Bbsi Report Edited

April 21, 2017 IME
Barrett Business Services

Current Price: $54.90 Price Target: $68.04
Ticker: BBSI Rating: Outperform
Action Recommended: Buy

Investment Thesis
Key Statistics BBSI has a diversified product offering in growing industries with the
necessary experience and expertise to capitalize on that growth.
52 Week Price Range $27.28 - $66.93
50-Day Moving Average $55.81 BBSI will be able to capitalize on economic expansion by meeting the
demand for PEO services as workers compensation and other employee
Estimated Beta 1.14 payment services become increasingly complicated.
Dividend Yield 1.66%

With managements continued investments in human capital BBSI will
Market Capitalization (M) $430,016 continue to provide the best services at competitive prices in order to obtain
future contracts.
3-Year Revenue CAGR 26.33%
The company was forced to restate financial statements due to an error in
Trading Statistics their reserve requirement and the company had a material weakness in their
internal control for financial reporting causing investors to shy away and
Diluted Shares Outstanding (M)
7,783 mispricing in the market.
Average Volume (3-Month)
41,490
Five-Year Stock Chart
Institutional Ownership 69.90%
100 5,000,000
Insider Ownership 3.25%
90 4,500,000
EV/EBITDA 2017E 9.20x 80 4,000,000
70 3,500,000
Margins and Ratios 60 3,000,000
50 2,500,000
Gross Margin (2017E) 18.02%
40 2,000,000
EBITDA Margin (2017E) 4.19% 30 1,500,000
20 1,000,000
Net Margin (2017E) 2.33%
10 500,000
Debt to Enterprise Value 0.01 0

Date 2/5/2013 11/19/2013 9/8/2014 6/24/2015 4/11/2016 1/25/2017
0
Covering Analysts:
Alex Summers: asummer3@uoregon.edu Adjusted Close 50-Day Avg 200-Day Avg Volume
Nick Miller: nmiller9@uoregon.edu

1
University of Oregon Investment Group April 21, 2017
Figure 1: Historical Revenue (thousands) Overview

55%
800,000 Barrett Business Services ($BBSI) was founded in 1951 and is headquartered in
Vancouver Washington. The company serves small and medium sized businesses
600,000 35% through their management platform that integrates methods from the management
consulting industry with tools from the human resource outsourcing industry.
400,000 BBSI has a decentralized delivery model leveraging a network of 57 branch
15% locations in 20 states. The company works with over 4,900 businesses a day in
200,000 the areas of professional employer services (PEO) and staffing and recruiting
services.
- -5%
2012A 2013A 2014A 2015A 2016A Barrett Business Services currently has 95 business teams in 57 physical branches,
Staffing Services 15 of those branches are at or near $100mm in gross revenues. BBSI has clients
Professional Employer Service Fees in diverse verticals with no industry representing more than 2-3% of sales,
PEO Growth industries include, electronics manufacturing, various light-manufacturing
Staffing Growth
industries, agriculture, transportation and shipping, food processing,
Source: BBSI 10-K telecommunications, and public utilities, construction. The majority of clients are
blue and grey collar.
Figure 2: 2016 Revenue by Segment
History
Corporate Timeline
In 2014 Copperfield Research published a report on BBSI titled: Barrett Business
BBSI responds to letter from independent Services A Tick Tick Ticking Time Bomb which outlined a variety of
11/9/2015 auditor in relation to the decision to record reasons why the company was severely overvalued. The report pointed to
$80m charge to strengthen worker's artificially inflated earnings, non-GAAP accounting which was inconsistent,
compensation reserves inadequate reserves (for insurance liabilities), and even cooking the books among
BBSI Confirms Delayed Filing of Third other things. In the end the report was for the most part correct with respect to the
11/18/2015 Quarter 2015 10-Q and Reports Receipt of business and a class action lawsuit was filed against the company. As a result,
Nasdaq Letter Due to Late Filing management has worked to re-build the company from the ground up, and in the
BBSI Receives Favorable Outcome of last earnings call went as far as to say that there is not a shadow of the old business
2/11/2016 Independent Investigation at BBSI today. A new CFO was hired, new auditors were hired, insurance
BBSI Appoints Gary Kramer as Chief specialists were brought in to evaluate reserve ratios, and other precautionary
7/13/2016 Financial Officer measures were taken. Today, the company has installed strict accounting controls,
9/20/2016 BBSI Appoints Deloitte as New Auditor especially around the workers compensation business which is the hardest to
estimate. Reserve requirements are calculated quarterly (most companies do this
Source: BBSI 10-K
annually) and the company employs a conservative approach to these businesses.
Figure 3: 2016 Revenues by Segment
Business Segments
Professional Employer Services (PEO) 80.2%
The Professional Employer Services segment consists of revenues from co-

19.83% employment relationships with clients, where the company assumes responsibility
for workers compensation, payroll, payroll taxes, and other administrative
functions for the clients workforce. In the co-employment arrangement Barrett
Business Services becomes the administrative employer (employer for tax
80.17%
purposes) and the client maintains physical care, custody and control of their
workforce (including authoritative power to hire and fire employees). PEO
revenues come from a service fee for taking over HR, payroll, 401(k), and workers
compensation functions. These services are value add for clients because Barrett
Business Services can help to reduce legal liabilities, save time and organizational
resources (that would be used to prepare payroll and administer benefit plans),
provide access to better overall package of benefits, and provide cheaper workers
Professional Employer Service Fees Staffing Services
compensation insurance. These services are most appealing to small and medium
Source: BBSI 10-K sized businesses, which BBSI serves. By negotiating on the behalf of all of its
UOIG 2
clients, Barrett business Services can create access to better benefit packages and
insurance.
Figure 4: Historical Costs (000s) BBSI has the ability to provide workers compensation coverage to their clients
through a variety of methods. Barrett Business Services currently maintains self-
insured employer status for workers compensation in Oregon, Delaware,
Maryland and Colorado (and Washington for staffing and management
600,000 employees). For clients in California, Virginia, Pennsylvania, North Carolina,
New Jersey, West Virginia, District of Columbia BBSI maintains individual
policies with Chubb limited. The company also maintains excess workers
400,000 compensation insurance coverage through a wholly owned fully licensed
insurance company, Associated Insurance Company Excess (AICE). For
employees working in Arizona, Utah and Nevada the company operates another
200,000 wholly owned fully licensed insurance company, Ecole Insurance Company
(Ecole). These insurance companies provide BBSI and alternative mechanism for
excess insurance coverage as well as certain income tax benefits.
-
2012A 2013A 2014A 2015A 2016A Part of minimizing workers compensation expense includes claims management.
BBSI uses managed-care systems to reduce medical costs, assigns injured workers
Direct Payroll Costs Payroll Taxes and Benefits to assignments which accommodate the workers physical limitations, employs
and hires professionally licensed claims adjusters, performs early settlements, and
Workers' Compensation
screens employees for drugs.
Source: BBSI 10-K
Staffing and Recruiting Services 19.8%
The Staffing and Recruiting segment consists of revenues from short-term

staffing, contract staffing, direct placement services and on-site management.
Short-term staffing involves employee demands caused by such factors as
Figure 5: Historical Comparable Returns
seasonality, fluctuations in customer demand, vacations, illnesses, parental leave,
and special projects without incurring the ongoing expense and administrative
responsibilities associated with recruiting, hiring and retaining additional
permanent employees. Contract staffing refers to the responsibilities for the
227.40%
placement of employees for a period of more than three months or an indefinite
200%
period. This type of arrangement often involves outsourcing an entire department
in a large corporation or providing the workforce for a large project. Direct
placement services involve fee-based search efforts for specific employee
candidates at the request of PEO clients, staffing customers or other companies.
120% On-site management employees are Barrett Business services management
employees who work at the client site and assist BBSI staffing employees. Barrett
62.60% Business Services has recruiting experts who maintain a robust network from
which hey source candidates. When retained from staffing and recruiting, the
40% 44.30% company Asses the short and long term needs of clients, which enables the correct
talent to be sourced for each position.
9.50%
-40% Industry
3/28/2014 2/28/2015 1/31/2016 12/31/2016
KELYA KFRC ADP Overview

TNET NSP
The Professional Employer Organizations (PEO) industry comprises
organizations that specialize in providing human resource management and
Source: Yahoo! Finance administrative services through a coemployment relationship. Businesses in this
industry are responsible for all aspects of employee management, including
UOIG 3
hiring, payroll, and benefits administration. In other words, these companies serve
Figure 6: Industry Revenue Projections as the legal employers of their clients employees, although the clients continue
to manage their day-to-day operations.
60000 25%
50000 20% According to a September 2013 report published by industry trade organization,
15% The National Association of Professional Employer Organization (NAPEO), HR
40000 10% administration costs averaged $1,500 or more per employee for independent
30000 5% businesses, while these same costs averaged $1,187 for PEO clients. According
20000 - to a more recent report published by the NAPEO, small- to medium-sized
(5%) businesses served by PEO providers had lower instances of employee turnover
10000 (10%) and were less likely to fail, relative to independent businesses.
0 (15%)
2008 2011 2014 2017 2020 Over the past five years, demand for PEOs has increased dramatically as overall
Revenue ($m) % Growth economic activity recovered and the number of small businesses expanded. In
addition, corporate profit has rebounded quickly since 2011, driving new demand
Source: IBIS World for outsourced human resource administration from larger businesses. Lastly,
increased labor-related regulation and compliance costs (e.g. healthcare
requirements) have encouraged more small-to medium-size businesses with
limited resources to outsource employment-related compliance tasks to industry
Figure 7: Industry Product Offerings operators. In fact, strong demand from small-to medium-size businesses within
the service sector was a key driver of industry growth during the latter half of the
five-year period, leading to revenue gains of 20.8% in 2014 and an estimated
13.6% in 2015.
Success Factors
Workers
Compensat Proximity to key markets: To be located close to client industries and regions
ion 47.10% that have an above average tendency to enter into PEO arrangements.
Liability
32.50%
Ability to quickly adopt new technology: To be quick to adopt new payroll
processing, tax payment and other benefit processing software and systems and
delivery to clients and employees via the internet to increase efficiency and
productivity.
Property Automobile
11.10%
Ability to effectively manage debtors: To effectively manage debtors and
9.30%
payments from clients of payroll and other benefit charges on time and as
required.
Source: IBIS World
Ability to manage external (outsourcing) contracts: To effectively manage
outsourced contracts for any PEO arrangements, particularly in relation to
Figure 8: PEO Employment Projections employees who are employed under co-management arrangements.
160 6% Understanding government policies and their implications: To have a

140 thorough knowledge and understanding of state and federal employment
4% regulations as well as legislation which directly affects this industry's operators.
120
100 2%
80 0% Ability to pass on cost increases: Successful companies have contractual
60
arrangements that allow them to easily pass on workers' compensation, health
-2% insurance and other cost increases to clients.
40
20 -4%
0 -6% Growth Expectations
1980 1986 1992 1998 2004 2010 2016 2022
Over the next five years, the industry is expected to continue performing well as
Millions % Change the number of businesses and employees in the United States gradually increases.
The ability of PEOs to offer a broader range of services and benefits, such as
Source: IBIS World comprehensive retirement plans and health insurance coverage, will boost the
UOIG 4
attractiveness of outsourced human resources services to smaller businesses.
Overall, industry revenue is expected to grow an annualized 3.1% to $196.5
billion over the five years to 2021.
Figure 9: Unemployment Projections
Rising barriers to entry, however, such as minimum capital and professional audit
12.00%
requirements, will likely discourage newcomers from entering the industry. Major
10.00% players such as ADP and TriNet are likely to continue expanding their share of
8.00% the market, driven by strong organic growth and acquisition activity. Accordingly,
the industry is likely to continue consolidating, with the number of enterprises
6.00%
expected to decline at an annualized rate of 0.7% over the five-year period.
4.00%
2.00% The PEO industry often is affected by healthcare reform. The Affordable
Healthcare Act, for instance, forced businesses to abide by different regulations
0.00%
for their employee healthcare plans. When businesses do not have extensive
1980 1985 1990 1995 2000 2005 2010 2015 2020
knowledge of these new regulations, they will choose to purchase the services of
Rate (%) a PEO. Small-to medium-sized businesses are especially more likely to use a PEO
because they have fewer resources in comparison to large corporations, so it
Source: IBIS World would be more difficult for them to abide by different regulations.
Macro Factors
Figure 10: Industry Client Segmentation U.S. Economic Growth
Firms are significantly more inclined to purchase PEO services when the economy
is growing well. This is because the firms that employ a PEO will pay for these
Small services when they see potential growth in their businesses, and if the economy is
25.80% not expected to grow well then they will likely not expect their businesses to grow
either. Currently the U.S. is expected to maintain its current healthy levels of
Large economic growth which is a good sign for the industry because more economic
19.40% growth leads to more demand for PEO services. U.S. economic growth often
drives growth for small-to medium-size businesses, which are the main clients for
PEOs. In general, demand for industry services is driven primarily by the number
Other of new businesses and small business growth, since these are the key markets for
Medium co-employment services and these two measures are directly tied to U.S.
8.00%
46.80% economic growth.
U.S. Unemployment Rate

Source: IBIS World When the unemployment rate declines, industry performance improves because
there is a larger pool of potential client employees. New business formation has a
positive effect on industry demand because there are more potential companies
Figure 11: Work Related Death Projections that need its services. The U.S. unemployment rate is expected to remain low for
the foreseeable future which indicates that there will continue to be strong
7000 10%
industry performance in the coming years.
6000
5%
5000 Labor Regulation
4000 0%
3000 -5% Increased labor related regulation and compliance costs (healthcare requirements,
2000 for example) have encouraged more small- to medium-size businesses with
-10% limited resources to outsource employment-related compliance tasks to industry
1000
operators. With a presidential administration that is determined to cut back on
0 -15%
business regulation, the industry might lose potential clients due to less demand
1992 1997 2002 2007 2012 2017 2022
for their services, since increased regulation would make it necessary for smaller
People % Change firms to employ a PEO. Increased compliance costs associated with workers
compensation at the federal and state levels boosts the share of SMBs that choose
Source: IBIS World to outsource all HR-related duties to PEO service providers.
UOIG 5
Figure 12: Industry Segmentation Competition
The competition in the PEO industry is moderate, with the four largest firms
Private, 25.70% expected to account for about 50% of industry revenues in 2016. Since the barriers
to entry are relatively low, the industry is fragmented despite the presence of large
players such as ADP and TriNet. Overall, the industry has four main players and
then hundreds of smaller firms that operate regionally or locally. The large players
are continuing to dominate in the industry by acquiring the small firms. For
example, TriNet acquired Strategic Outsourcing Inc. in 2012, followed by the
acquisition of Ambrose Employer Group in 2013, both of which have
significantly expanded the companys share of the market. In the next five years
larger firms will continue to acquire the small competitors in order to increase
their national presence.
Public, 74.30%
Barriers to entry are rising due to an increase in state and federal government
regulations. Many states are now requiring operators to be licensed. 43 states
currently require licensing, registration and certification for PEOs. This number
Source: IBIS World is expected to rise in the coming years due to the recently passed Small Business
Efficiency Act. Industry operators must have extensive knowledge of state and
federal employment legislation and regulations in order to ensure that effective
employee insurance and other benefit payments are provided and all employment
Figure 13: Industry Enterprise Projections regulations are being followed.
500 5%
Strategic Positioning
400 0%
BBSI is well positioned for success in the PEO industry due to their strong
300 -5%
reputation and decentralized organizational structure. Competitors in this industry
200 -10% are often centralized into one location and then teams are dispersed across the
country to their clients. BBSIs decentralized model is advantageous because they
100 -15% are able to know more about local industries and their employees are more
0 -20% available to help out their clients due to their office locations. Potential clients in
2008 2011 2014 2017 2020 BBSIs target market feel more comfortable with BBSI instead of their large
competitors because the regional offices feel more like their own small
Enterprises (Units) Employment (Growth) businesses. Clients feel as if there is a small building full of people focusing on
Source: UOIG Spreads their core business and specific issues that arise with each different client.
BBSIs strong position also stems from their significant investments in human
capital. BBSI believes that investments in the best talent available allows the
Figure 14: SG&A Projections company to leverage the value of the investment many times over. They motivate
our management employees through a compensation package that includes a
250000 15% competitive base salary and the opportunity for profit sharing. At the branch level,
profit sharing is in direct correlation to client performance, reinforcing a culture
200000 14% focused on achievement of client goals.
150000 13%
100000 12%
Business Growth Strategies
50000 11%
Barrett Business Services has two primary methods of growth, new customers, or
0 10%
2017E 2020E 2023E
increasing the sales to current customers. For the acquisition of new customers
BBSI can sign clients in existing geographies or expand their geographic
Selling, General, Administrative % Revenue footprint. Increasing sales to existing customers primarily comes from customer
businesses growing (bigger head count) but also come from cross selling products
and raising rates year to year.
Source: UOIG Spreads
UOIG 6
Figure 15: Capex Projections New Customer Acquisition (Net Build)

Net build is the net amount of new clients the company serves each year. BBSI
12000 20% has annual client retention rate in excess of 90%, however some customers do
10000 leave, the common reasons are: accounts receivable/collections issues, client
15% business sold or closed, pricing/competition, or the client decided to in-house the
8000 previously outsourced functions.
6000 10%
4000 California operations accounted for approximately 78% of total revenues in 2016.
5% This is a risk for BBSI, however when we look at where the business is expanding
2000
the growth is coming from other geographies. With an overall growth rate of 17%
0 - (Q2 16), California grew at 15%, Atlantic states grew by 27%, the Mountain states
2017E 2020E 2023E grew by 27%, and the northwest saw 30% growth. The east coast is a target market
Capex % Revenue that management at BBSI has decided to pursue, in the last 6 months two branches
were opened in this geography, with expectations of aggressive growth in the
Source: UOIG Spreads region.
Another opportunity for new customer growth is through referral channels. The
company has a methodical process of building referral channels. Referral channels
consist of trusted small and medium sized business advisors CPAs, lawyers,
consultants, etc. These individuals/businesses have relationships with small and
Figure 16: Cash Flow and EBITDA Projections medium sized businesses in their geography and help BBSI to identify and attract
100000
new clients. Building a robust referral network is especially important in new
markets, and Barrett Business Services usually builds these networks before
80000 opening a branch in a new geography so when they do they are being pulled in.
60000 It takes roughly 18 months to build a business team, BBSI needs to have the
operational capability to meet existing and new client needs to ensure that growth
40000 does not stall. Currently the company has a strong bench (experienced
employees) which is the foundation needed move into new markets successfully.
20000
Management expects to add 5 new branches in 2017.
0
2015A 2018E 2021E Sales to Existing Customers
Unlevered FCF EBITDA
Growth from existing customers comes from increased headcount, increased
hours worked, wage inflation, or a combination of those factors. With a strong
economy clients of the company experience growth and hire more employees or
Source: UOIG Spreads have existing employees work more hours. Because BBSI earns revenue as a
percent of payroll, there is opportunity to service businesses that pay employees
higher hourly wages (more grey/white collar clients).
Figure 17: Beta Sensitivity Table Management and Employee Relations

Implied Price
Terminal Growth Rate Michael Elich CEO, Presidnet and Director
0.80% 1.30% 1.80% 2.30% 2.80%
1.04 $ 72.31 $ 74.41 $ 76.80 $ 79.53 $ 82.70
Mr. Michael L. Elich, also known as Mike, has been the Chief Executive Officer
1.09 $ 70.13 $ 72.04 $ 74.20 $ 76.66 $ 79.50
Adjusted
1.14 $ 68.09 $ 69.83 $ 71.79 $ 74.02 $ 76.57
and President of Barrett Business Services, Inc. since February 17, 2011. Mr.
Beta
1.19 $ 66.17 $ 67.77 $ 69.56 $ 71.58 $ 73.88 Elich served as an Interim Chief Executive Officer and Interim President of
1.24 $ 64.38 $ 65.84 $ 67.47 $ 69.31 $ 71.40 Barrett Business Services Inc. since January 20, 2011 and as its Chief Operating
Officer since May 16, 2005. He served as Vice President of Barrett Business
Services Inc., since May 16, 2005. Mr. Elich has served as BBSI's Director of
Source: UOIG Spreads Business Development since joining it in October 2001. Prior to BBSI, Mr. Elich
served as Executive Vice President and Chief Operating Officer for Skills
Resource Training Center, a company acquired by BBSI in January 2004 He holds
a B.S. degree in Economics and Business from Montana State University.
UOIG 7
Gary Kramer CFO and Principle Accounting Officer

Figure 18: A/R Projections
Mr. Gary Kramer has been Chief Financial Officer and Principal Accounting
300000 15% Officer of Barrett Business Services Inc. since August 10, 2016. He has been
250000 10% Senior Vice President of Global Services Unit at Chubb Limited (alternative name
200000 5% ACE Limited) since April 7, 2014. Mr. Kramer leads the ACE Global Services
team, applying ACE's robust experience, expertise and infrastructure to support
150000 -
the growth of ACE's multinational business and meet the complex underwriting
100000 (5%) and servicing needs of ACE's large multinational customers. With more than 10
50000 (10%) years of insurance industry experience, Mr. Kramer served as Vice President of
ACE Risk Management. He held various management positions in ACE Financial
0 (15%)
Solutions and ACE Risk Management, with particular emphasis on accounting
2017E 2020E 2023E
and operations. Prior to this time, he held positions with other global insurance
Accounts Receivable % Growth companies and in other non-insurance industries. He was Senior Accountant at
Admiral Insurance Company from 2002 to 2004 and Treasury Analyst at Kimble
Source: UOIG Spreads Glass from 2000 until 2002. Mr. Kramer received an MBA with a specialization
in accounting from Drexel University and a B.S. degree in Business
Administration with a specialization in finance from Rowan University.
Figure 19: Dividend Growth Projections Heather Gould CSO
$1.40 35%
Ms. Heather Gould has been Chief Strategy Officer and Vice President at Barrett
Business Services, Inc. since January 06, 2017. She joined BBSI in 2012 after a
$1.20 30% 17-year career in advertising, brand strategy and marketing with multiple creative
$1.00 25% agencies, including Deutsch LA, Arnold Worldwide and WireStone, as well as a
$0.80 20% number of smaller agencies. Ms. Gould served as Account Director at HMH
$0.60 15% Advertising and Public Relations. She led the development of BBSI's strategic
$0.40 10% initiatives, acting as a conduit between the vision and operations. As director of
marketing, a role she held for three years, she was instrumental in evolving BBSI's
$0.20 5%
product, approach to the market and value proposition. She received her Bachelor
$0.00 - of Arts degree from the University of Massachusetts, graduating magna cum
3/12/2010 3/15/2013 3/4/2016 3/4/2019 laude.
Dividend Growth
Source: UOIG Spreads Portfolio Strategy

Due to our confidence in this company, we will be pitching to all UOIG portfolios.
BBSI is included in the Russell 2000 index, which means it can be bought in the
Alumni Fund. Therefore, we will be pitching a BUY for the Tall Firs and DADCO
Figure 20: Tall Firs Holdings portfolios as well as the Alumni Fund. The Tall Firs Portfolio is currently
underweight in the Industrials, Materials, and Energy sector which means this
1.6% company can help balance the portfolio with respect to the benchmark. The
(2.1%) DADCO Portfolio is currently only comprised of a few equities which means this
(0.3%)
1.0% company can add value to this portfolio as well.
- Recent News
BBSI Receives Favorable Outcome of Independent Investigation
MarketWire February, 11th 2016
An investigation by the Stoll Bern law firm was conducted to determine whether
IME TMT Healthcare Consumer Financial a legal act had occurred with respect to BBSIs workers compensation expense
Tall Firs Russell 3000 reserve In the three month investigation, Stoll Bern did not find that an illegal
act had occurred. Following the conclusion of the investigation BBSIs
Source: UOIG Files management is in the process of analyzing whether matters related to this event
will require a restatement. (Update: Quarter was restated)
UOIG 8
Catalysts
Upside
Figure 21: EBITDA Margin, EV/EBITDA, Strong economic expansion leads to growth for small-to medium-sized
businesses
Market Capitalization
Favorable and timely lawsuit outcomes from SEC and DOJ litigation
Acquisition of another PEO business in new target markets
Expansion into white-collar client markets

20x
Downside
15x ADP Over 78% of revenues were generated in California during the last fiscal year,
this exposure could be detrimental if laws or regulations become unfavorable
10x BBSI TNET Weather causing fewer hours worked.

KELYA
Unfavorable result from SEC DOJ investigation.
5x
NSP KFRC
Higher than expected workers comp liability or a reserve study leading to a
negative reserve adjustment.
-
- 5% 10% 15% 20% 25% Material weakness in ICFR continues to be pervasive for the company
Comparable Analysis
Comparable companies in the Human Resources Outsourcing industry were
screened on growth rates, risk profiles, and exposure to similar industries.
Source: UOIG Spreads Weightings were assigned to create a basket that best fit the product offerings,
legal environment, growth rates, etc, that BBSI will face.
Automatic Data Processing (ADP) 10%
Figure 22: Net Margin, P/E, Enterprise Value Automatic Data Processing, Inc, provides business process outsourcing services
worldwide. The company operates through two segments, Employer Services and
ADP Professional Employer Organization (PEO) Services. The Employer Services
segment offers a range of business outsourcing and technology-enabled human
30x TNET capital management (HCM) solutions, including payroll services, benefits
administration services, talent management, human resources management
NSP solutions, time and attendance management solutions, insurance services,
20x BBSI retirement services, and tax and compliance solutions. The PEO Services segment
KFRC provides a human resources (HR) outsourcing solution through a co-employment
model to small and mid-sized businesses. This segment offers ADP TotalSource
10x KELYA that provides various HR management services and employee benefits functions,
such as HR administration, employee benefits, and employer liability
management into a single-source solution. Capital IQ
- ADP was chosen as a comp due to their exposure to the PEO market. As the
- 5% 10% 15% 20% largest business outsourcing firm in the United States ADP captures risks in the
PEO market. Although considerably larger, ADP was weighted because it has a
Source: UOIG Spreads conglomeration of diversified services which all relate to the business outsourcing
UOIG 9
industry which BBSI is part of. Additionally, ADP is a global company but 80%
of revenues come from domestic operations.
TriNet Group, INC. (TNET) 25%

TriNet Group, Inc. provides human resources solutions for small and midsize
businesses in the United States and Canada. The company offers multi-state
payroll processing and tax administration; employee benefits programs, including
health insurance and retirement plans; workers compensation insurance and
Figure 23: Gross Margin, EV/Gross Profit, claims management; local, state, and federal employment and benefit laws; and
Enterprise Value other services. It serves clients in various industries, including technology, life
sciences, not-for-profit, professional services, financial services, property
management, retail, manufacturing, and hospitality. The company markets its
4x ADP solutions through its sales representatives.Capital IQ
3x TriNet was chosen as a comp because insurance services represent 85% of

revenues, which is a similar proportion to BBSI (80%). The other 15% of revenues
come from professional services (payroll and retirement plan administration)
2x which is a space BBSI also competes in. TNET operates in all 50 states and
Canada and is the second largest PEO provider in terms of gross billings.
KFRC NSP BBSI TNET
1x
KELYA Insperity, Inc. (NSP) 20%
- Insperity, Inc. provides human resources (HR) and business solutions to enhance
(5%) 5% 15% business performance for small and medium-sized businesses in the United States.
The company offers its HR business services through its Workforce Optimization
and Workforce Synchronization solutions, which encompasses a range of human
Source: UOIG Spreads resources functions comprising benefits and payroll administration, health and
workers compensation insurance programs, personnel records management,
employer liability management, assistance with government compliance, general
HR advice, employee recruiting and support, also provides Employee Service
Center, a cloud-based human capital management platform that provides
automated and personalized professional employer organization HR outsourcing
solutions to its clients and worksite employees; and Workforce Administration
solution that offers human capital management and payroll services. In addition,
Insperity, Inc. offers other business performance solutions consisting of human
capital management, payroll services, time and attendance, organizational
Figure 24: EPS Growth, PEG Ratio, Enterprise planning, recruiting services, employment screening, financial and expense
management services, retirement services, and insurance services via desktop
Value applications and cloud-based delivery models. Capital IQ
1.5x Insperity was weighted at 40% because their business model is the most similar
of all the comps to BBSI. Insperity has had strong organic growth over the last 5
ADP years primarily attributed to expansion into new markets (like BBSI). The
majority of revenues come from PEO services which primarily consist of workers
compensation for white collar employers. Additionally, Insperity has 57 offices
in the US and has plans to continue to expand into new markets. Similar
1.2x regulations relating to insurance and PEO services face both Insperity and BBSI.
BBSI Kelly Services, Inc. (KELY) 15%

Kelly Services, Inc. provides workforce solutions to various industries
NSP TNET worldwide. It offers trained employees for data entry, clerical, and administrative
0.9x support roles; staff for contact centers, technical support hotlines, and
15% 25% telemarketing units; instructional and non-instructional employees for schools;
support staff for seminars, sales, and trade shows; assemblers, quality control
Source: UOIG Spreads inspectors, and technicians for electronic assembly; maintenance workers,
UOIG 10
material handlers, and assemblers for light industrial maintenance; and
Figure 25: Gross Margin, PEG Ratio, temporary-to-hire services, as well as direct-hire placement and vendor on-site
Enterprise Value management services. The company also provides scientists, and scientific and
clinical research workforce solutions; engineering professionals and information
8.0x technology specialists across various disciplines; creative services, including
ADP placing creative talent in the spectrum of creative services positions; financial
professionals; healthcare specialists and professionals; and legal professionals. In
addition, it offers staffing services for catering and hospitality; and manual
5.0x workers and semi-skilled professionals for trade, non-trade, and operational
NSP
positions. Further, the company provides integrated talent management solutions,
BBSI TNET including contingent workforce outsourcing, business process outsourcing,
2.0x recruitment process outsourcing, independent contractor, payroll process
KELYA outsourcing, and career transition and executive coaching and development
KFRC
solutions.CapitalIQ
(1.0x)15% 35% 55% 75%
Kelly Services was chosen as a comp primarily to capture risks and growth related
Source: UOIG Spreads to the staffing portion of BBSIs business. Kelly Services competes in similar
industries and geographies for staffing clients, and is similar in size to BBSI.
Kforce, Inc. (KFRC) 10%

Figure 26: Porters Five Forces Model Kforce Inc. provides professional and technical specialty staffing services and
solutions in the United States and internationally. It operates through three
Rivalry
5
segments: Technology (Tech), Finance and Accounting (FA), and Government
Solutions (GS). The Tech segment provides temporary staffing and permanent
4
placement services to its clients primarily in the areas of information technology.
3
This segment serves clients in various industries, primarily comprising financial
Threat of Substitues
2
Barriers to Entry services, communications, insurance services, and government sectors. The FA
1 segment offers temporary staffing and permanent placement services to its clients
0 in areas, such as general accounting, business analysis, accounts payable,
accounts receivable, financial analysis and reporting, taxation, etc.. This segment
serves clients in various industries, primarily consisting of financial services, and
healthcare and government sectors. The GS segment provides services and
solutions to the Federal Government as a prime and a subcontractor. This segment
Power of Suppliers Power of Buyers offers integrated business solutions to its customers in areas, such as information
technology, healthcare informatics, data and knowledge management, research
and development, audit readiness, financial management, accounting, and other
Source: Analyst Estimates areas. Capital IQ
Kforce was chosen as a comp primarily to capture the risks and growth in the
staffing industry. Kforce provides staffing services to a variety of businesses
Figure 27: Revenue Projections (mostly white collar) and is a leading competitor in this field.
2000000 14%
12%
Discounted Cash Flow Analysis
1500000 10%
Revenue Model
8%
1000000
6% BBSI operates in two revenue segments: Professional Employer Services Fees
500000 4% and Staffing Services. As mentioned earlier, the Professional Employer Services
2% Fees segment represents about 80% of the companys revenues and the Staffing
0 - Services segment represents the other 20%. Management guidance indicates that
2017E 2020E 2023E revenues for FY 2017 will grow about 15% from FY 2016. We chose to project
revenue growth on the bearish side, estimating about 14% growth for the
Total Revenue % Growth
Professional Employer Service Fees segment and about 2.5% growth for the
Staffing Services segment which sums to about 12% total revenue growth.
Source: UOIG Spreads Management has highlighted the Professional Employer Service Fees segment as
UOIG 11
their high growth segment and historical growth rates support this going forward.
Figure 28: D&A Projections That being said, we projected this segment to have strong growth in FY 2017 and
then gradually smoothing down into the terminal year. We projected steady
10000 25% growth of around 2% trending down into the terminal year for the Staffing
Services segment.
8000 20%
6000 15% Cost of Revenues Model

4000 10% BBSI breaks down their cost of revenues into three segments: Direct Payroll
Costs, Payroll Taxes and Benefits, and Workers Compensation. Direct payroll
2000 5% costs represent the gross payroll earned by staffing services employees based on
salary or hourly wages. Payroll taxes and employee benefits consist of the
0 -
2017E 2020E 2023E employer's portion of Social Security and Medicare taxes, federal and state
unemployment taxes and staffing services employee reimbursements for
Depreciation and Amortization % of PP&E materials, supplies and other expenses. Workers' compensation costs consist of
the costs associated with the workers' compensation program, including claims
reserves, claims administration fees, legal fees, medical cost containment
Source: UOIG Spreads expense, state administrative agency fees, third-party broker commissions, risk
manager payroll, premiums for excess insurance and the fronted insurance
program, and costs associated with operating our two wholly owned, fully-
licensed insurance companies. We projected both the Direct Payroll Costs and the
Payroll Taxes and Benefits segments to remain steady as a percentage of revenue,
as anticipated by management. We projected the Workers Compensation
Figure 29: Working Capital Projections segment to increase as a percentage of revenue to accommodate potential
increases in reserve requirements or large claims payments.
600000
500000 Beta
400000
Barrett Business Services estimated beta is 1.14. This was derived from two
300000 separate regressions and a hamada beta calculation. The 3-year daily, 3-year daily,
200000 and hamada betas were weighted 30%, 40%, and 30% respectively. The 3-year
daily and 5-year daily betas were weighted because the standard error values were
100000
low and those time periods reflect BBSIs historical growth as it relates to its
0 future growth well. The Hamada beta was used to capture the riskiness of the firm
2017E 2020E 2023E from a financial leverage standpoint.
Current Assets Current Liabilities
Legal Expenses
BBSI currently has Department of Justice and Securities and Exchange
Commission investigations pending. The company will incur expenses in
defending itself which are captured in this line item. We projected legal expenses
Figure 30: Tax Rate Projections using management guidance for fiscal year 2017, and lowering the expense each
year for 3 years. The assumption being made is that the lawsuits will end favorably
80000 36.00%
for BBSI and they will take 3 years to conclude with the majority of legal expenses
70000
being incurred during this and next year. Additionally, BBSI had a class action
60000 35.50%
shareholder lawsuit that was was fully concluded February 23rd this year.
50000
40000 35.00%
30000
Tax Rate
20000 34.50%
Part of the calculation of free cash flow depends on the tax rate. When projecting
10000
this line item we used management guidance and adjusted it according to the fit
0 34.00%
to our model. BBSI gets tax benefits through utilization of worker opportunity tax
2017E 2020E 2023E
credits (WOTC), however these credits cannot be used as heavily with higher
Earnings Before Taxes Taxes Paid Tax Rate levels of income. Management guided a 33.5% tax rate for 2017 but because our
revenue growth estimates were lower than management's expectations we used a
Source: UOIG Spreads 31% tax rate.
UOIG 12
Figure 31: Final Valuation Table Recommendation
Final Valuation Based on a 60% weighting on the discounted cash flow model, a 20% weighting
Discounted Cash Flow $71.19 60.00% on the comparable companies model, and a 20% weighting on the dividend
Comparable Analysis $58.25 20.00% discount model, a comprehensive price target of $68.04 was reached, representing
Dividend Discount $68.39 20.00% a 23.15% upside potential. As BBSI expands geographically, the brand will
Implied Price $68.04 strengthen and the company will be able to serve a more diverse client base.
Current Price $55.25 Although Barrett business Services has a history that is marked with fraud and
Undervalued 23.15% mis-management, we think the measures taken ensure that the company is now
operating in a sustainable fashion and thus creates a great investment opportunity.
We are pitching a buy for the Tall Firs and Alumni Portfolios.
UOIG 13
Appendix 1 Comparable Analysis
Comparables Analysis BBSI TNET NSP KELYA KFRC ADP
Barrett Business Autmatic Data

($ in thousands) Services Trinet Insperity Kelly Services Kforce Processing
Stock Characteristics Max Min Median Weight Avg. 30.00% 30.00% 15.00% 15.00% 10.00%
Current Price $101.50 $20.41 $27.71 $50.75 $55.25 $27.71 $86.85 $20.41 $21.12 $101.50
Beta 1.22 0.81 0.94 1.04 1.15 1.22 0.94 0.81 1.19 0.87
Size
Short-Term Debt 920 - - 138 221 - - - 920 -
Long-Term Debt 2,002,500 - 104,400 248,900 4,392 104,400 - - 115,531 2,002,500
Cash and Cash Equivalent 2,705,200 1,482 184,004 416,194 56,443 184,004 286,034 29,600 1,482 2,705,200
Non-Controlling Interest - - - - - - - - - -
Preferred Stock 2,061 - - 618 - 2,061 - - - -
Diluted Basic Shares 450,978 7,509 34,929 81,842 7,509 70,321 21,324 34,929 26,745 450,978
Market Capitalization 45,774,284 414,869 1,851,990 5,909,778 414,869 1,948,584 1,851,990 716,336 564,844 45,774,284
Enterprise Value 45,071,584 363,039 1,565,956 5,743,102 363,039 1,871,041 1,565,956 686,736 678,893 45,071,584
Tangible Book Value 1,609,800 285,691) 47,437 235,159 21,925 285,691) 47,437 47,437 923,600 1,609,800
Growth Expectations
% Revenue Growth 2017E 15.64% (1.01%) 6.06% 9.34% 14.27% 15.64% 12.11% (1.01%) 3.76% 6.06%
% Revenue Growth 2018E 19.57% 3.09% 6.90% 8.93% 19.57% 13.91% 10.00% 3.09% 4.04% 6.90%
% EBITDA Growth 2017E 33.16% 5.05% 9.14% 10.67% 33.16% 9.14% 15.50% 12.40% 5.05% 6.60%
% EBITDA Growth 2018E 14.22% (23.88%) 9.93% 11.82% (23.88%) 14.22% 13.69% 9.28% 7.07% 9.93%
% EPS Growth 2017E 28.80% (2.56%) 22.65% 20.37% 17.76% 25.88% 22.65% (2.56%) 28.80% 18.77%
% EPS Growth 2018E 21.50% (17.75%) 12.42% 15.15% (17.75%) 21.50% 15.30% 8.55% 12.42% 9.64%
Profitability Margins
Gross Margin 3050.00% 16.72% 45.36% 491.09% 18.02% 71.63% 16.72% 17.00% 3050.00% 45.36%
EBIT Margin 19.89% 1.41% 4.34% 5.41% 3.65% 4.34% 3.86% 1.41% 4.99% 19.89%
EBITDA Margin 21.41% 1.86% 5.68% 6.57% 4.19% 6.06% 4.94% 1.86% 5.68% 21.41%
Net Margin 14.01% 1.14% 2.36% 3.41% 2.35% 2.24% 2.36% 1.14% 3.03% 14.01%
Credit Metrics
Interest Expense 76,530 - 2,760 14,015 - 17,520 2,760 - 1,850 76,530
Debt/EV 0.17 - 0.04 0.05 0.01 0.06 - - 0.17 0.04
Leverage Ratio 1.50 - 0.51 0.45 0.12 0.51 - - 1.50 0.76
Interest Coverage Ratio 59.08 - 38.34 30.98 - 11.62 59.08 42.05 34.63
Operating Results
Revenue $12,374,380 $941,186 $3,359,030 $4,223,782 $941,186 $3,359,030 $3,297,520 $5,226,550 $1,369,310 $12,374,380
Gross Profit $41,763,955 $169,606 $2,406,073 $7,846,398 $169,606 $2,406,073 $551,345 $888,514 $41,763,955 $5,613,019
EBIT $2,461,860 $34,345 $127,230 $349,371 $34,345 $145,830 $127,230 $73,470 $68,310 $2,461,860
EBITDA $2,649,890 $39,476 $163,060 $401,206 $39,476 $203,600 $163,060 $97,000 $77,790 $2,649,890
Net Income $1,733,680 $22,137 $75,120 $234,460 $22,137 $75,120 $77,930 $59,690 $41,490 $1,733,680
Capital Expenditures $233,580 $0 $25,500 $42,648 $7,003 $34,400 $25,500 $0 $8,800 $233,580
Multiples
EV/Revenue 3.64x 0.13x 0.50x 0.77x 0.39x 0.56x 0.47x 0.13x 0.50x 3.64x
EV/Gross Profit 8.03x 0.02x 0.78x 2.01x 2.14x 0.78x 2.84x 0.77x 0.02x 8.03x
EV/EBIT 18.31x 9.35x 12.31x 12.27x 10.57x 12.83x 12.31x 9.35x 9.94x 18.31x
EV/EBITDA 17.01x 7.08x 9.19x 9.71x 9.20x 9.19x 9.60x 7.08x 8.73x 17.01x
EV/(EBITDA-Capex) 18.65x 7.08x 11.06x 11.14x 11.18x 11.06x 11.38x 7.08x 9.84x 18.65x
Market Cap/Net Income = P/E 26.40x 12.00x 23.76x 21.39x 18.74x 25.94x 23.76x 12.00x 13.61x 26.40x
Price/Tangible Book 39.04x (6.82x) 15.03x 14.86x 18.92x (6.82x) 39.04x 15.03x 0.61x 28.43x
Multiple Implied Price Weight

EV/Revenue $103.15 0.00%
EV/Gross Profit $52.23 0.00%
EV/EBIT $63.00 35.00%
EV/EBITDA $57.95 35.00%
EV/(EBITDA-Capex) $55.06 0.00%
Market Cap/Net Income = P/E $63.07 0.00%
Price/Tangible Book Value $43.38 30.00%
Price Target $55.35
Current Price $55.25
Undervalued .17%
UOIG 14
Appendix 2 Discounted Cash Flows Valuation
Discounted Cash Flow Analysis

($ in thousands) 2011A 2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Total Revenue 315,567 404,332 536,966 636,355 740,841 840,586 941,186 1,045,385 1,151,142 1,256,054 1,357,434 1,452,410 1,538,046 1,611,489 1,670,122
% YoY Growth 29.44% 45.55% 41.56% 19.70% 21.63% 17.76% 14.27% 12.99% 11.70% 10.42% 9.14% 7.85% 6.57% 5.28% 4.00%
Cost of Goods Sold 277,455 340,833 454,465 602,950 611,385 695,050 771,580 874,316 961,721 1,048,229 1,131,602 1,209,458 1,279,372 1,339,000 1,386,201
% Revenue 87.92% 84.30% 84.64% 94.75% 82.53% 82.69% 81.98% 83.64% 83.54% 83.45% 83.36% 83.27% 83.18% 83.09% 83.00%
Gross Profit $38,112 $63,499 $82,501 $33,405 $129,456 $145,536 $169,606 $171,069 $189,421 $207,825 $225,832 $242,952 $258,674 $272,490 $283,921
Gross Margin 12.08% 15.70% 15.36% 5.25% 17.47% 17.31% 18.02% 16.36% 16.46% 16.55% 16.64% 16.73% 16.82% 16.91% 17.00%
Selling General and Administrative Expense 37,786 45,625 59,439 74,065 90,177 113,342 126,698 138,733 150,575 161,904 172,385 181,678 189,459 195,435 199,363
% Revenue 11.97% 11.28% 11.07% 11.64% 12.17% 13.48% 13.46% 13.27% 13.08% 12.89% 12.70% 12.51% 12.32% 12.13% 11.94%
Depreciation and Amortization 1,344 1,477 2,037 2,506 2,851 3,253 5,132 8,953 8,122 7,580 7,234 7,014 6,867 6,750 6,627
% Revenue .43% .37% .38% .39% .38% .39% .55% .86% .71% .60% .53% .48% .45% .42% .40%
% of PP&E 8.94% 9.09% 11.02% 12.20% 12.57% 12.20% 19.24% 18.21% 17.18% 16.15% 15.12% 14.09% 13.06% 12.03% 11.00%
Other Expense (11,308) (686) (530) (695) (683) 2,548 3,431 2,287 1,144 - - - - - -
% Revenue (4.08%) (.20%) (.12%) (.12%) (.11%) .37% .44% .26% .12% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Earnings Before Interest & Taxes $10,290 $17,083 $21,555 ($42,471) $37,111 $26,393 $34,345 $21,095 $29,581 $38,342 $46,214 $54,260 $62,348 $70,305 $77,930
% Revenue 3.26% 4.22% 4.01% (6.67%) 5.01% 3.14% 3.65% 2.02% 2.57% 3.05% 3.40% 3.74% 4.05% 4.36% 4.67%
Interest Expense 25 76 238 173 1,965 807 720 801 882 962 1,040 1,112 1,178 1,234 1,279
% Revenue .01% .02% .04% .03% .27% .10% .08% .08% .08% .08% .08% .08% .08% .08% .08%
Earnings Before Taxes 10,265 17,007 21,317 (42,644) 35,146 25,586 33,625 20,295 28,699 37,380 45,174 53,148 61,170 69,070 76,651
% Revenue 3.25% 4.21% 3.97% (6.70%) 4.74% 3.04% 3.57% 1.94% 2.49% 2.98% 3.33% 3.66% 3.98% 4.29% 4.59%
Less Taxes (Benefits) (811) 5,424 5,644 (17,098) 9,652 6,787 11,487 6,955 9,865 12,887 15,622 18,435 21,281 24,102 26,828
Tax Rate (7.90%) 31.89% 26.48% 40.09% 27.46% 26.53% 34.16% 34.27% 34.37% 34.48% 34.58% 34.69% 34.79% 34.90% 35.00%
Net Income $11,076 $11,583 $15,673 ($25,546) $25,494 $18,799 $22,137 $13,340 $18,834 $24,492 $29,552 $34,713 $39,888 $44,968 $49,823
Net Margin 3.51% 2.86% 2.92% (4.01%) 3.44% 2.24% 2.35% 1.28% 1.64% 1.95% 2.18% 2.39% 2.59% 2.79% 2.98%
Add Back: Depreciation and Amortization 1,344 1,477 2,037 2,506 2,851 3,253 5,132 8,953 8,122 7,580 7,234 7,014 6,867 6,750 6,627
Add Back: Interest Expense*(1-Tax Rate) 27 52 175 104 1,425 593 474 526 579 630 680 726 768 803 831
Operating Cash Flow $12,447 $13,112 $17,885 ($22,936) $29,770 $22,645 $27,743 $22,820 $27,535 $32,702 $37,466 $42,453 $47,523 $52,521 $57,282
% Revenue 3.94% 3.24% 3.33% (3.60%) 4.02% 2.69% 2.95% 2.18% 2.39% 2.60% 2.76% 2.92% 3.09% 3.26% 3.43%
Current Assets 79,386 93,671 117,328 171,258 201,791 209,857 216,557 208,989 212,468 226,645 233,526 235,557 249,974 263,809 277,541
% Revenue 25.16% 23.17% 21.85% 26.91% 27.24% 24.97% 23.01% 19.99% 18.46% 18.04% 17.20% 16.22% 16.25% 16.37% 16.62%
Current Liabilities 79,318 106,744 146,464 225,302 237,393 275,164 309,429 338,111 366,167 392,832 417,276 438,745 456,414 469,619 477,784
% Revenue 25.14% 26.40% 27.28% 35.41% 32.04% 32.73% 32.88% 32.34% 31.81% 31.28% 30.74% 30.21% 29.67% 29.14% 28.61%
Net Working Capital $68 ($13,073) ($29,136) ($54,044) ($35,602) ($65,307) ($92,872) ($129,123) ($153,698) ($166,187) ($183,750) ($203,188) ($206,439) ($205,810) ($200,243)
% Revenue .02% (3.23%) (5.43%) (8.49%) (4.81%) (7.77%) (9.87%) (12.35%) (13.35%) (13.23%) (13.54%) (13.99%) (13.42%) (12.77%) (11.99%)
Change in Working Capital (13,141) (16,063) (24,908) 18,442 (29,705) (27,565) (36,251) (24,575) (12,489) (17,563) (19,438) (3,251) 630 5,566
Capital Expenditures 1,247 3,712 4,097 4,632 2,996 7,106 7,003 7,063 7,778 8,486 9,171 9,813 10,392 10,888 10,449
% Revenue .40% .92% .76% .73% .40% .85% .74% .68% .68% .68% .68% .68% .68% .68% .63%
Unlevered Free Cash Flow $11,200 $22,541 $29,851 ($2,660) $8,332 $45,244 $48,305 $52,007 $44,333 $36,704 $45,858 $52,078 $40,383 $41,004 $41,266
Discounted Free Cash Flow $44,282 $43,707 $34,155 $25,923 $29,691 $30,911 $21,973 $20,453 $18,870
UOIG 15
Appendix 3 Revenue Model

Revenue Model
Professional Employer Service Fees 190,779 277,688 393,085 470,522 572,286 673,924 770,093 870,099 971,923 1,073,185 1,171,221 1,263,176 1,346,135 1,417,262 1,473,952
% Growth 29.44% 45.55% 41.56% 19.70% 21.63% 17.76% 14.27% 12.99% 11.70% 10.42% 9.14% 7.85% 6.57% 5.28% 4.00%
% of Total Revenue 60.46% 68.68% 73.20% 73.94% 77.25% 80.17% 81.82% 83.23% 84.43% 85.44% 86.28% 86.97% 87.52% 87.95% 88.25%
Staffing Services 124,788 126,644 143,881 165,833 168,555 166,662 171,092 175,286 179,219 182,869 186,214 189,234 191,911 194,228 196,170
% Growth (.76%) 1.49% 13.61% 15.26% 1.64% (1.12%) 2.66% 2.45% 2.24% 2.04% 1.83% 1.62% 1.41% 1.21% 1.00%
% of Total Revenue 39.54% 31.32% 26.80% 26.06% 22.75% 19.83% 18.18% 16.77% 15.57% 14.56% 13.72% 13.03% 12.48% 12.05% 11.75%
Total Revenue $315,567 $404,332 $536,966 $636,355 $740,841 $840,586 $941,186 $1,045,385 $1,151,142 $1,256,054 $1,357,434 $1,452,410 $1,538,046 $1,611,489 $1,670,122
% Growth 15.54% 28.13% 32.80% 18.51% 16.42% 13.46% 11.97% 11.07% 10.12% 9.11% 8.07% 7.00% 5.90% 4.78% 3.64%
Cost of Revenues Model

Direct Payroll Costs 94,568 95,128 108,875 126,399 127,964 126,753 130,896 141,127 151,293 160,595 168,710 175,327 180,171 183,019 183,713
% Growth (.91%) .59% 14.45% 16.10% 1.24% (.95%) 3.27% 7.82% 7.20% 6.15% 5.05% 3.92% 2.76% 1.58% .38%
% of Revenue 29.97% 23.53% 20.28% 19.86% 17.27% 15.08% 13.91% 13.50% 13.14% 12.79% 12.43% 12.07% 11.71% 11.36% 11.00%
% of Total Cost of Revenues 34.08% 27.91% 23.96% 20.96% 20.93% 18.24% 16.96% 16.14% 15.73% 15.32% 14.91% 14.50% 14.08% 13.67% 13.25%
Payroll Taxes and Benefits 123,224 167,683 222,163 263,100 312,284 357,867 388,062 448,470 492,360 535,617 577,104 615,614 649,934 678,897 701,451
% Growth 27.48% 36.08% 32.49% 18.43% 18.69% 14.60% 8.44% 15.57% 9.79% 8.79% 7.75% 6.67% 5.57% 4.46% 3.32%
% of Revenue 39.05% 41.47% 41.37% 41.34% 42.15% 42.57% 41.23% 42.90% 42.77% 42.64% 42.51% 42.39% 42.26% 42.13% 42.00%
Workers' Compensation 59,663 78,022 123,427 213,451 171,137 210,430 252,623 284,719 318,068 352,016 385,789 418,517 449,267 477,083 501,037
% Growth 64.43% 30.77% 58.20% 72.94% (19.82%) 22.96% 20.05% 12.71% 11.71% 10.67% 9.59% 8.48% 7.35% 6.19% 5.02%
% of Revenue 18.91% 19.30% 22.99% 33.54% 23.10% 25.03% 26.84% 27.24% 27.63% 28.03% 28.42% 28.82% 29.21% 29.61% 30.00%
Total Cost Revenues $277,455 $340,833 $454,465 $602,950 $611,385 $695,050 $771,580 $874,316 $961,721 $1,048,229 $1,131,602 $1,209,458 $1,279,372 $1,339,000 $1,386,201
% of Revenue 87.92% 84.30% 84.64% 94.75% 82.53% 82.69% 81.98% 83.64% 83.54% 83.45% 83.36% 83.27% 83.18% 83.09% 83.00%
% Growth 21.49% 22.84% 33.34% 32.67% 1.40% 13.68% 11.01% 13.32% 10.00% 9.00% 7.95% 6.88% 5.78% 4.66% 3.53%
UOIG 16
Appendix 4 Working Capital Model

Working Capital Model
Total Revenue $315,567 $404,332 $536,966 $636,355 $740,841 $840,586 $941,186 $1,045,385 $1,151,142 $1,256,054 $1,357,434 $1,452,410 $1,538,046 $1,611,489 $1,670,122
Current Assets
Accounts Receivable 46,520 63,921 85,586 102,627 90,529 126,484 155,162 156,612 169,158 192,346 208,205 219,204 232,556 245,375 258,171
Days Sales Outstanding A/R 53.81 57.70 58.34 58.86 44.60 54.92 60.34 54.68 53.64 55.89 56.14 55.09 55.19 55.58 56.58
% of Revenue 14.74% 15.81% 15.94% 16.13% 12.22% 15.05% 16.49% 14.98% 14.69% 15.31% 15.34% 15.09% 15.12% 15.23% 15.46%
Short Term Investments 16,878 16,748 19,787 29,957 - 5,675 5,675 5,675 5,675 5,675 5,675 5,675 5,675 5,675 5,675
% of Revenue 5.35% 4.14% 3.68% 4.71% 0.00% .68% .60% .54% .49% .45% .42% .39% .37% .35% .34%
Prepaid Expenses and Other 5,897 4,854 3,026 3,813 3,173 3,899 5,460 6,494 7,480 8,520 9,594 10,678 11,743 12,760 13,695
Days Prepaid Expense Outstanding 6.82 4.38 2.06 2.19 1.56 1.69 2.12 2.27 2.37 2.48 2.59 2.68 2.79 2.89 3.00
% of COGS 2.13% 1.42% .67% .63% .52% .56% .71% .74% .78% .81% .85% .88% .92% .95% .99%
Deferred Tax Assets 5,958 8,148 8,929 19,138 20,941 25,242 18,401 14,721 11,041 7,361 3,680 -
% of Revenue 1.89% 2.02% 1.66% 3.01% 2.83% 3.00% 1.96% 1.41% .96% .59% .27% 0.00% 0.00% 0.00% 0.00%
Restricted Cash - - - - 86,110 - - - - - - - - - -
% of Revenue 0.00% 0.00% 0.00% 0.00% 11.62% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Current Assets - - - 3,776 - 48,557 31,858 25,487 19,115 12,743 6,372 - - - -
% of Revenue 0.00% 0.00% 0.00% .59% 0.00% 5.78% 3.38% 2.44% 1.66% 1.01% .47% 0.00% 0.00% 0.00% 0.00%
Other Receivables 4,133 - - 11,947 1,038 - - - - - - - - - -
% of Revenue 1.31% 0.00% 0.00% 1.88% .14% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Current Assets $79,386.00 $93,671.00 $117,328.00 $171,258.00 $201,791.00 $209,857.00 $216,556.91 $208,988.70 $212,468.44 $226,645.04 $233,525.80 $235,556.84 $249,974.22 $263,809.41 $277,540.95
% of Revenue 25.16% 23.17% 21.85% 26.91% 27.24% 24.97% 23.01% 19.99% 18.46% 18.04% 17.20% 16.22% 16.25% 16.37% 16.62%
Long Term Assets
Net PP&E Beginning 15,037 16,249 18,489 20,549 22,675 26,673 37,032 49,167 47,277 46,933 47,839 49,777 52,576 56,101 60,239
Capital Expenditures 1,247 3,712 4,097 4,632 2,996 7,106 7,003 7,063 7,778 8,486 9,171 9,813 10,392 10,888 10,449
Depreciation and Amortization 1,344 1,477 2,037 2,506 2,851 3,253 5,132 8,953 8,122 7,580 7,234 7,014 6,867 6,750 6,627
Net PP&E Ending 16,249 18,489 20,549 22,675 22,820 37,032 49,167 47,277 46,933 47,839 49,777 52,576 56,101 60,239 64,061
Total Current Assets & Net PP&E $95,635.00 $112,160.00 $137,877.00 $193,933.00 $224,611.00 $246,889.00 $265,723.92 $256,265.71 $259,400.95 $274,484.36 $283,303.05 $288,133.26 $306,075.36 $324,048.82 $341,602.11
% of Revenue 30.31% 27.74% 25.68% 30.48% 30.32% 29.37% 28.23% 24.51% 22.53% 21.85% 20.87% 19.84% 19.90% 20.11% 20.45%
Current Liabilities
Accounts Payable 1,639 1,995 3,252 2,719 3,217 4,944 4,815 5,361 5,902 6,437 6,936 7,439 7,874 8,248 8,521
Days Payable Outstanding 2.16 2.14 2.61 1.65 1.92 2.60 2.28 2.24 2.24 2.24 2.24 2.24 2.25 2.25 2.24
% of Revenue .52% .49% .61% .43% .43% .59% .51% .51% .51% .51% .51% .51% .51% .51% .51%
Accrued Charges 77,679 104,257 141,756 197,363 214,343 266,958 304,392 332,529 360,044 386,173 410,119 431,085 448,318 461,151 469,042
Days Charges Outstanding 102.19 137.15 186.48 259.64 281.97 351.19 400.44 437.45 473.65 508.02 539.52 567.11 589.78 606.66 617.04
% of Revenue 24.62% 25.78% 26.40% 31.01% 28.93% 31.76% 32.34% 31.81% 31.28% 30.74% 30.21% 29.68% 29.15% 28.62% 28.08%
Income Taxes Payable - 272 1,236 - - 3,041 - - - - - - - - -
Days Taxes Outstanding 0.00 0.36 1.63 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of Revenue 0.00% .09% .39% 0.00% 0.00% .96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Short-Term Borrowings - 4,532 - - - - - - - - - - - - -
% of Revenue 0.00% .00% .00% 0.00% 0.00% .00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Current Portion of Long-Term Debt - 220 220 25,220 19,833 221 221 221 221 221 221 221 221 221 221
% of Revenue 0.00% .00% .00% 0.00% 0.00% .00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Liabilities - - - - - - - - - - - - - - -
% of Revenue 0.00% .00% .00% 0.00% 0.00% .00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Current Liabilities $79,318 $106,744 $146,464 $225,302 $237,393 $275,164 $309,429 $338,111 $366,167 $392,832 $417,276 $438,745 $456,414 $469,619 $477,784
% of Revenue 25.14% 26.40% 27.28% 35.41% 32.04% 32.73% 32.88% 32.34% 31.81% 31.28% 30.74% 30.21% 29.67% 29.14% 28.61%
UOIG 17
Appendix 5 Discounted Cash Flows Valuation Assumptions

Discounted Free Cash Flow Assumptions Considerations
Tax Rate 35.00% Terminal Growth Rate 1.82%
Risk Free Rate 2.25% Terminal Value 526,004 Avg. Industry Debt / Equity 5.99%
Beta 1.15 PV of Terminal Value 226,667 Avg. Industry Tax Rate 35.17%
Market Risk Premium 6.00% Sum of PV Free Cash Flows 269,966 Current Reinvestment Rate 69.05%
% Equity 98.90% Firm Value 496,633 Reinvestment Rate in Year 2021E 18.53%
% Debt 1.10% Total Debt 4,613 Implied Return on Capital in Perpetuity 9.81%
Cost of Debt 3.41% Cash & Cash Equivalents 42,542 Terminal Value as a % of Total 45.6%
CAPM 9.16% Market Capitalization 534,562 Implied 2016A EBITDA Multiple 16.8x
WACC 9.08% Fully Diluted Shares 7,509 Implied Multiple in Year 2025E 2.7x
Terminal Risk Free Rate 2.98% Implied Price $71.19 Free Cash Flow Growth Rate in Year 2025E 1%
Terminal CAPM 9.89% Current Price $55.25
Terminal WACC 9.81% Undervalued 28.85%
Final Valuation
Discounted Cash Flow $71.19 60.00%
Comparable Analysis $55.35 20.00%
Dividend Discount $68.39 20.00%
Implied Price $67.46
Current Price $55.25
Undervalued 22.10%
UOIG 18
Appendix 6 Sensitivity Analysis
Implied Price Undervalued/(Overvalued)

Terminal Growth Rate Terminal Growth Rate
0.80% 1.30% 1.80% 2.30% 2.80% 28.85% 0.80% 1.30% 1.80% 2.30% 2.80%
1.04 $ 72.31 $ 74.41 $ 76.80 $ 79.53 $ 82.70 1.04 30.88% 34.68% 39.00% 43.95% 49.68%
1.09 $ 70.13 $ 72.04 $ 74.20 $ 76.66 $ 79.50 1.09 26.93% 30.39% 34.30% 38.76% 43.89%
Adjusted Beta 1.14 $ 68.09 $ 69.83 $ 71.79 $ 74.02 $ 76.57 Adjusted Beta 1.14 23.23% 26.39% 29.94% 33.98% 38.59%
1.19 $ 66.17 $ 67.77 $ 69.56 $ 71.58 $ 73.88 1.19 19.77% 22.66% 25.90% 29.55% 33.72%
1.24 $ 64.38 $ 65.84 $ 67.47 $ 69.31 $ 71.40 1.24 16.52% 19.17% 22.13% 25.45% 29.22%

0.80% 1.30% 1.80% 2.30% 2.80% 0.80% 1.30% 1.80% 2.30% 2.80%
8.00% $ 69.11 $ 70.81 $ 72.72 $ 74.88 $ 77.36 8.00% 25.08% 28.16% 31.61% 35.53% 40.01%
8.50% $ 68.36 $ 70.06 $ 71.97 $ 74.14 $ 76.61 8.50% 23.73% 26.81% 30.26% 34.18% 38.66%
WACC 9.00% $ 67.64 $ 69.34 $ 71.25 $ 73.41 $ 75.89 WACC 9.00% 22.43% 25.50% 28.96% 32.87% 37.35%
9.50% $ 66.94 $ 68.64 $ 70.55 $ 72.71 $ 75.19 9.50% 21.16% 24.23% 27.69% 31.61% 36.08%
10.00% $ 66.26 $ 67.96 $ 69.87 $ 72.03 $ 74.51 10.00% 19.93% 23.00% 26.46% 30.38% 34.85%

0.80% 1.30% 1.80% 2.30% 2.80% 0.80% 1.30% 1.80% 2.30% 2.80%
8.72% $ 73.99 $ 76.38 $ 79.13 $ 82.30 $ 86.01 8.72% 33.91% 38.25% 43.22% 48.96% 55.67%
9.22% $ 70.77 $ 72.81 $ 75.12 $ 77.77 $ 80.82 9.22% 28.09% 31.78% 35.96% 40.75% 46.29%
Terminal
Terminal WACC 9.72% $ 67.97 $ 69.71 $ 71.68 $ 73.91 $ 76.46 9.72% 23.02% 26.18% 29.73% 33.77% 38.38%
WACC
10.22% $ 65.51 $ 67.02 $ 68.70 $ 70.59 $ 72.74 10.22% 18.58% 21.30% 24.34% 27.77% 31.66%
10.72% $ 63.35 $ 64.65 $ 66.10 $ 67.72 $ 69.55 10.72% 14.66% 17.02% 19.64% 22.58% 25.88%

0.80% 1.30% 1.80% 2.30% 2.80% 0.80% 1.30% 1.80% 2.30% 2.80%
25% $ 67.49 $ 69.19 $ 71.10 $ 73.26 $ 75.73 25% 22.16% 25.23% 28.68% 32.59% 37.06%
30% $ 67.50 $ 69.20 $ 71.11 $ 73.27 $ 75.75 30% 22.18% 25.25% 28.70% 32.62% 37.10%
Tax Rate 35% $ 67.52 $ 69.21 $ 71.12 $ 73.29 $ 75.76 Tax Rate 35% 22.20% 25.27% 28.73% 32.65% 37.13%
40% $ 67.53 $ 69.23 $ 71.14 $ 73.30 $ 75.78 40% 22.22% 25.30% 28.76% 32.68% 37.16%
45% $ 67.54 $ 69.24 $ 71.15 $ 73.32 $ 75.80 45% 22.24% 25.32% 28.78% 32.71% 37.19%
UOIG 19
Appendix 7 Sources
BBSI Investor Presentations
BBSI SEC Filings
BusinessWire
FactSet
Google Finance
IBIS World
Morningstar
S&P Capital IQ
U.S. Bureau of Economic Analysis
Yahoo! Finance
UOIG 20

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April 21, 2017 IME

Barrett Business Services

Action Recommended: Buy

Dividend Yield 1.66%

EV/EBITDA 2017E 9.20x 80 4,000,000

EBITDA Margin (2017E) 4.19% 30 1,500,000

Debt to Enterprise Value 0.01 0

Nick Miller: nmiller9@uoregon.edu

Figure 1: Historical Revenue (thousands) Overview

Professional Employer Services (PEO) 80.2%

The Professional Employer Services segment consists of revenues from co-

The Staffing and Recruiting segment consists of revenues from short-term

KELYA KFRC ADP Overview

160 6% Understanding government policies and their implications: To have a

Figure 10: Industry Client Segmentation U.S. Economic Growth

U.S. Unemployment Rate

Figure 12: Industry Segmentation Competition

Figure 15: Capex Projections New Customer Acquisition (Net Build)

Figure 17: Beta Sensitivity Table Management and Employee Relations

Gary Kramer CFO and Principle Accounting Officer

Figure 19: Dividend Growth Projections Heather Gould CSO

Source: UOIG Spreads Portfolio Strategy

Acquisition of another PEO business in new target markets

Expansion into white-collar client markets

10x BBSI TNET Weather causing fewer hours worked.

Automatic Data Processing (ADP) 10%

TriNet Group, INC. (TNET) 25%

3x TriNet was chosen as a comp because insurance services represent 85% of

BBSI Kelly Services, Inc. (KELY) 15%

Kforce, Inc. (KFRC) 10%

6000 15% Cost of Revenues Model

Figure 31: Final Valuation Table Recommendation

Appendix 1 Comparable Analysis

Comparables Analysis BBSI TNET NSP KELYA KFRC ADP

Barrett Business Autmatic Data

Multiple Implied Price Weight

Appendix 2 Discounted Cash Flows Valuation

Discounted Cash Flow Analysis

Appendix 3 Revenue Model

Cost of Revenues Model

Appendix 4 Working Capital Model

Appendix 5 Discounted Cash Flows Valuation Assumptions

Appendix 6 Sensitivity Analysis

Implied Price Undervalued/(Overvalued)

Implied Price Undervalued/(Overvalued)

Implied Price Undervalued/(Overvalued)

Implied Price Undervalued/(Overvalued)

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