with more than 4,100 clients across all lines of business in 22 states. For more information, please visit www.barrettbusiness.com .

Forward-Looking Statements Statements in this release about future events or performance, including expectations regarding revenue and earnings per share growth, 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 changes in executive management, the ineffectiveness of the Company's internal control over financial reporting, the Company's relationship with its primary bank lender, potential delisting of the Company's common stock by Nasdaq, current and future shareholder litigation, the ongoing investigation of accounting issues by the Securities and Exchange Commission and the United States Department of Justice, 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, the potential for material deviations from expected 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, the carrying value of deferred income tax assets and goodwill, 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 2015 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 Consolidated Balance Sheets
(Unaudited)
				September 30,			December 31,
(in thousands)				2016			2015
Assets
Current assets:
	Cash and cash equivalents			$	26,786		$	25,218
	Trade accounts receivable, net				140,074			90,529
	Income taxes receivable				-			1,038
	Prepaid expenses and other				3,637			3,173
	Investments				1,013			-
	Restricted cash and investments				51,959			86,110
	Deferred income taxes				20,906			20,941
		Total current assets			244,375			227,009
Investments					863			6,082
Property, equipment and software, net					25,790			22,820
Restricted cash and investments					245,020			187,916
Goodwill					47,820			47,820
Other assets					15,937			5,130
				$	579,805		$	496,777
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt			$	221		$	19,833
	Accounts payable				4,520			3,217
	Accrued payroll, payroll taxes and related benefits				161,062			121,343
	Income taxes payable				4,797			-
	Other accrued liabilities				10,751			6,166
	Workers' compensation claims liabilities				77,683			65,581
	Safety incentives liabilities				24,997			21,253
		Total current liabilities			284,031			237,393
Long-term workers' compensation claims liabilities					214,248			190,094
Long-term debt					4,447			-
Deferred income taxes					13,256			13,256
Customer deposits and other long-term liabilities					1,443			1,483
Stockholders' equity					62,380			54,551
				$	579,805		$	496,777

Barrett Business Services, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)				(Unaudited) Three Months Ended								(Unaudited) Nine Months Ended
				September 30,								September 30,
				2016				2015				2016				2015
Revenues:
	Professional employer service fees			$	177,229			$	152,108			$	497,682			$	418,954
	Staffing services				47,874				46,617				121,806				128,130
		Total revenues			225,103				198,725				619,488				547,084
Cost of revenues:
	Direct payroll costs				37,017				35,308				92,667				97,260
	Payroll taxes and benefits				82,888				75,237				269,533				235,122
	Workers' compensation				55,639				45,290				155,089				126,403
		Total cost of revenues			175,544				155,835				517,289				458,785
Gross margin					49,559				42,890				102,199				88,299
Selling, general and administrative expenses					30,440				25,440				80,834				63,839
Depreciation and amortization					823				721				2,341				2,113
Income from operations					18,296				16,729				19,024				22,347
Other expense, net					(3,280	)			(216	)			(3,281	)			(1,061	)
Income before income taxes					15,016				16,513				15,743				21,286
Provision for income taxes					4,783				5,540				4,991				7,239
Net income				$	10,233			$	10,973			$	10,752			$	14,047
Basic earnings per common share				$	1.41			$	1.52			$	1.49			$	1.96
Weighted average number of basic common shares outstanding					7,243				7,201				7,220				7,163
Diluted earnings per common share				$	1.38			$	1.49			$	1.46			$	1.91
Weighted average number of diluted common shares outstanding					7,405				7,362				7,350				7,340