Barrett Business Services, Inc. (“BBSI” or the “Company”) (NASDAQ:
BBSI), a leading provider of business management solutions,
reported financial results for the second quarter ended
June 30, 2019.
Second Quarter 2019 Financial Summary
vs. Year-Ago Quarter
- Gross billings up 6% to $1.46 billion.
- Net revenues down slightly to $231.0 million versus $231.6
million.
- Net income improved 24% to $13.9 million, or $1.81 per diluted
share, compared to $11.2 million, or $1.46 per diluted share.
“We reported strong results in the quarter,
adding 419 new PEO clients while reaching new milestones as we
execute to our plan,” said president and CEO, Mike Elich. “I
continue to be pleased with our ongoing progress as an organization
and the value we are bringing to a growing number of small
businesses each day.”
BBSI CFO, Gary Kramer commented: “We continue to
see the results from various structural moves we have been working
on over the past several years, which gives us confidence in a
strong long-term financial outlook. This confidence led us to
implement a share buyback and raise our dividend, underscoring our
commitment to driving shareholder value.”
Second Quarter 2019 Financial
Results
Net revenues in the second quarter of 2019
decreased slightly to $231.0 million compared to $231.6 million in
the second quarter of 2018.
Total gross billings in the second quarter
increased 6% to $1.46 billion compared to $1.38 billion in the same
year-ago quarter (see “Key Performance Metrics and Non-GAAP
Financial Measures” below). The increase was primarily due to the
continued build in the Company’s PEO client count and same-customer
sales growth, which was partially offset by a decrease in staffing
revenue.
Non-GAAP gross workers’ compensation expense as
a percent of gross billings was 4.2% in the second quarter and
benefited from lower frictional costs and a favorable one-time
adjustment of prior accident year liability of $3.0 million. This
compares to 4.8% in the second quarter of 2018.
Net income for the second quarter of 2019
improved 24% to $13.9 million, or $1.81 per diluted share, compared
to net income of $11.2 million, or $1.46 per diluted share, in the
year-ago quarter. Net income in the second quarter of 2019
reflected an increase in the effective tax rate to 22%, up from the
previous estimate of 18%.
Capital Allocation
On August 5th, BBSI’s board of directors
authorized a $50 million share repurchase program over a three-year
period beginning August 15, 2019.
The board also authorized a 20% increase
in BBSI’s quarterly cash dividend to $0.30 per share. The cash
dividend will be paid on September 6, 2019 to all stockholders of
record as of August 23, 2019. BBSI has paid a dividend since 2006
without interruption and this is the 8th dividend increase.
Outlook
For the full year 2019, BBSI continues to expect
diluted earnings per share of $5.40. This assumes an increase in
the effective tax rate to approximately 22% from 18% prior. In
addition, the Company now expects the range for workers’
compensation expense as a percentage of gross billings to be 4.4%
to 4.6% from 4.6% to 4.8% prior.
BBSI also continues to expect gross billings to
increase approximately 8% for the next rolling 12-month period.
Conference Call
BBSI will conduct a conference call on
Wednesday, August 7, 2019, at 12:00 p.m. Eastern time (9:00 a.m.
Pacific time) to discuss its financial results for the second
quarter ended June 30, 2019.
BBSI’s President and CEO Michael Elich and CFO
Gary Kramer will host the conference call, followed by a question
and answer period.
Date: Wednesday, August 7, 2019 Time: 12:00 p.m.
Eastern time (9:00 a.m. Pacific time) Toll-free dial-in number:
1-877-407-4018 International dial-in number: 1-201-689-8471
Conference ID: 13692801
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 Gateway Investor Relations at
1-949-574-3860.
The conference call will be broadcast live and
available for replay here 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
September 7, 2019.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671 Replay ID: 13692801
Key Performance Metrics and Non-GAAP
Financial Measures
We report PEO revenues net of direct payroll
costs because we are not the primary obligor for wage payments to
our clients’ employees. However, management believes that gross
billing amounts and wages are useful in understanding the volume of
our business activity and serve as an important performance metric
in managing our operations, including the preparation of internal
operating forecasts and establishing executive compensation
performance goals. We therefore present for purposes of analysis
gross billing and wage information for the three and six months
ended June 30, 2019 and 2018.
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
Gross billings |
|
$ |
1,463,962 |
|
|
$ |
1,379,483 |
|
|
$ |
2,824,206 |
|
|
$ |
2,699,327 |
PEO and staffing wages |
|
$ |
1,246,576 |
|
|
$ |
1,165,860 |
|
|
$ |
2,402,947 |
|
|
$ |
2,280,567 |
Because safety incentives represent
consideration payable to PEO customers, safety incentive costs are
netted against PEO revenue in our consolidated statements of
operations. Management considers safety incentives to be an
integral part of our workers’ compensation program because they
encourage client companies to maintain safe work practices and
minimize workplace injuries. We therefore present below for
purposes of analysis non-GAAP gross workers’ compensation expense,
which represents workers’ compensation costs including safety
incentive costs. We believe this non-GAAP measure is useful in
evaluating the total costs of our workers’ compensation
program.
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
(in thousands) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
Workers' compensation |
|
$ |
53,174 |
|
|
$ |
58,854 |
|
|
$ |
107,403 |
|
|
$ |
115,976 |
Safety incentive costs |
|
|
7,833 |
|
|
|
8,039 |
|
|
|
14,536 |
|
|
|
15,604 |
Non-GAAP gross workers'
compensation |
|
$ |
61,007 |
|
|
$ |
66,893 |
|
|
$ |
121,939 |
|
|
$ |
131,580 |
In monitoring and evaluating the performance of
our operations, management also reviews the following ratios, which
represent selected amounts as a percentage of gross billings.
Management believes these ratios are useful in understanding the
efficiency and profitability of our service offerings.
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Percentage of Gross Billings |
|
|
Percentage of Gross Billings |
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
PEO and staffing wages |
|
85.2% |
|
|
84.5% |
|
|
85.1% |
|
|
84.5% |
Payroll taxes and
benefits |
|
6.9% |
|
|
7.1% |
|
|
7.7% |
|
|
8.2% |
Non-GAAP gross workers'
compensation |
|
4.2% |
|
|
4.8% |
|
|
4.3% |
|
|
4.9% |
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 6,400 clients across all lines of business in 23 states.
For more information, please visit www.barrettbusiness.com.
Forward-Looking Statements
Statements in this release about future events
or performance, including expectations regarding gross billings
growth, future effective tax rates, and earnings per share, 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 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 Company's relationship
with its primary bank lender, the potential for material deviations
from expected future workers' compensation claims experience, the
workers’ compensation regulatory environment in the Company’s
primary markets, litigation costs, the effect of governmental
investigations, security breaches or failures in the Company's
information technology systems, the collectability of accounts
receivable, changes in executive management, 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 prospects are described in the Company’s
2018 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)
|
|
June 30, |
|
December 31, |
(in thousands) |
|
2019 |
|
2018 |
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
23,693 |
|
$ |
35,371 |
Trade accounts receivable, net |
|
|
163,228 |
|
|
151,597 |
Prepaid expenses and other |
|
|
15,720 |
|
|
13,880 |
Investments |
|
|
77,271 |
|
|
416 |
Restricted cash and investments |
|
|
108,275 |
|
|
120,409 |
Total current assets |
|
|
388,187 |
|
|
321,673 |
Investments |
|
|
— |
|
|
1,687 |
Property, equipment and
software, net |
|
|
27,999 |
|
|
24,812 |
Operating lease right-of-use
assets |
|
|
25,005 |
|
|
— |
Restricted cash and
investments |
|
|
335,966 |
|
|
348,165 |
Goodwill |
|
|
47,820 |
|
|
47,820 |
Other assets |
|
|
3,329 |
|
|
3,474 |
Deferred income taxes |
|
|
5,897 |
|
|
8,458 |
|
|
$ |
834,203 |
|
$ |
756,089 |
Liabilities and Stockholders' Equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Current portion of long-term debt |
|
$ |
221 |
|
$ |
221 |
Accounts payable |
|
|
4,824 |
|
|
4,336 |
Accrued payroll, payroll taxes and related benefits |
|
|
181,966 |
|
|
158,683 |
Income taxes payable |
|
|
2,670 |
|
|
4,403 |
Current operating lease liabilities |
|
|
6,381 |
|
|
— |
Other accrued liabilities |
|
|
15,908 |
|
|
20,566 |
Workers' compensation claims liabilities |
|
|
108,289 |
|
|
109,319 |
Safety incentives liability |
|
|
27,316 |
|
|
29,210 |
Total current liabilities |
|
|
347,575 |
|
|
326,738 |
Long-term workers'
compensation claims liabilities |
|
|
322,447 |
|
|
304,078 |
Long-term debt |
|
|
3,840 |
|
|
3,951 |
Long-term operating lease
liabilities |
|
|
19,101 |
|
|
— |
Customer deposits and other
long-term liabilities |
|
|
3,773 |
|
|
2,285 |
Stockholders' equity |
|
|
137,467 |
|
|
119,037 |
|
|
$ |
834,203 |
|
$ |
756,089 |
|
|
|
|
|
Barrett Business Services,
Inc.Condensed Consolidated Statements of
Operations(Unaudited)
|
(Unaudited) |
|
|
(Unaudited) |
|
(in thousands, except per
share amounts) |
Three Months Ended |
|
|
Six Months Ended |
|
|
June 30, |
|
|
June 30, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional employer service fees |
$ |
203,157 |
|
|
$ |
197,277 |
|
|
$ |
393,684 |
|
|
$ |
386,239 |
|
Staffing services |
|
27,825 |
|
|
|
34,326 |
|
|
|
55,513 |
|
|
|
69,340 |
|
Total revenues |
|
230,982 |
|
|
|
231,603 |
|
|
|
449,197 |
|
|
|
455,579 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct payroll costs |
|
20,992 |
|
|
|
26,020 |
|
|
|
41,834 |
|
|
|
52,423 |
|
Payroll taxes and benefits |
|
101,697 |
|
|
|
98,249 |
|
|
|
216,494 |
|
|
|
222,437 |
|
Workers' compensation |
|
53,174 |
|
|
|
58,854 |
|
|
|
107,403 |
|
|
|
115,976 |
|
Total cost of revenues |
|
175,863 |
|
|
|
183,123 |
|
|
|
365,731 |
|
|
|
390,836 |
|
Gross margin |
|
55,119 |
|
|
|
48,480 |
|
|
|
83,466 |
|
|
|
64,743 |
|
Selling, general and
administrative expenses |
|
39,005 |
|
|
|
35,614 |
|
|
|
72,165 |
|
|
|
65,043 |
|
Depreciation and
amortization |
|
970 |
|
|
|
1,274 |
|
|
|
1,939 |
|
|
|
2,278 |
|
Income (loss) from operations |
|
15,144 |
|
|
|
11,592 |
|
|
|
9,362 |
|
|
|
(2,578 |
) |
Other income, net |
|
2,851 |
|
|
|
2,121 |
|
|
|
5,458 |
|
|
|
4,114 |
|
Income before income taxes |
|
17,995 |
|
|
|
13,713 |
|
|
|
14,820 |
|
|
|
1,536 |
|
Provision for (benefit from)
income taxes |
|
4,088 |
|
|
|
2,473 |
|
|
|
3,213 |
|
|
|
(581 |
) |
Net income |
$ |
13,907 |
|
|
$ |
11,240 |
|
|
$ |
11,607 |
|
|
$ |
2,117 |
|
Basic income per common
share |
$ |
1.88 |
|
|
$ |
1.54 |
|
|
$ |
1.57 |
|
|
$ |
0.29 |
|
Weighted average basic common
shares outstanding |
|
7,410 |
|
|
|
7,310 |
|
|
|
7,408 |
|
|
|
7,307 |
|
Diluted income per common
share |
$ |
1.81 |
|
|
$ |
1.46 |
|
|
$ |
1.51 |
|
|
$ |
0.28 |
|
Weighted average diluted
common shares outstanding |
|
7,692 |
|
|
|
7,675 |
|
|
|
7,674 |
|
|
|
7,658 |
|
Investor Relations:
Gateway Investor RelationsCody SlachTel
1-949-574-3860BBSI@gatewayir.com
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