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

BBSI Reports Fourth Quarter and Full Year 2019 Financial Results

February 25, 2020 GMT

- Full Year Net Income up 27% to a Record $48.3 Million, or $6.27 per Diluted Share -

VANCOUVER, Wash., Feb. 25, 2020 (GLOBE NEWSWIRE) -- Barrett Business Services, Inc. (“BBSI” or the “Company”) (NASDAQ: BBSI), a leading provider of business management solutions, reported financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter 2019 Financial Summary vs. Year-Ago Quarter

-- Net revenues increased 3% to $245.2 million versus $237.8 million. -- Gross billings up 5% to $1.59 billion. -- Net income of $11.7 million versus $16.9 million. -- Diluted earnings per share of $1.51 versus $2.21.

Full Year 2019 Financial Summary vs. 2018

-- Net revenues increased to $942.3 million versus $940.7 million. -- Gross billings up 5% to $5.97 billion. -- Net income up 27% to $48.3 million. -- Diluted earnings per share up 26% to $6.27.

“We had a strong quarter, culminating in a record year of earnings,” said BBSI President and CEO Mike Elich. “While topline growth remains softer than historical levels, we continue to see strength in our client additions. As I look at 2020, our foundation is strong. We have invested in our infrastructure over the years and are now positioned to complement our high touch model with enhanced technology solutions.”

Fourth Quarter 2019 Financial Results

Net revenues in the fourth quarter of 2019 increased 3% to $245.2 million compared to $237.8 million in the fourth quarter of 2018.

Total gross billings in the fourth quarter increased 5% to $1.59 billion compared to $1.52 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 fourth quarter and benefited from lower frictional costs and a favorable one-time adjustment of prior accident year liability of $3.1 million. This compares to 4.8% in the fourth quarter of 2018.

Net income for the fourth quarter of 2019 decreased to $11.7 million, or $1.51 per diluted share, compared to $16.9 million, or $2.21 per diluted share, in the year-ago quarter. Net income in the fourth quarter of 2019 reflected an effective tax rate of 24%, up from 13% in the year-ago quarter.

Full Year 2019 Financial Results

Net revenues in 2019 increased to $942.3 million compared to $940.7 million in 2018.

Total gross billings increased 5% to $5.97 billion compared to $5.66 billion in 2018 (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 4.1% in 2019 and benefited from lower frictional costs and favorable one-time adjustments of prior accident year liability of $13.4 million. This compares to 4.7% in 2018.

Net income in 2019 increased 27% to $48.3 million, or $6.27 per diluted share, compared to $38.1 million, or $4.98 per diluted share, in 2018. Net income in 2019 reflected an increase in the effective tax rate to 21% compared to 15% in the prior year.

Outlook

For the full year 2020, the company expects diluted earnings per share of $5.05. This includes an increase in SG&A of $5.5 million, or $0.56 in earnings per diluted share, for the planned launch of mybbsi.com, the company’s new and improved customer portal. This also assumes an effective tax rate of approximately 20%.

BBSI expects gross billings to increase approximately 7% for the next rolling 12-month period.

The company also expects the range for workers’ compensation expense as a percentage of gross billings to be 4.2% to 4.4%. This does not include any change in estimate for prior year workers’ compensation liability, which has been trending favorably over the previous nine quarters.

Conference Call

BBSI will conduct a conference call on Wednesday, February 26, 2020, at 12:00 p.m. Eastern time (9:00 a.m. Pacific time) to discuss its financial results for the fourth quarter and full year ended December 31, 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, February 26, 2020 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: 13699147

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 March 26, 2020.

Toll-free replay number: 1-844-512-2921 International replay number: 1-412-317-6671 Replay ID: 13699147

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 twelve months ended December 31, 2019 and 2018.

(Unaudited) (Unaudited) Three Months Ended Year Ended December 31, December 31, ------------------------- ------------------------- (in thousands) 2019 2018 2019 2018 ----------- ----------- ----------- ----------- Gross billings $ 1,593,919 $ 1,515,916 $ 5,971,008 $ 5,663,095 PEO and staffing wages $ 1,365,527 $ 1,287,485 $ 5,090,943 $ 4,790,669

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 Year Ended December December 31, 31, ------------------- --------------------- (in thousands) 2019 2018 2019 2018 -------- -------- --------- --------- Workers’ compensation $ 57,600 $ 63,191 $ 211,890 $ 235,579 Safety incentive costs 8,862 8,991 31,663 33,385 - ------ - ------ - ------- - ------- Non-GAAP gross workers’ compensation $ 66,462 $ 72,182 $ 243,553 $ 268,964 - ------ - ------ - ------- - -------

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 Percentage of Gross Billings Gross Billings Three Months Year Ended Ended December December 31, 31, --------------- --------------- 2019 2018 2019 2018 ------ ------ ------ ------ PEO and staffing wages 85.7 % 84.9 % 85.3 % 84.6 % Payroll taxes and benefits 6.8 % 5.6 % 7.2 % 7.2 % Non-GAAP gross workers’ compensation 4.2 % 4.8 % 4.1 % 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 7,200 clients across all lines of business in 29 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, workers’ compensation expense, SG&A expenses, 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)

December December 31, 31, (in thousands) 2019 2018 --------- --------- Assets Current assets: Cash and cash equivalents $ 44,570 $ 35,371 Investments 82,590 416 Trade accounts receivable, net 163,561 151,597 Income taxes receivable 1,335 — Prepaid expenses and other 14,919 13,880 Restricted cash and investments 116,873 120,409 - ------- - ------- Total current assets 423,848 321,673 Investments — 1,687 Property, equipment and software, net 31,724 24,812 Operating lease right-of-use assets 23,805 — Restricted cash and investments 327,326 348,165 Goodwill 47,820 47,820 Other assets 3,618 3,474 Deferred income taxes 2,788 8,458 - ------- - ------- $ 860,929 $ 756,089 - ------- - ------- Liabilities and Stockholders’ Equity Current liabilities: Current portion of long-term debt $ 221 $ 221 Accounts payable 5,993 4,336 Accrued payroll, payroll taxes and related benefits 174,168 158,683 Income taxes payable — 4,403 Current operating lease liabilities 6,671 — Other accrued liabilities 8,846 20,566 Workers’ compensation claims liabilities 118,273 109,319 Safety incentives liability 27,950 29,210 - ------- - ------- Total current liabilities 342,122 326,738 Long-term workers’ compensation claims liabilities 320,713 304,078 Long-term debt 3,730 3,951 Long-term operating lease liabilities 17,883 — Customer deposits and other long-term liabilities 4,682 2,285 Stockholders’ equity 171,799 119,037 - ------- - ------- $ 860,929 $ 756,089 - ------- - -------

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

(Unaudited) (Unaudited) (in thousands, except per share amounts) Three Months Ended Year Ended December 31, December 31, --------------------- --------------------- 2019 2018 2019 2018 --------- --------- --------- --------- Revenues: Professional employer service fees $ 212,033 $ 200,840 $ 819,873 $ 793,399 Staffing services 33,119 36,992 122,438 147,299 - ------- - ------- - ------- - ------- Total revenues 245,152 237,832 942,311 940,698 - ------- - ------- - ------- - ------- Cost of revenues: Direct payroll costs 25,157 28,178 92,455 111,443 Payroll taxes and benefits 108,372 84,219 429,713 407,003 Workers’ compensation 57,600 63,191 211,890 235,579 - ------- - ------- - ------- - ------- Total cost of revenues 191,129 175,588 734,058 754,025 - ------- - ------- - ------- - ------- Gross margin 54,023 62,244 208,253 186,673 Selling, general and administrative expenses 40,362 43,752 153,879 145,465 Depreciation and amortization 977 991 3,886 4,219 - ------- - ------- - ------- - ------- Income from operations 12,684 17,501 50,488 36,989 Other income, net 2,704 1,884 10,650 7,780 - ------- - ------- - ------- - ------- Income before income taxes 15,388 19,385 61,138 44,769 Provision for income taxes 3,674 2,529 12,846 6,707 - ------- - ------- - ------- - ------- Net income $ 11,714 $ 16,856 $ 48,292 $ 38,062 - ------- - ------- - ------- - ------- Basic income per common share $ 1.57 $ 2.28 $ 6.48 $ 5.18 - ------- - ------- - ------- - ------- Weighted average basic common shares outstanding 7,505 7,388 7,451 7,342 - ------- - ------- - ------- - ------- Diluted income per common share $ 1.51 $ 2.21 $ 6.27 $ 4.98 - ------- - ------- - ------- - ------- Weighted average diluted common shares outstanding 7,736 7,634 7,699 7,647 - ------- - ------- - ------- - -------

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