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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

BBSI Reports Record Third Quarter Earnings; Raises Full-Year Outlook

November 5, 2019

- Third Quarter Net Income up 31% to $25 Million, or $3.24 per Diluted Share –- Raises Full-Year Earnings Outlook 12% to $6.05 per Diluted Share -

VANCOUVER, Wash., Nov. 05, 2019 (GLOBE NEWSWIRE) -- 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, 2019.

Third Quarter 2019 Financial Summary vs. Year-Ago Quarter

-- Net revenues increased to $248.0 million versus $247.3 million. -- Gross billings up 7% to $1.55 billion. -- Net income up 31% to $25.0 million. -- Diluted earnings per share up 30% to $3.24.

“We reported strong results in the quarter, driven by the addition of 386 clients,” said BBSI President and CEO Mike Elich. “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.”

Third Quarter 2019 Financial Results

Net revenues in the third quarter of 2019 increased to $248.0 million compared to $247.3 million in the third quarter of 2018.

Total gross billings in the third quarter increased 7% to $1.55 billion compared to $1.45 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 3.6% in the third quarter and benefited from lower frictional costs and a favorable one-time adjustment of prior accident year liability of $5.6 million. This compares to 4.5% in the third quarter of 2018.

Net income for the third quarter of 2019 increased 31% to a record $25.0 million, or $3.24 per diluted share, compared to net income of $19.1 million, or $2.50 per diluted share, in the year-ago quarter. Net income in the third quarter of 2019 reflected an effective tax rate of 22%.

Outlook

For the full year 2019, BBSI is raising the estimate for expected diluted earnings per share by 12% to $6.05 (from $5.40) compared to $4.98 per diluted share in 2018. This continues to assume an effective tax rate of approximately 22%.

BBSI expects the range for workers’ compensation expense as a percentage of gross billings to be 4.3% to 4.5% in the fourth quarter of 2019. This range can also be applied as an approximation for 2020.

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, November 6, 2019, 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, 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, November 6, 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: 13695729

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.mybbsi.com.

A replay of the conference call will be available after 3:00 p.m. Eastern time on the same day through December 6, 2019.

Toll-free replay number: 1-844-512-2921 International replay number: 1-412-317-6671 Replay ID: 13695729

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 nine months ended September 30, 2019 and 2018.

(Unaudited) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- (in thousands) 2019 2018 2019 2018 - --------- - --------- ------ - --------- - --------- ----- Gross billings $ 1,552,882 $ 1,447,852 $ 4,377,089 $ 4,147,179 PEO and staffing wages $ 1,322,469 $ 1,222,617 $ 3,725,416 $ 3,503,184

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 September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- (in thousands) 2019 2018 2019 2018 - ------ - ------ ------------ - ------- - ------- --------- Workers’ compensation $ 46,887 $ 56,412 $ 154,290 $ 172,388 Safety incentive costs 8,265 8,790 22,801 24,394 Non-GAAP gross workers’ compensation $ 55,152 $ 65,202 $ 177,091 $ 196,782 - ------ - ------ ------------ - ------- - ------- ---------

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 September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2019 2018 2019 2018 ---- ---- -------------------- ---- ---- ------------------- PEO and staffing wages 85.2% 84.4% 85.1% 84.5% Payroll taxes and benefits 6.8% 6.9% 7.3% 7.8% Non-GAAP gross workers’ compensation 3.6% 4.5% 4.0% 4.7%

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.mybbsi.com.

Forward-Looking Statements

Statements in this release about future events or performance, including expectations regarding gross billings growth, future effective tax rates, earnings per share, and workers’ compensation expense as a percentage of gross billings, 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) September December 30, 31, (in thousands) 2019 2018 --------- --------- Assets Current assets: Cash and cash equivalents $ 35,452 $ 35,371 Investments 101,748 416 Trade accounts receivable, net 187,467 151,597 Prepaid expenses and other 15,974 13,880 Restricted cash and investments 107,702 120,409 - ------- - ------- Total current assets 448,343 321,673 Investments — 1,687 Property, equipment and software, net 29,575 24,812 Operating lease right-of-use assets 23,784 — Restricted cash and investments 311,882 348,165 Goodwill 47,820 47,820 Other assets 3,253 3,474 Deferred income taxes 5,523 8,458 $ 870,180 $ 756,089 - ------- - ------- Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt $ 221 $ 221 Accounts payable 5,432 4,336 Accrued payroll, payroll taxes and related benefits 197,686 158,683 Income taxes payable 3,408 4,403 Current operating lease liabilities 6,448 — Other accrued liabilities 13,244 20,566 Workers’ compensation claims liabilities 113,623 109,319 Safety incentives liability 27,727 29,210 - ------- - ------- Total current liabilities 367,789 326,738 Long-term workers’ compensation claims liabilities 316,423 304,078 Long-term debt 3,785 3,951 Long-term operating lease liabilities 17,906 — Customer deposits and other long-term liabilities 4,106 2,285 Stockholders’ equity 160,171 119,037 $ 870,180 $ 756,089 - ------- - -------

Barrett Business Services, Inc.Condensed Consolidated Statements of Operations(Unaudited)

(Unaudited) (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2019 2018 2019 2018 --------- --------- --------- --------- Revenues: Professional employer service fees $ 214,156 $ 206,320 $ 607,840 $ 592,559 Staffing services 33,806 40,967 89,319 110,307 Total revenues 247,962 247,287 697,159 702,866 - ------- - ------- - ------- - ------- Cost of revenues: Direct payroll costs 25,464 30,842 67,298 83,265 Payroll taxes and benefits 104,847 100,348 321,341 322,784 Workers’ compensation 46,887 56,412 154,290 172,388 - ------- - ------- - ------- - ------- Total cost of revenues 177,198 187,602 542,929 578,437 - ------- - ------- - ------- - ------- Gross margin 70,764 59,685 154,230 124,429 Selling, general and administrative expenses 41,352 36,670 113,517 101,713 Depreciation and amortization 970 949 2,909 3,228 - ------- - ------- - ------- - ------- Income from operations 28,442 22,066 37,804 19,488 Other income, net 2,488 1,780 7,946 5,896 - ------- - ------- - ------- - ------- Income before income taxes 30,930 23,846 45,750 25,384 Provision for income taxes 5,959 4,759 9,172 4,178 Net income $ 24,971 $ 19,087 $ 36,578 $ 21,206 - ------- - ------- - ------- - ------- Basic income per common share $ 3.34 $ 2.59 $ 4.92 $ 2.89 - ------- - ------- - ------- - ------- Weighted average basic common shares outstanding 7,483 7,369 7,433 7,327 - ------- - ------- - ------- - ------- Diluted income per common share $ 3.24 $ 2.50 $ 4.76 $ 2.77 - ------- - ------- - ------- - ------- Weighted average diluted common shares outstanding 7,711 7,643 7,686 7,652 - ------- - ------- - ------- - -------

Investor Relations: Gateway Investor RelationsCody Slach Tel 1-949-574-3860 BBSI@gatewayir.com