BBSI Announces Second Quarter 2007 Operating Results, Financial Guidance for 3Q07 and Conference Call

Barrett Business Services, Inc. (Nasdaq:BBSI) reported today net income of $4.9 million for the second quarter ended June 30, 2007, an improvement of $693,000 or 16.5% over net income of $4,188,000 for the second quarter of 2006. Diluted earnings per share for the 2007 second quarter were $.42, as compared to diluted earnings per share of $.36 for the same quarter a year ago. Net revenues for the second quarter ended June 30, 2007 totaled $63.9 million, a decrease of approximately $769,000 or 1.2% from the $64.7 million for the same quarter in 2006. (Unaudited) (Unaudited) ($ in thousands, except per share amounts) Second Quarter Ended Six Months Ended June 30, June 30, Results of Operations   2007   2006   2007   2006 Revenues: Staffing services $ 29,747 $ 30,567 $ 57,762 $ 57,228 Professional employer service fees   34,139   34,088   66,712   65,712 Total revenues   63,886   64,655   124,474   122,940 Cost of revenues: Direct payroll costs 22,416 22,831 43,558 42,682 Payroll taxes and benefits 20,542 20,437 44,453 43,274 Workers' compensation   5,964   7,198   11,808   13,752 Total cost of revenues   48,922   50,466   99,819   99,708 Gross margin 14,964 14,189 24,655 23,232 Selling, general and administrative expenses 7,727 7,882 15,115 15,102 Depreciation and amortization   316   329   665   630 Income from operations 6,921 5,978 8,875 7,500 Other income, net   790   670   1,575   1,302 Income before taxes 7,711 6,648 10,450 8,802 Provision for income taxes   2,830   2,460   3,841   3,257 Net income $ 4,881 $ 4,188 $ 6,609 $ 5,545 Basic earnings per share $ .43 $ .37 $ .58 $ .50 Weighted average basic shares outstanding   11,263   11,203   11,259   11,140 Diluted earnings per share $ .42 $ .36 $ .57 $ .48 Weighted average diluted shares outstanding   11,690   11,683   11,686   11,672 The Company reports its Professional Employer Organization services ("PEO”) revenues on a net basis because it is not the primary obligor for the services provided by the Company’s PEO clients to their customers. The gross revenues and cost of revenues information below, although not in accordance with generally accepted accounting principles ("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) Second Quarter Ended Six Months Ended (in thousands) June 30, June 30,   2007   2006   2007   2006 Revenues: Staffing services $ 29,747 $ 30,567 $ 57,762 $ 57,228 Professional employer services   237,957   226,845   467,470   435,519 Total revenues   267,704   257,412   525,232   492,747 Cost of revenues: Direct payroll costs 224,605 214,247 441,233 410,212 Payroll taxes and benefits 20,542 20,437 44,453 43,274 Workers' compensation   7,593   8,539   14,891   16,029 Total cost of revenues   252,740   243,223   500,577   469,515 Gross margin $ 14,964 $ 14,189 $ 24,655 $ 23,232 Gross revenues of $267.7 million for the second quarter ended June 30, 2007 rose 4.0% over the similar period in 2006. For the first six months of 2007, gross revenues of $525.2 million increased 6.6% over the comparable 2006 period. A reconciliation of non-GAAP gross revenues to net revenues is as follows: For the second quarters ended June 30, 2007 and 2006: (Unaudited) Three Months Ended June 30, Gross Revenue Net Revenue (in thousands) Reporting Method Reclassification Reporting Method   2007   2006   2007     2006     2007   2006 Revenues: Staffing services $ 29,747 $ 30,567 $ - $ - $ 29,747 $ 30,567 Professional employer services   237,957   226,845   (203,818 )   (192,757 )   34,139   34,088 Total revenues $ 267,704 $ 257,412 $ (203,818 ) $ (192,757 ) $ 63,886 $ 64,655 Cost of revenues $ 252,740 $ 243,223 $ (203,818 ) $ (192,757 ) $ 48,922 $ 50,466 For the six months ended June 30, 2007 and 2006: (Unaudited) Six Months Ended June 30, Gross Revenue Net Revenue (in thousands) Reporting Method Reclassification Reporting Method   2007   2006   2007     2006     2007   2006 Revenues: Staffing services $ 57,762 $ 57,228 $ - $ - $ 57,762 $ 57,228 Professional employer services   467,470   435,519   (400,758 )   (369,807 )   66,712   65,712 Total revenues $ 525,232 $ 492,747 $ (400,758 ) $ (369,807 ) $ 124,474 $ 122,940 Cost of revenues $ 500,577 $ 469,515 $ (400,758 ) $ (369,807 ) $ 99,819 $ 99,708 William W. Sherertz, President and Chief Executive Officer, commented: "We are pleased with our record second quarter earnings and anticipate a stronger performance in the third quarter.” The following summarizes the unaudited consolidated balance sheets at June 30, 2007 and December 31, 2006. June 30, Dec. 31, (in thousands) 2007 2006 Assets Current assets: Cash and cash equivalents $ 71,025 $ 69,874 Marketable securities 3,625 3,159 Trade accounts receivable, net 36,906 31,328 Prepaid expenses and other 2,109 1,940 Deferred income taxes 4,182 4,699 Workers' compensation receivables for insured claims   225   225 Total current assets 118,072 111,225 Marketable securities 411 406 Goodwill, net 28,036 27,536 Intangibles, net 62 75 Property, equipment and software, net 13,279 13,502 Restricted marketable securities and workers' compensation deposits 2,656 2,616 Other assets 1,893 2,143 Workers' compensation receivables for insured claims   4,295   4,678 $ 168,704 $ 162,181   Liabilities and Stockholders' Equity     Current liabilities: Accounts payable $ 1,327 $ 1,545 Accrued payroll, payroll taxes and related benefits 34,788 33,372 Income taxes payable 847 - Other accrued liabilities 937 516 Workers' compensation claims liabilities 3,253 3,843 Workers' compensation claims liabilities for insured claims 225 225 Safety incentives liabilities   7,815   7,519 Total current liabilities 49,192 47,020 Customer deposits 689 817 Long-term workers' compensation claims liabilities 3,976 5,295 Long-term workers' compensation liabilities for insured claims 2,931 3,011 Deferred income taxes 2,449 1,545 Deferred gain on sale and leaseback 732 793 Stockholders' equity   108,735   103,700 $ 168,704 $ 162,181 Outlook for Third Quarter 2007 The Company also disclosed today limited financial guidance with respect to its operating results for the third quarter ending September 30, 2007. The Company expects gross revenues for the third quarter of 2007 to range from $296 million to $302 million, an increase of approximately 9.2% over the third quarter of 2006, and anticipates diluted earnings per share for the third quarter of 2007 to range from $.56 to $.59 per share, an increase of approximately 19.8% over the $.48 per share for the same period a year ago. These projected operating results include the effect of the July 2, 2007 acquisition of Strategic Staffing, Inc. A reconciliation of estimated gross revenues to estimated GAAP net revenues for the third quarter of 2007 is not included because PEO revenues and cost of PEO revenues for the period are not reasonably estimable. Conference Call On July 26 at 9:00 a.m. Pacific Time, William W. Sherertz and Michael D. Mulholland will host an investor telephone conference call to discuss second quarter 2007 operating results. To participate in the call, dial (877) 356-3717. The call identification number is 7359648. The conference call will also be webcast live at www.barrettbusiness.com. To access the webcast, click on the Investor Relations section of the Web site and select Webcast. A replay of the call will be available beginning Thursday, July 26, 2007 at 12:00 p.m. PT and ending on August 2, 2007. To listen to the recording, dial (800) 642-1687 and enter conference identification code 7359648. Statements in this release about future events or performance, including earnings expectations for the third quarter of 2007, 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 successfully integrate acquired businesses with its existing operations, future workers' compensation claims experience, the effect of changes in the workers’ compensation regulatory environment in one or more of its primary markets and the collectibility of accounts receivable, among others. Other important factors that may affect the Company’s future prospects are described in the Company’s 2006 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 may be 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. BBSI provides a comprehensive range of human resource management solutions to large and small companies throughout many regions of the United States.