James Miller - Chief Financial Officer, Secretary, Treasurer, CAO and Vice President Michael Elich - President and Chief Executive Officer.

Jeff Martin - ROTH Capital Partners Matt Blazei - Lake Street Capital Markets William Dezellem - Titan Capital Management.

Please stand-by, we’re about to begin. Good morning, everyone, and thank you for participating in today’s conference call to discuss BBSI’s financial results for the first quarter ended March 31, 2015. Joining us today are BBSI’s President and CEO, Mr. Michael Elich, and the company’s CFO, Mr. Jim Miller.

Following their remarks we’ll open the call for your questions. Before we go further, I would like to take a moment to read the company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

The company remarks during today’s conference call may include forward-looking statements. These statements along with other information presented that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements.

Please refer to the company’s recent earnings release and to the company’s quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through May 29, 2015, starting at 3 PM Eastern Time this afternoon. A webcast replay will also be available via the link provided in today’s press release, as well as available on the company’s website at www.barrettbusiness.com.

Now, I would like to turn the call over to the Chief Financial Officer of BBSI, Mr. Jim Miller. Please go ahead, sir..

Thank you, Camille. And depending upon where you are dialing in from good morning or afternoon everyone. As you saw the close of the market yesterday, we issued a press release announcing our financial results for the first quarter ended March 31, 2015. The momentum we experienced in our business at the end of 2014 has continued into the first quarter.

Our gross revenue expanded by 23% supported by a 7.6% same-store sales growth. In addition, we added approximately 229 net new clients in the quarter. This continued build speak to the strength of our referral relationships, as well as to the value our operational teams deliver in support of our clients.

We are maintaining our rolling 12-months outlook due to the momentum in our current client base, the strength of our new business channels and the scalability of our operations.

In fact, the strategic investments in our infrastructure over the past several years have laid the groundwork for our performance and we are confident these investments will help BBSI’s brand continue to mature in the marketplace.

Before taking you through our financial results I would like to mention that yesterday’s earnings release summarizes our revenues and cost of revenues on a net revenue basis as required by Generally Accepted Accounting Principles or GAAP.

Most of our comments today, however, will be based upon gross revenues and various relationships to gross revenues, because we believe such information is one, more informative as to the level of our business activity; two, more useful in managing and analyzing our operations; and three, adds more transparency to the trends within our business.

Comments related to gross revenues as compared to a net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses or net income.

Now turning to the first quarter’s results, total gross revenues increased 23% to $896.9 million over the first quarter of 2014, primarily due to the continued build in the company’s co-employed client count, and same-store sales growth coupled with a 17% increase in staffing revenues.

Overall, PEO gross revenues increased 24% over the first quarter of last year to $857.8 million due primarily to the continued build in our co-employed client count and same-store sales. Our PEO revenues from existing customers increased approximately 7.6% year-over-year due to increases in both headcount and hours worked.

This compares to both a 9% increase in the same-store sales same quarter a year ago and last quarter being the fourth quarter of 2014 on a sequential basis. Staffing revenues for the first quarter of 2015 increased 17% to $39.2 million primarily due to an increase in new business and an increase from existing clients.

On a percentage basis, the gross margin in the first quarter was 1% as compared to 1.3% for the first quarter of 2014. The key drivers of this quarter’s gross margin are as follows.

Direct payroll cost as a percentage of gross revenues declined 21 basis points from 84.3% in the first quarter of 2014, which reflects an overall increase in the average customer markup percentage on a year-over-year basis. The company evaluates pricing on an as needed basis to account for operational demands and market trends.

For the first quarter, payroll taxes and benefits as a percentage of gross revenues declined 17 basis points to 9.8%, below our effective payroll tax rate for the 2015 first quarter resulted in a slight decline in overall state unemployment tax rates where BBSI does business, and to a small rise in the overall average wage rates which allow the tax ceilings to be reached sooner in the year for 2015 as compared to 2014.

Worker’s compensation expense as a percentage of gross revenues was 5%, which compares to 4.4% in the same quarter a year ago. Looking at the remainder of 2015, we anticipate the level of worker’s comp expense to range between 4.8% and 5% of gross revenues.

As expected the year-over-year percentage increase is due to an increase in the loss of accrual rate combined with increased costs from the full incremental expense associated with the ACE fronted program and the surety bonds and letters of credit costs related to satisfying security requirement for our California Self Insurance program which expired December 31, 2014.

The first quarter of 2015 represented the first full quarter of coverage under the Ace program, which provides workers’ compensation coverage to BBSI clients and their employees in California, replacing our self insurance there. We have continued to offset these incremental expenses through price increases to selected customers.

During the first quarter, we closed an additional 93 claims from years 2012 and prior resulting in approximately $900,000 of credits. This follows the progress we recorded at December 31, 2014 and also supports the results we expected of the claims strengthening process initiated by the company.

To-date, this brings the closure of 585 claims or 45% of the total strength in claims from 2012 and prior yielding $6.7 million in total credits. Specifically, we are seeing a trend of claims from years 2012 in prior closing for less than the amount put up on these specific claims.

The significance of the 2012 and older claims is that they are now well seasoned and having been fully strengthened provide us with a solid basis for analyzing the development of claim years 2013, 2014 and now into the 2015. The number of total open claims from 2012 and prior is now less than 1,000.

SG&A expenses increased 18% to $17 million compared to $14.4 million in the first quarter of 2014 primarily due to higher management payroll, increased IT spend and other variable expense components within SG&A to support continued business growth.

Consistent with the second-half of 2014, the increased IT expense relates to projects designed to enhance access and delivery of information to the field as well as improve efficiencies over time. It is important that we prudently invest to stay in front of our expansion.

However, we continue to target the rate of SG&A to grow in line or less than our gross revenue growth. The benefit from income taxes in the first quarter was $3.3 million, which represented a tax rate of approximately 36.4%. We expect the tax rate for the balance of 2015 to remain in the mid-to-upper-30s% range.

Net loss for the first quarter of 2015 was $5.8 million compared to a net loss of $3.6 million to the first quarter of 2014, diluted loss per share for the first quarter of 2015 was 81% compared to $0.50 for the first quarter of 2014.

Consistent with our historical experience, the net loss for the first quarter is largely due to the seasonally higher burden of employment taxes during the first several months of our year.

Now, turning to the balance sheet our cash, cash equivalents, marketable securities as well as restricted securities totaled $248.3 million compared to $239.1 million at December 31, 2014. At March 31, 2015, we had approximately $5.8 million drawn on our $14 million revolving line of credit.

During the first quarter, we funded approximately $28 million of cash into the ACE Trust account to supplement our $50.1 million of deposits at December 31, 2014, for our workers’ comp insurance arrangement with ACE.

These funds are included as a component of restricted marketable securities and workers compensation deposits in our long-term assets with a portion, representing an estimate of injury claims to be paid out in the next 12 months, which are included in the current assets on our balance sheet.

As we have commented on prior calls, the balance from the ACE Trust account is expected to build throughout 2015. We project that most of the planning for 2015 will come from the expense we accrue except for perhaps an estimated $10 million of free cash, which may be needed to meet the funding requirements for the balance of the year.

The $114.3 million of restricted certificates of deposits within long-term assets represents cash secured, letters of credit to satisfy collateral requirements associated with surety deposits for workers compensation purposes in the State of California related to our expired self-insurance program.

As I mentioned on last quarter’s call, we expect the level of these restricted certificates of deposits to decrease by approximately $25 million by late 2015, as the outstanding California self-insured liability, these deposit secure is now in a run-off mode.

Upon reduction, the decreased portion will revert to an restricted status and become a current assets.

As I also mentioned on last quarter’s call, I believe it is important to note that while the optics of our current ratio do not appear strong, the cash generated from the operations of the business is sufficient to fund the daily needs of the company.

Additionally, most of the current portion of long-term debt does not come due until the end of 2015, which will be funded primarily by income tax refund and cash flow generated from operations throughout the remainder of 2015.

We generated approximately $5.5 million in operating cash flow during the first quarter of 2015, as compared to $7.7 million in the same period last year.

Please keep in mind, however, that the cash flow for the first quarter of 2015 add back approximately $7.6 million of increases to the workers comp and safety incentive liabilities that we accrue, but do not immediately payout.

As we introduced last year in order to provide our investors with a more appropriate forward-looking view of our business, we have initiated a rolling 12-month outlook for gross revenues, which we plan to update on a quarterly basis. As such, we continue to expect gross revenues for the next 12-month period to increase approximately 18%.

Included in this, expectation is a high single-digit contribution from same-store sales growth, as well as growth from new business consistent with current trends. I look forward to addressing you again on our second quarter earnings call. Now, I’d like to turn the call over to the President and CEO of BBSI.

Mike Elich will comment further on a recently completed 2015 first quarter, as well as our outlook for 2015.

Mike?.

Good morning, and thank you for being - taking time to be on the call. Very pleased with results of the quarter, we continue to make significant progress in all areas. We saw progress through continuing the maturation of a brand as measured by the level of growth we see across all markets.

We continue to progress of maturing our organizational structure and processes by which we attract develop and retain people, and we continue to mature systems and integrate resources designed to support predictability in the model while bringing increased efficiencies to operation. Looking at the quarter, we added 287 new PEO clients.

We lost 58 PEO clients, three were due to AR issues, seven canceled for non-AR issues and lack of tier progression. 19 sold - 19 businesses either sold or were closed, and 29 left due to pricing to competition or companies that moved away from an outsourced model taking payroll in-house.

This represents an approximate net build of 229 new clients, I believe that’s new record for us. With same-store sales, we saw an increase of 7.6% specifically this measures hiring and increase of hours worked, and our wage inflation.

Measuring sequentially, fourth quarter 2014 versus first quarter 2015, we saw 39% of our clients add new head count, while 35% of our clients reduced head count with 26% unchanged.

Related to pipeline and regional growth, we continue to see momentum and maturation of our brand is evidenced by the continued strong pipelines and ongoing interest in our offering.

We - our general market outlook is strong, as we consistently - is seen by consistency in our client build across all regions with increased momentum coming from the Northwest and Mountain States.

Related to structural - structure in organizational build, we continue to expand the business - our business - and build business units to support our current and future organizational needs to meet market demand. Currently, we have 37 business units supported by 54 branches.

We currently have two business units build with an additional 10 business units forecasted to be live by the end of 2015, with approximately - for approximately 48 business units. We also continue to see positive momentum with new markets opened in recent quarters, while we see the potential to open two additional markets in 2015, or early 2016.

Markets may range from additional expansion on the East Coast to future tuck-in in the Western third of the United States.

Related to systems, we continue to focus on the integration and adoption of system development over the past 18 - systems developed over the last 18 months with completion - with to complement our brand, as well as to bring efficiencies to operation.

We also to continue to invest in systems and we’ll continue to invest in the systems through 2015, and into early 2016, to scale and support the future growth of the organization.

Related to workers comp and underwriting of risk, in the quarter, we saw relatively flat frequency of claims as a percentage of payroll and as compared to first quarter 2014, and a decrease of about 5% compared to first quarter of 2013.

Also in the quarter, we continue to see positive claim closures as evidenced by the continued increase in the percentage of claims closed over the past three years. We also continue to see a decrease in severity, as evidenced by the trend of ultimate severity for claims - claim years 2013, 2014, and 2015.

Moving forward, we will continue to monitor trends as to maintain a proactive positive - position related to workers compensation, resulting in a greater predictability within the model.

If I look at the company today, I’m very pleased with the progress we continue to make and how we go-to-market and the ongoing maturing of the organization, while reaching new thresholds year-over-year.

Today we believe we have a fairly long runway in front of us with respect to our ability to build and retain our client base, as well as with brand strength and maturity. The basis to our business is our organizational structure, and in first quarter we continued spending a great deal of time with how we develop our bench strength.

We also saw progress in the adoption of systems and processes that will allow us to strengthen engagement with our client base. As our teams mature and share best practices across markets, we continue to see more consistency in our brand and broader contribution from the entire organization.

I look forward to see the companies maturing over the next several years. With that, I’ll open it up to question..

Thank you [Operator Instructions] And our first question comes from Jeff Martin with ROTH Capital Partners. Please proceed..

Thanks. Good morning, Mike and Jim..

Good morning, Jeff..

Good morning..

Mike, could you touch on the geographic performance of the PEO business? How did California do versus the East Coast?.

Looking at just percentages of growth, California as a whole, both Northern and Southern was right around that 21% to 22% up. What we did see is that, East Coast - well, all other regions, be it Northwest, Mountain States, and East Coast were up in excess of 25%, even 30% for the most part..

Okay. Great.

And then, could you touch on, as the business expands and just to grow back in the high teens, low 20% range, how easily is it to find management talent and branch manager talent and are you running into any hurdles there?.

No, one of the things that we’re looking at is cap utilization, which is if we look at structure today and we look at our operational capacity use today, we’re probably, maybe 50%, maybe in a little less than 50% of cap utilization.

And as we’re looking at our build of new clients up against markets across-the-board, we feel that we’re probably 18 months out in front of our curve.

We’ve also refined recently and just in the last couple years our pipeline of how we attract, how we’re recruiting, how we’re bringing people on board, but more importantly as well, how we’re developing people once they’re on-board.

We’ve built systems that today are much more mature than they’ve been in the past to bring predictability to how long it takes us to find people and then ultimately how long it takes us to get them up to speed to be able to accommodate the expansion and growth in markets. So I feel we’ve got a pretty good runway out in front of us.

And we’ve got probably, we’re probably out in front of it, maybe 18 months today, where if you go back to couple of years, we were getting a little bit tight..

Right. Switching gears to the workers’ compensation, you came in at the higher end of that 4.8% to 5% range for the first quarter.

Could you help people characterize and understand how that will trend over the course of the year and what are some of the components that might cause that to come down over the course of the year?.

Yes, Jeff, I think that second, third, and fourth quarters, as there’s more volume, some of those expenses are more of a fixed nature, and so it should be diluted down a little bit over the coming quarters. And we expect that the 5% will be on the high-end of what we see.

But overall, I think for the first quarter, the expense components came in pretty close to where we thought they would be..

Okay.

Are you able, Jim, are you able to quantify the fixed dollar amount in the workers comp component, because there is some administration associated with the age and the surety?.

Right, right. Looking at the fixed piece of it, it’s probably around 15% to 20% of the overall cost structure. A lot of that in 2015, probably just a 10% of that is going to be the cost associated with the surety bonds and the letters of credit that we had to post at the end of 2014.

So those costs are probably the single biggest components and probably close to nearly 10% of the overall costs..

Okay.

And do I understand correctly that surety and letters of credit is only tied to the self-insured portion of California that tails off?.

Correct. Right. So, as we look out into 2016 and 2017, those costs will continue to decline in terms of the dollars..

Okay, helpful.

And then in terms of cash flow, can you give us a ballpark of maybe a fairly loose range of what you expect in terms of free cash flow for the year?.

Yes. So free cash flow should approximate net income for the balance of the year and we’re able to grow at the high teens rate we should have free cash probably exceed net income by a little bit, maybe 10%..

Okay, great. Thanks for taking my question, guys..

Thank you, Jeff..

Our next question comes from Matt Blazei with Lake Street Capital Markets..

Hey, guys. Nice job in the quarter..

Thanks, Matt..

Just a clarification on the workers’ comp progress for these claims prior to 2012. I think last quarter you said that you had started with 1,800 open claims of which 1,300, I guess, needed to be strengthened, et cetera. And you had closed 492 of those during the course of 2014.

Is that correct?.

Right..

And then you closed another, I think, you said 90 - 93 this quarter?.

Right..

So you are somewhere, I guess, at this point, somewhere around 600 claims still open for 2012 and prior?.

In total it’s right, just slightly less than a thousand claims..

And is that - have there been claims added to that, then from the end of the year, or is it just, is my math wrong?.

No, there would be no claims added. Typically, when you have years that are at this point nearly three years or at the very, the very youngest would be three years, but in some cases many years old. There is typically, once you get out a couple of years, your claim count is pretty well know and you don’t typically have claims coming in that late..

Right..

Now one - you have one area or two, we’ve talked about claims that were strengthened and the runoff of those versus the total claims that we had for 2012 in prior of the claims that we’ve strengthened, we had more for runoffs, so if there 1,300, there’s lots of those.

But there were other claims that were never strengthened that were in that 2012 and prior pool that are making up to the balance of that thousand..

I see. And do you have - so you did 92, you closed 93 of them this quarter.

Is that sort of a quarterly run rate that you are shooting for or is that possible to tell or any idea in terms of what you would like to - where you would like to be at the end of 2015?.

So it’s kind of a balance of activity in what you can get done based on what claims or what you do. The first quarter is always going to be a little bit lighter just because of the seasonality of the way January and February and March work. You tend to see more claims closed in the fourth quarter. It’s Christmas money.

People are trying to close out the end of the year, people trying to put stuff behind them. So you will have a little bit of seasonality in the process. But we look at the year, it will probably be a little bit more than the 93 per quarter, but it would - it should be at least that consistently and probably more.

So it will be probably between 400 and 500 claims in the year I would suspect. But just in terms of Japan, there is not, you’ve got to be careful too that you are not just forcing closures to, you can get all of them closed for price. And our job is to make sure that we’re getting optimum value out of what we can, as we are trying to run that off..

And so, if you are able to do that, I mean, just in a rough number, does that mean at that point will have closed, say, 70% of the claims from 2012 prior?.

Yes, 60%, 70%, yes..

Okay. Thank you. Good. I think that’s it for me right now. Great quarter, you guys. Nice job..

Thanks, Matt..

Thanks..

[Operator Instructions] We do have a question from Bill Dezellem with Titan Capital Management..

Thank you. A couple of questions. First of all, you mentioned that you may have East Coast expansion in your 2015 plans.

Would you talk a little bit more about how you are looking at East Coast expansion, not only this year, but beyond?.

So, as we look out how we’ve expanded and recently how we’ve opened new markets on the West Coast. What we find is that as you have markets that are growing, we try to keep a lot of our business and our concentration of business around 50 miles of an existing branch. What happens though is our referral channels expand, as our brand expands.

It pulls us beyond those levels and beyond those points mileage wise. And over time, when you take a Baltimore market, you’ve got an opportunity there to build and concentrate yourself in the market, where you can do - you can have a lot of business, because there is a lot there. But now let’s say, you’re getting pulled south into the DC area.

That would be a great place to now open and put another stake in the ground and build another team to support that business as you’re getting pulled south or maybe even north up into the Wilmington and Philly area. So that’s, I guess, the design of how we expand in a new market.

And then there is greenfield markets that we’ll look at, just because we feel that it’s a good investment or we a customer or a block of customers that are pulling us in that direction.

But as we look at just the East Coast, the momentum that we have there now, we’re going to continue to capitalize on that and stairstep wherever we need, probably taken the eastern corridor from Baltimore, down south towards into Charlotte and filling in that gap and then even going further south towards into the South Carolina and maybe even into Georgia over time..

That’s helpful. Thank you. And then we spent a fair amount of time on the call talking about the pre - or the 2012 and prior claims that had not been closed.

Would you talk a little bit about the post-2000 claims and the rate of closure relative to what the company had done in the past?.

Yes, so we have - over the last year or so we’ve seen an increased closure rates on the newer years being 2013 and 2014, and even starting in 2015 as well, compared to the closure rates we had experienced say back in 2011 and 2012.

So certainly one of the goals is to keep the number of open claims at a very manageable population and not let that continue to grow even though the growth in overall businesses is very healthy. So by maintaining those closure rates, stronger closure rates will help us maintain that level of open claims that is at a manageable rate.

And so by looking at the 2012 and prior claims as they closeout, certainly giving us confidence that everything else being equal, looking at 2013 and 2014 and what we’re seeing so far is that those are maturing as expected. It gives us confidence that what we’re doing is working..

Another way to look at it as well is as we have changed practice and coming up things in a different way over the last probably call it - your 18 months to two years.

Prior to that we continue to see a build in our overall claim count where - and roughly the last 12 months we’ve seen where that total claim count of what’s open is become narrowly banded or has not moved much.

So what that means is we’re having new claims coming in - they’re closing out faster and then we’re also taking out of the base of claims that we had historically in the past. So our total claim count is not building compared to where we had seen probably prior to 2012 and maybe even 2013..

That’s helpful and just for clarification, at some point in the future when you have fully dealt with the 2012 and prior claims, and then you have what I guess I will consider a new closure run rate on the newer claims, we should then see your - or should expect your total claims count to increase as your business increases..

Yes, yes and no. If we’re continuing to close on the front-end, the more simple claims efficiently and then recognizing what we’re - what we should be able to close in the front year, be it 2015 and then 2014. One would think it should - the claim count, the total base should grow at the rate of growth in the business.

But we kind of believe that we should be able to hold that number pretty consistent if we’re doing what we’re doing..

So you feel like you have more runway in terms of efficiency on the claims closure front essentially is what you’re saying before you hit that point where claims would grow with the business..

Well, when we look at the efficiency we had built into the system right now, we’re not seeing a build on claims. So as we run off more of the older claims, the newer claims in the way we’re manage them, that efficiency itself is actually keeping our claim count pretty consistent..

That’s very helpful and then taking it one step further and then I will step out of the queue.

Are you finding that the training and safety programs that you are putting in place is leading to fewer claims on the front-end, because there are just simply fewer accidents taking place?.

I think it’s combined with that. It’s combined with the owners - the engagement that we have with the overall model with our - it starts with the owner of the company that is much more than just risk management. But it’s really true risk mitigation that starts with employment practices.

What we’re doing in our HR basis, how we’re measuring progress, how we’re on top of issues that might be systemic to the client that we’re working with and how we’re engaging with the client before - on a proactive basis before a claim ever happens.

Think of it as being a quality improvement process whereas we’re working with the client, we’re building out the symptoms that would lead to a claim proactively more up line, which is leading to one, a cleaner client base, and it’s also leading to what we see as less frequency and in an individual client.

So it’s all those things working together and it’s the true model of what we’re doing by - that builds out total employment defect which includes workers’ comp..

And as a result over time your workers’ comp expense as a percentage of gross revenues should be decreasing and not in the near-term but over a multi-year period?.

That would be the plan..

Thank you, both..

Thank you..

Thank you..

We have a follow-up question from Matt Blazei with Lake Street Capital Markets..

Hey, guys, I knew I had one more question related to my workers’ comp questions earlier. But I know that, in Q3 when you took the charge to increase the reserves, you felt that you were being very conservative in your sort of estimates, potential liability.

And it looks as if from the closure - the success you have been having on the closing side, where I think you had a $5.8 million credit for last year versus like $5.6 million versus expectation. And you said you had another $900,000 credit this quarter.

Assuming that that sort of ratio continues through the rest of the year, you are starting to build up a pretty sizable credit relative to the reserve charges you took.

Is there a time at some time in the future that that gets recognized or somehow flows back to the income statement again, can you help me understand that?.

Yes, sure. At some time if that trend continues and obviously it depends on how 2013, and 2014, and now 2015 develop. But with the improvements we made to the process and should these credit continues, certainly at some point in the future we might be in a position where we have to take credits back because there’s no place to put all that liability.

We’re still though in talking with our actuaries, we’re still early in the process and we’re certainly very cautious about that situation happening too soon, but something we will continue to monitor and have internal discussions about for sure..

Okay. Thank you, guys. That does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Elich for closing remarks..

Again, thank you for being on the call. Thank you for continuing to follow us. Again, feel very good about where we’re at. I know 2014 was the year of - shaken things out, grown-up quite a bit and very pleased with the progress that we’ve made in last 12 months. Things are looking good.

And we’re always looking around the corner to figure out what’s out there, but the business over time continues to become much more predictable as we mature, grow up, as our senior bench grows and matures. I think that we have much more visibility today than we’ve ever had so.

And so looking forward to the future and looking forward to follow-on quarter. So thank you for being on board. Bye..

Once again, that does conclude our call. Appreciate your participation..