M c I n t i r e I n v e s t m e n t I n s t i t u t e 1 M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA Adam, Naveed, Spencer| March 25, 2014 Barrett Business Solutions, INC Ticker Symbol: BBSI

M c I n t i r e I n v e s t m e n t I n s t i t u t e S TOCK O VERVIEW 2 Market Cap: $ Million P/E: 25.42x Industry P/E: 38.14x EPS: 2.42 Dividend Yield: 1.20% Current Price: $61.51 Beta: 1.25 P/S:.83x P/B: 6.07x

M c I n t i r e I n v e s t m e n t I n s t i t u t e B USINESS O VERVIEW Founded in 1951 IPO in 1993 Headquartered in Vancouver, WA 50 offices in 12 states Focus on California and Pacific Northwest 3

M c I n t i r e I n v e s t m e n t I n s t i t u t e B USINESS O VERVIEW Two categories of service –Professional employment services (PEO) The company becomes a “co-employer” of the client’s workforce, effectively outsourcing the client’s HR costs by contract –Staffing Long and short term contracting of employees for clients, responsibilities include recruiting and hiring –PEO sector increasing in proportion of revenue, to 73.0% in

M c I n t i r e I n v e s t m e n t I n s t i t u t e B USINESS O VERVIEW Operates domestically, using physical branch locations to target local small business. Concentrated in West. –19 California –11 Oregon –5 Utah –5 Washington –… 5

M c I n t i r e I n v e s t m e n t I n s t i t u t e B USINESS O VERVIEW 6

M c I n t i r e I n v e s t m e n t I n s t i t u t e T HESIS P OINTS Increased regulation causes a growth in demand Structured to work better with small companies Clean Financials to support growth plan

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH IN D EMAND Delayed implementation of the ACA will require excessive paperwork and bureaucracy from employers: BBSI specializes in compliance and legal technicalities. HR is becoming more and more complicated, increasing the value of a specialist (BBSI). 8

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH IN D EMAND BBSI’s focus on small businesses makes it attractive to companies with fewer than 50 employees, which do not have to provide healthcare under ACA. These companies will want to remain under 50 employees, and will hire contractors like BBSI to minimize HR staff, and to minimize ACA costs of existing employees. 9

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH IN D EMAND States like California with poor environments for welcoming business (#39 by Forbes) (#1: VA) require firms to jump through more hoops per employee. Small businesses benefit from BBSI’s specialization in outsourcing HR in these states. 10

M c I n t i r e I n v e s t m e n t I n s t i t u t e S TRATEGIC A DVANTAGE 11 Tactical Alignment Dynamic Relationship Strategic Counsel

M c I n t i r e I n v e s t m e n t I n s t i t u t e S TRATEGIC A DVANTAGE 12 Loyalty Employee Retention Ex: P&G Client Retention Productivity “We find strong evidence that where employees have the right of control over assets and right to some of the residual profit establishment financial performance is enhanced.” Rutgers University Semi-Skilled Labor High demand Not easily outsourced

M c I n t i r e I n v e s t m e n t I n s t i t u t e VAR “Paychex consistently makes mistakes when dealing with our office. They have sent us insurance information for other clinics, made numerous errors when processing checks, and often neglect to fix their mistakes. The only reason we are still their client is because there are very few good alternatives. ADP is just as bad.” Ata Motamedi, Motamedi & Associates 13

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS 14

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS Gross revenue grew at 32.33% in 2013 –PEO revenue growth: 40.9% Driven by a 9.9% growth in number of clients and a 10.2% growth in revenue from existing clients –Staffing Services revenue growth: 13.6% Driven by growth in revenue from existing clients as well as a small growth in number of clients –74% of gross revenue from California operations, compared to 69% in

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS Management is expecting 24% growth in gross revenues for Q Planning for mid to high 20’s percentage point growth in the near future Growth again will likely come from increased client base and shift to more lucrative PEO market 16

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS Growth Strategy –BBSI is focusing on growth through penetration in existing markets –Management believes that growth is achieved through increased brand awareness caused by more widespread branch infrastructure –Future strategy includes penetrating new markets with new business units and branches 17

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS Infrastructure expansion –BBSI plans to build 8 new Business Units and 2 new Branches in first half of 2014 –New branches located in California and Nevada –New locations are intended to increase penetration in the company’s existing markets 18

M c I n t i r e I n v e s t m e n t I n s t i t u t e G ROWTH AND F INANCIALS Growth plan supported by strong financial solvency –Balance Sheet Current ratio: 1.44 Debt/Capital: 6.78% –Income Statement No interest expense Free cash flow of $66.1 million, up 57% from 2012 –Steady dividend growth since introduction (2006) 19

M c I n t i r e I n v e s t m e n t I n s t i t u t e M ARGINS Net margin comparison: –ADP ($36.84b): 12.05% –PAYX ($15.42b): 24.59% –KELYA ($918.33m) 1.09% –BBSI ($441.95m): 3.36% 20

M c I n t i r e I n v e s t m e n t I n s t i t u t e DCF 21 CurrentYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10 Optimistic Rate25%23%21%18%15%12%10%8%6%5% Optimistic: Growth Rate Revenue Realistic Rate22%19%15%13%12%10%8%6%5%4% Realistic: Growth Rate Revenue Operating Costs Margin16.24% Optimistic Operating Costs Realistic Operating Costs Optimistic Operating Profit Realistic Operating Profit Optimistic Taxes Real Taxes Optimistic After Tax Profit Realistic After Tax Profit Net Investment (% of Revenue)0.39% Optimistic Net Investment Realistic Net Investment Optimistic Working Capital Change in Optimistic Working Capital Realistic Working Capital Change in Realistic Working Capital Optimistic Free Cash Flow Realistic Free Cash Flow

M c I n t i r e I n v e s t m e n t I n s t i t u t e DCF 22 Cost of Debt Cost of Equity0.13 WACC Optimistic Terminal Value Realistic Terminal Value Optimistic EV Realistic EV Optimistic Fair Value Realistic Fair Value Shares Outstanding7.165 Optimistic Share Value $91.50 Realistic Share Value $79.36

M c I n t i r e I n v e s t m e n t I n s t i t u t e R ISK F ACTORS 1.Worker Compensation reserves 2.Economic conditions 3.Reliance on California 4.Government regulations, esp. ACA 5.Strong competitors 23

M c I n t i r e I n v e s t m e n t I n s t i t u t e T RINET (TNET) IPO Direct competitor, could be valued over $1 billion. IPO this week? 24

M c I n t i r e I n v e s t m e n t I n s t i t u t e R ECOMMENDATION Initiate long position at 3% Follow Trinet IPO for market expectations (TNET). 25