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Barrett' Loss Narrower-than-Expected

Zacks Equity Research

Barrett Business Services Inc. (BBSI) posted first quarter 2013 loss per share of 36 cents, narrower than the Zacks Consensus Estimate of 38 cents loss per share.


Barrett reported net revenue of $111.6 million in the first quarter, up 35.3% from $82.4 million a year ago. The year-over-year increase was primarily attributable to the continued increase in the company's client count and same-store sales.

Professional employer service fees grew 45.6% year over year to $81.8 million. Revenues from Staffing Services were $29.7 million, up 13.4% from the comparable quarter last year.

Management acknowledged the solid client base and asserted that client retention was strong. The company attributed the solid results in the quarter to BBSI's maturing brand and strong referral channels, which helped attract new clients and retain the existing ones.

Operating Results

Reported gross profit was $8.3 million, up 26.8% year over year. But gross margin fell 50 basis points to 7.5% from the year-ago quarter. Total operating expenses in the first quarter were $12.3 million, up 21.4% from the year-earlier quarter. The increase in operating expenses was due to 21.0% growth in selling, general & administrative expenses and 32.2% growth in research and development expenses.

Reported operating loss in the quarter was $4.0 million compared to an operating loss of $3.6 million in the year-ago quarter. Operating margin was (3.5%) compared to (4.3%) in the year-ago quarter.

Reported net loss was $2.5 million or 36 cents per share compared to a net loss of $2.2 million or 22 cents in the comparable quarter last year.

Balance Sheet

Barrett exited the quarter with cash, cash equivalents and marketable securities of approximately $67.0 million, up from $62.5 million in the prior quarter. Long-term debt balance was sequentially flat at $5.2 million.


For the second quarter of 2013, the company expects earnings per share to range between 68 cents and 72 cents, up from 52 cents reported in the year-ago quarter.

The Zacks Consensus Estimate for second quarter and fiscal 2013 are pegged at 69 cents and $2.21 per share, respectively.

Our Take

Though Barrett registered a loss in its first quarter, the results were better than the Zacks Consensus Estimate. Revenue growth was encouraging given solid client growth. Management’s commentary of maintaining a strong business pipeline and a healthy client base is encouraging. But the company’s continued investments for operational infrastructure improvements could jeopardize margins in the near term.

Currently, Barrett has a Zacks Rank #2 (Buy). We would like to recommend other technology stocks, which are really doing well. You can consider Automatic Data Processing Inc. (ADP), Genpact Ltd. (G) and Paychex Inc. (PAYX), which have a Zacks Rank #2 (Buy) and are worth buying.

Read the Full Research Report on ADP

Read the Full Research Report on PAYX

Read the Full Research Report on G

Read the Full Research Report on BBSI

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