Barrett Business Services, Inc. (BBSI) Earnings Call Transcript & Summary

Hello and welcome to the Annual Meeting of stockholders of Barrett Business Services. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Mr. Anthony Harris, Chief Financial Officer. Mr. Harris, the floor is yours.

Thank you, and good afternoon. Anyone [ present but has ] not registered, and who wishes to vote his or her shares in person should do so by using the proxy voting site link on the left-hand panel of your screen and the 11-digit voter control issued by AST along with your proxy materials. Only persons who were stockholders of record on April 9, 2020, are entitled to vote at this meeting. For those who have sent in a proxy, there is nothing further to do and your shares will be voted as instructed, unless you wish to change your vote. Those who desire to ask a question during the question-and-answer period may do so using the chat box icon located in the left-hand panel of your screen. Only stockholders of record, proxy holders or beneficial holders may ask a question during the question-and-answer period.

Good afternoon. I'm Tony Meeker, Chairman of the Board of Directors of BBSI. And I now call the 2020 Annual Meeting of Stockholders to order. Anthony Harris, Chief Financial Officer and Secretary of the company, will act as the Secretary of the meeting. AST has been appointed the teller and inspector of elections for this meeting. [ Dave Carey ] from AST is present today. Anthony, please advise us as to the mailing of Notice of the Annual Meeting and the number of shares represented at this meeting in-person and by proxy.

On or before April 27, 2020, a printed Notice of the Annual Meeting was mailed to each stockholder of record as of April 9, 2020. An appropriate affidavit of the mailing of the notice is on file on the records of the company. There are more than 6,546,893 shares, or 87.1%, represented at this meeting in-person or by proxy, out of the 7,513,195 shares outstanding on the record date.

As more than 50% of the outstanding shares of the company are represented at this meeting, I declare a quorum present. Copies of the minutes of the 2019 Annual Meeting of Stockholders as well as copies of the company's 2019 annual report and the proxy statement for this meeting are available through the shareholder meeting materials link on the left-hand panel of your screen. I will now entertain a motion to dispense with the reading of those minutes of the prior stockholders meeting.

I so move.

Is there any discussion? All in favor say, aye? [Voting]

All opposed, nay? [Voting]

The eyes have it. In addition to serving as Chairman of the Board of BBSI, I am the retired Managing Director of Victory Capital Management, Inc., an investment management firm, and I'm also the former Treasurer of the state of Oregon. I will now introduce the other directors of BBSI, who, in addition to me, are standing for election at this meeting. Mr. Tom Carley, who is the Chief Operating Officer and Director of Urth Organic Corporation, Co-Founder of Portal Capital, an investment management company in Portland, Oregon; Tom Cusick, Executive Vice President and Chief Operating Officer of Columbia Sportswear Company headquartered in Portland, Oregon; Diane Dewbrey, Director of MBIA Inc., a provider of financial guarantee insurance and former Director and Chair of Enventis, a telecommunications company; Jim Hicks, Professor of Research in Biological Sciences at the University of Southern California; Jon Justesen, Co-owner and CEO of Justesen Ranches; Vincent Price, Executive Vice President and Chief Financial Officer of Cambia Health Solutions, a nonprofit health insurance corporation headquartered in Portland, Oregon. Next, I would like to introduce the officers of the company. Gary Kramer, President and CEO, Mr. Kramer is also being nominated for election as a Director at this meeting; Anthony Harris, Vice President Finance and Chief Financial Officer, Secretary and Treasurer; Gerald Blotz, Vice President and Chief Operating Officer. In addition, several of the company's professional advisers are present today. Charles Mello with Deloitte & Touche LLP, our independent accountants; Mary Ann Frantz, a partner with Miller Nash Graham & Dunn LLP, our corporate securities counsel. Proxy material you have received describes the items of business to be considered at this meeting. The holders of a majority of the company's shares have submitted proxies voting in accordance with the Board's recommendations. However, it is necessary for us to act on each item individually. If you have already submitted a proxy, your shares will be voted as instructed. The polls are now open to act on the business to be presented at this meeting. The first item of business is to elect 8 Directors to serve until the 2021 Annual Meeting. I recognize now Tom Carley...

I nominate Thomas J. Carley Thomas B. Cusick, Diane L. Dewbrey, James B. Hicks, Jon L. Justesen, Gary E. Kramer, Anthony Meeker and Vincent P. Price for election as Directors to serve until the 2021 Annual Meeting of Stockholders.

Thank you. BBSI did not receive notice from any stockholder of his or her intention to nominate 1 or more individuals for election as Directors of BBSI prior to the deadline for the submission of such notice, which was January 25, 2020. Therefore, nominations for election as Directors are now closed. As there are 8 nominees for the 8 current positions of the Board of Directors, I will entertain a motion for the election of the 8 nominees.

Mr. Chairman, I move the election of the 8 nominees to serve until the 2021 Annual Meeting of Stockholders.

For reporting purposes, we must have an exact tabulation of the voting for Directors. If you have submitted a proxy, your shares will be voted according to the instructions on the proxy and you do not need to vote at this time. If you are a record holder as of April 9, 2020, you have -- and have not submitted a proxy or wish to change your vote and you wish to vote at this meeting, please do so by using the proxy voting site link at this time. Is there any discussion regarding the election of Directors? [Voting]

Hearing none, the second item on the agenda is a proposed amendment to the company's bylaws submitted on behalf of the Board of Directors. The purpose of the amendment is to permit stockholders to nominate individuals for election as Directors through the company's proxy materials. Do I hear a motion to approve this proposal?

Mr. Chairman, I move that the proxy access bylaw amendment be approved.

Is there any discussion on the proposal to approve the proxy access bylaw amendment? If you wish to vote for this proposal, please do so by using the proxy voting site link at this time. [Voting]

Item #3, the approval of the 2020 Stock Incentive Plan. This item on the agenda is the approval of Barrett Business Services 2020 Stock Incentive Plan submitted on behalf of the Board of Directors. The 2020 plan will serve as successor to the 2015 Stock Incentive Plan. Do I hear a motion to approve this proposal?

Mr. Chairman, I move that the Barrett Business Services Inc. 2020 Stock Incentive Plan be approved.

Do I hear any discussion on the proposal to approve the 2020 stock incentive plan? If you wish to vote on this proposal, please do so using the proxy voting site link at this time. [Voting]

The fourth proposal is the nonbinding advisory vote by stockholders on the company's compensation program for its executive officers, and it's the fourth item on the agenda.

Mr. Chairman, I move the adoption of the following resolution, resolved, that the compensation paid to our named executive Officers as disclosed in the 2020 proxy statement pursuant to Item 402 of Regulation S-K adopted by the SEC, including the compensation discussion and analysis, executive compensation tables and accompanying footnotes and narrative discussion is hereby approved.

Is there any discussion on the proposal to approve the company's executive compensation program on an advisory basis? If you wish to vote on this proposal, please do so using the proxy voting site link at this time. [Voting]

The next item of business to be conducted is the ratification of the selection of BBSI's independent registered public accounting firm for 2020. The Board's Audit and Compliance Committee has selected Deloitte & Touche LLP as the company's independent auditors for the accompanying year. Deloitte has served BBSI auditors since 2016. Does anyone have any comment on this proposal or wish to ask the Deloitte representative who is participating today any questions? If you wish to vote on this proposal, please do so using the proxy voting site link at this time. [Voting]

The polls are now closed. The Secretary will announce the results of the voting before the end of the meeting. It's now time for us to hear a report from our President and CEO, Gary Kramer.

Thank you, Mr. Chairman. Hello, everyone, and thank you for your support and confidence in BBSI. Rather than have the executive team provide a full presentation this year, we thought it best to provide some prepared remarks. The events that unfolded over the past 3 months have been historic and unprecedented, and our hearts go out to all of those affected by the global crisis. We hope everyone is safe and that everyone is being mindful of the precautionary measures that should be adhered to when resuming business operations. BBSI continues to be open for business, and our business teams are operational and working effectively. These events were unexpected and transpired very quickly. We provided outstanding and uninterrupted service to our clients and distribution partners. In times of change or crisis, our product is more relevant and meaningful to business owners. Having your personal team at BBSI when you are in a time of need is a powerful ally to have in your corner. We discussed our interim financials for April during the Q1 earnings call and that we experienced gross revenue decreasing by 16% compared to the prior year. In anticipation of the slowdown, we took measures regarding our own operations to reduce SG&A to better align with revenue. We called the bottom in April for revenue and anticipate that our revenue will gain momentum now that most states are reopening. BBSI's financial strength is strong. Over the past couple of years, we have taken many steps and actions in order to solidify our balance sheet. We previously discussed building a financial moat around the company and then utilizing the excess capital to invest in the business, increase the dividend and then opportunistically repurchase shares. At 3/31/20, our true available cash and securities on-hand was $94 million, and we had an additional $50 million credit facility behind us. We are good stewards of our capital, and we will ensure that BBSI is here for the long term to support our clients, distribution channels, employees and investors. The company is in an excellent position to emerge and capitalize in a post-COVID world. We have been investing in our new client-facing technology, mybbsi, which is launching next month for all new clients. Also, we have applied for our PEO license in every state and expect to be fully licensed in the next 4 months. When we go to market, we are offering the best of BBSI. We have various products and assets consisting of strategic consulting, human resources, information technology, insurance, risk management, financial stability and staffing. When we meet with a potential client, they may join BBSI because they have a certain pain point today, but they will stay because we deliver our whole suite of product flawlessly. People have been and continue to be our product, which has never been more relevant to the business owner than it is today, packaging their knowledge and expertise with our new technology platform, and the ability to transact nationally strategically positions us to go after larger, more tech-savvy clients and increases our total available market. To say that we are poised for incredible future growth and are eager to accelerate our sales effort post-COVID-19 is an understatement. With that, we will open it up to questions. [Operator Instructions]

We have our first question now. And I'm straining my eyes trying to read this. Can you read that, Tony?

Sure will. And [ Wayne King ], who usually attends our meetings, he's living up to his reputation of having some questions for us at our annual meeting. So we want to thank Wayne for doing that. The first question, and he has 3 of them, "Will our new IT offering allow us to serve larger clients? And if so, what is your estimate of the WSE size of these larger clients? And what would be the potential increase in totally addressable market for WSE?"

Sure. So I'll take that one. So we're very excited that our new technology, and our national PEO licensing will allow us to do business with larger clients and more sophisticated clients. We have 3 branches that's around San Francisco now, and we're going to have the ability to sell tech to tech, and we're very excited about that. We haven't disclosed what our total available market's going to be or what the size is going to be. Really, it's going to come out to be getting our craft out there, mastering our craft and delivering it and ultimately getting the bigger and better opportunities.

Thanks, Gary. Wayne's second question is, "What basic principles do you use to determine balance sheet capital adequacy?"

Sure. So when we think of our balance sheet, we think of wanting to have a moat that's going to surround the company. We've been saying this for years that you don't want to be in a position where you have to do just-in-time capital management. And the reason you don't want to be in that position is for what we just went through with COVID. So when we think of the balance sheet, we want to be able to think years ahead, do we have the solvency and the financial stability that we're going to be able to sustain the company and the cash flows for multiple years ahead. And that's the way we think about building the moat. And then when we get -- when we have the moat, then we think of how do we return excess capital to shareholders, right? And we're going to continue to invest in the business. We will also look at sustaining and increasing the dividend. If there's funds on top of that, we will look at returning any excess capital via share repurchase. And we were an opportunistic buyer. We did buy some stock in the first quarter, started to buy stock and then we slowly pulled back once COVID rang out. So we are very mindful and good stewards of capital. We worked very hard to earn that money for the shareholders, and we want to make sure we spend that money wisely.

Thanks, Gary. Your Board of Directors supports that 100%. Third question from Wayne is, "How has the COVID changed your view on what is an adequate financial cushion to protect shareholders in the event of an unexpected crisis?"

Sure. I can say that I'm -- we've all learned a lot of lessons with COVID. This is pretty unprecedented. When I think of how our company is performing, in April, we were down about 16% on gross revenue on a cash-to-cash basis compared to '19. And then we've -- we're seeing that tick up from there. So we feel like the worst is behind us, and we're optimistic that revenues are picking up. And then as more businesses and states come online, we're going to see better increase in our revenue. And revenue ultimately generates income and capital. When we think about it for COVID, the -- we took measures with our partners at Wells Fargo, where we increased our credit line from $33 million to $50 million. We didn't really see a need to tap into our credit line, but it's good to have the available capital just in case you do need it. When we run our scenarios and we run our modeling, we don't see situations where we will deplete our moat nor tap into the line. So it's kind of lesson learned is it's always better to have good partners that will stand behind you. It's always good to be able to stand on your own, which has been the way our models worked. And our business is pretty self sustaining, and our balance sheet's strong, and we feel really good about where we are and really strong about where we're going.

Thank you, Gary. And thanks, Wayne, for those 3 questions. Are there any other questions? We don't see any more questions coming on the screen. So Anthony Harris, will you please give us the results of the voting?

Yes. Each of the nominees for election as Director has been elected. The proxy access bylaw amendment has been approved. The 2020 stock incentive plan was approved. The company's executive compensation program was approved on an advisory basis, and the selection of Deloitte & Touche LLP as the company's independent auditors has been ratified by the stockholders. The exact voting on proposals considered at this meeting will be publicly reported to the filing of a current report on Form 8-K with the Securities and Exchange Commission by June 2, 2020.

Thank you, Anthony. We want to thank all of our stockholders for their participation in this process. It's truly an honor to serve the stockholders in this way. We're very, very proud of where BBSI is at this moment. I usually make a few comments at the close of the meeting, and I do want to say just a couple of things. Even though this particular environment is not the easiest way to do meetings, I think the last 3 months had been a real test of the employees of BBSI. The employees and Directors and officers have performed extremely well in a very, very difficult time. I think we can proudly say that they've executed above and beyond the call. Thank you very much to all of the folks of BBSI. I will now entertain a motion to adjourn the meeting.

So moved.

All those in favor of adjourning the 2020 Annual Meeting of BBSI Inc. say, aye? [Voting]

Those opposed, no? [Voting]

Motion carries. The meeting is adjourned.

This concludes the meeting. You may now disconnect.