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Barrett Business Services Inc. (BBSI - Snapshot Report) posted second-quarter 2013 earnings per share of 80 cents, exceeding the Zacks Consensus Estimate of 70 cents per share.

Revenues

Barrett reported net revenue of $128.8 million in the second quarter, up 34.8% from $95.5 million a year ago. The year-over-year increase was primarily attributable to continuous increase in the company's co-employed client count as well as improvement in the same-store sales.

Professional employer service fees grew 43.6% year over year to $93.5 million. Revenues from Staffing Services were $35.3 million, up 16.2% from the comparable quarter last year.

Management acknowledged that the different referral channels have helped drive new businesses. The company has also witnessed organic growth from some of its existing clients, and a substantial increase in brand recognition in the company’s served markets. Apart from this, investments in the company’s operational infrastructure also had a positive impact on the quarterly results.

Operating Results

Reported gross profit was $23.7 million, up 45.2% year over year. Gross margin improved 21 basis points (bps) to 3.52% from the year-ago quarter. Total operating expenses in the second quarter were $8.7 million, up 60.6% from the year-earlier quarter. The increase in operating expenses was due to a 37.4% hike in selling, general & administrative expenses.

Reported operating income for the quarter was $8.7 million compared to an operating income of $5.4 million in the year-ago quarter. Operating margin was 1.3% compared to 1.1% in the year-ago quarter.

Reported net income was $5.9 million or 80 cents per share compared with $3.7 million or 53 cents in the comparable quarter last year.

Balance Sheet

Barrett exited the quarter with cash, cash equivalents and marketable securities of approximately $14.2 million, significantly down from $67.0 million in the prior quarter. Long-term debt balance was sequentially flat at $5.2 million.

Guidance

For the third quarter of 2013, Barrett expects gross revenue to increase 31.0% and be in the range between $730.0 million and $735.0 million in comparison to $558.0 million reported for the third quarter of 2012. Moreover, management expects diluted income per common share during the third quarter of 2013 to increase by at least 30% to between $1.05 and $1.10 up from $0.81 in the third quarter of 2012.

Our Take

Barrett registered a profit in its second quarter, and also exceeded the Zacks Consensus Estimate. Revenue growth was encouraging given solid client growth. Management is quite hopeful about the coming quarter and expects strong business pipeline and a healthy client base. However, it is to be seen how company’s continued investments on operational infrastructure improvements rationalize margins in the near term.

Currently, Barrett has a Zacks Rank #1 (Strong Buy).

Other technology stocks which are currently performing well include Convergys Corp. (CVG - Snapshot Report), and SanDisk Corp. (SNDK - Analyst Report) hold a Zacks Rank #1 (Strong Buy), whilePortfolio Recovery, (PRAA - Analyst Report) holds a Zacks Rank#2 (Buy).

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