Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 2, 2024

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 0-21886

 

BARRETT BUSINESS SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

52-0812977

(State or other jurisdiction of
Incorporation or organization)

 

(IRS Employer
Identification No.)

 

 

 

8100 NE Parkway Drive, Suite 200

 

 

Vancouver, Washington

 

98662

(Address of principal executive offices)

 

(Zip Code)

(360) 828-0700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

BBSI

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 17, 2024, 6,541,799 shares of the registrant’s common stock ($0.01 par value) were outstanding.

 

 


 

BARRETT BUSINESS SERVICES, INC.

INDEX TO FORM 10-Q

 

Part I - Financial Information (Unaudited)

Page

Item 1.

Unaudited Interim Condensed Consolidated Financial Statements

3

 

Condensed Consolidated Balance Sheets - March 31, 2024 and December 31, 2023

3

 

Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2024 and 2023

4

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income - Three Months Ended March 31, 2024 and 2023

5

 

Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2024

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2023

 

7

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023

8

 

Notes to Condensed Consolidated Financial Statements

9

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

Item 4.

Controls and Procedures

25

 

Part II - Other Information

 

 

Item 1.

Legal Proceedings

26

 

Item 1A.

Risk Factors

26

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

Item 6.

 

Exhibits

 

27

 

 

 

 

 

Signatures

27

 

 

2


 

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Interim Condensed Consolidated Financial Statements

Barrett Business Services, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In Thousands, Except Par Value)

 

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,267

 

 

$

71,168

 

Investments

 

 

72,410

 

 

 

81,027

 

Trade accounts receivable, net

 

 

200,368

 

 

 

171,407

 

Income taxes receivable

 

 

7,727

 

 

 

7,987

 

Prepaid expenses and other

 

 

18,513

 

 

 

18,443

 

Restricted cash and investments

 

 

125,010

 

 

 

97,470

 

Total current assets

 

 

475,295

 

 

 

447,502

 

Property, equipment and software, net

 

 

51,222

 

 

 

50,295

 

Operating lease right-of-use assets

 

 

20,719

 

 

 

19,898

 

Restricted cash and investments

 

 

141,609

 

 

 

145,583

 

Goodwill

 

 

47,820

 

 

 

47,820

 

Other assets

 

 

6,346

 

 

 

6,222

 

Deferred income taxes

 

 

4,789

 

 

 

4,218

 

Total assets

 

$

747,800

 

 

$

721,538

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,697

 

 

$

6,593

 

Accrued payroll, payroll taxes and related benefits

 

 

256,061

 

 

 

234,080

 

Current operating lease liabilities

 

 

6,345

 

 

 

6,623

 

Current premium payable

 

 

65,820

 

 

 

35,276

 

Other accrued liabilities

 

 

7,516

 

 

 

10,674

 

Workers' compensation claims liabilities

 

 

46,555

 

 

 

50,006

 

Total current liabilities

 

 

387,994

 

 

 

343,252

 

Long-term workers' compensation claims liabilities

 

 

111,499

 

 

 

117,757

 

Long-term premium payable

 

 

33,435

 

 

 

37,812

 

Long-term operating lease liabilities

 

 

15,594

 

 

 

14,590

 

Customer deposits and other long-term liabilities

 

 

9,689

 

 

 

8,987

 

Total liabilities

 

 

558,211

 

 

 

522,398

 

Commitments and contingencies (Notes 4 and 6)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $.01 par value; 20,500 shares authorized, 6,536
   and
6,572 shares issued and outstanding

 

 

65

 

 

 

66

 

Additional paid-in capital

 

 

37,696

 

 

 

36,940

 

Accumulated other comprehensive loss

 

 

(22,297

)

 

 

(20,801

)

Retained earnings

 

 

174,125

 

 

 

182,935

 

Total stockholders' equity

 

 

189,589

 

 

 

199,140

 

Total liabilities and stockholders' equity

 

$

747,800

 

 

$

721,538

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Barrett Business Services, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In Thousands, Except Per Share Amounts)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Professional employer services

 

$

246,189

 

 

$

232,307

 

Staffing services

 

 

19,593

 

 

 

22,360

 

Total revenues

 

 

265,782

 

 

 

254,667

 

Cost of revenues:

 

 

 

 

 

 

Direct payroll costs

 

 

14,717

 

 

 

16,871

 

Payroll taxes and benefits

 

 

161,895

 

 

 

144,582

 

Workers' compensation

 

 

49,603

 

 

 

51,670

 

Total cost of revenues

 

 

226,215

 

 

 

213,123

 

Gross margin

 

 

39,567

 

 

 

41,544

 

Selling, general and administrative expenses

 

 

42,414

 

 

 

41,226

 

Depreciation and amortization

 

 

1,852

 

 

 

1,677

 

Loss from operations

 

 

(4,699

)

 

 

(1,359

)

Other income (expense):

 

 

 

 

 

 

Investment income, net

 

 

3,274

 

 

 

2,315

 

Interest expense

 

 

(44

)

 

 

(38

)

Other, net

 

 

66

 

 

 

36

 

Other income, net

 

 

3,296

 

 

 

2,313

 

(Loss) income before income taxes

 

 

(1,403

)

 

 

954

 

(Benefit from) provision for income taxes

 

 

(1,267

)

 

 

135

 

Net (loss) income

 

$

(136

)

 

$

819

 

Basic (loss) income per common share

 

$

(0.02

)

 

$

0.12

 

Weighted average number of basic common shares
   outstanding

 

 

6,570

 

 

 

6,866

 

Diluted (loss) income per common share

 

$

(0.02

)

 

$

0.12

 

Weighted average number of diluted common
   shares outstanding

 

 

6,570

 

 

 

6,985

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Barrett Business Services, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In Thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net (loss) income

 

$

(136

)

 

$

819

 

Unrealized (losses) gains on investments, net of tax of ($571) and $1,397 in 2024 and 2023, respectively

 

 

(1,496

)

 

 

3,652

 

Comprehensive (loss) income

 

$

(1,632

)

 

$

4,471

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Barrett Business Services, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2024

(Unaudited)

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance, December 31, 2023

 

6,572

 

 

$

66

 

 

$

36,940

 

 

$

(20,801

)

 

$

182,935

 

 

$

199,140

 

Common stock issued on exercise of options,
   purchase of ESPP shares and vesting of
   restricted stock units and performance awards

 

35

 

 

 

 

 

 

376

 

 

 

 

 

 

 

 

 

376

 

Common stock repurchased on vesting of
   restricted stock units and performance
   awards

 

(12

)

 

 

 

 

 

(1,456

)

 

 

 

 

 

 

 

 

(1,456

)

Share-based compensation expense

 

 

 

 

 

 

 

2,187

 

 

 

 

 

 

 

 

 

2,187

 

Company repurchases of common stock

 

(59

)

 

 

(1

)

 

 

(351

)

 

 

 

 

 

(6,704

)

 

 

(7,056

)

Cash dividends on common stock ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,970

)

 

 

(1,970

)

Unrealized loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

(1,496

)

 

 

 

 

 

(1,496

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

(136

)

Balance, March 31, 2024

 

6,536

 

 

$

65

 

 

$

37,696

 

 

$

(22,297

)

 

$

174,125

 

 

$

189,589

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

Barrett Business Services, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2023

(Unaudited)

(In Thousands)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

(Loss)

 

 

Retained

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Total

 

Balance, December 31, 2022

 

6,871

 

 

$

69

 

 

$

32,744

 

 

$

(27,594

)

 

$

172,623

 

 

$

177,842

 

Common stock issued on exercise of options,
   purchase of ESPP shares and vesting of
   restricted stock units and performance awards

 

31

 

 

 

 

 

 

339

 

 

 

 

 

 

 

 

 

339

 

Common stock repurchased on vesting of
   restricted stock units and performance
   awards

 

(11

)

 

 

 

 

 

(1,005

)

 

 

 

 

 

 

 

 

(1,005

)

Share-based compensation expense

 

 

 

 

 

 

 

1,928

 

 

 

 

 

 

 

 

 

1,928

 

Company repurchases of common stock

 

(91

)

 

 

(1

)

 

 

(447

)

 

 

 

 

 

(7,582

)

 

 

(8,030

)

Cash dividends on common stock ($0.30 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,067

)

 

 

(2,067

)

Unrealized gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

3,652

 

 

 

 

 

 

3,652

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

819

 

 

 

819

 

Balance, March 31, 2023

 

6,800

 

 

$

68

 

 

$

33,559

 

 

$

(23,942

)

 

$

163,793

 

 

$

173,478

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

7


 

Barrett Business Services, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(136

)

 

$

819

 

Reconciliations of net (loss) income to net cash provided by
   (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,852

 

 

 

1,677

 

Non-cash lease expense

 

 

1,711

 

 

 

1,756

 

Net investment (accretion) amortization

 

 

(396

)

 

 

237

 

Share-based compensation

 

 

2,187

 

 

 

1,928

 

Changes in certain operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(28,961

)

 

 

(24,175

)

Income taxes

 

 

260

 

 

 

112

 

Prepaid expenses and other

 

 

(70

)

 

 

(818

)

Accounts payable

 

 

(896

)

 

 

(2,880

)

Accrued payroll, payroll taxes and related benefits

 

 

22,048

 

 

 

13,944

 

Other accrued liabilities

 

 

(3,135

)

 

 

(1,224

)

Premium payable

 

 

26,167

 

 

 

(1,413

)

Workers' compensation claims liabilities

 

 

(9,835

)

 

 

(14,412

)

Operating lease liabilities

 

 

(1,806

)

 

 

(1,819

)

Other assets and liabilities, net

 

 

(11

)

 

 

(247

)

Net cash provided by (used in) operating activities

 

 

8,979

 

 

 

(26,515

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, equipment and software

 

 

(2,779

)

 

 

(2,995

)

Proceeds from sales and maturities of investments

 

 

8,290

 

 

 

233

 

Purchase of restricted investments

 

 

(4,649

)

 

 

(1,725

)

Proceeds from sales and maturities of restricted investments

 

 

13,253

 

 

 

2,446

 

Net cash provided by (used in) investing activities

 

 

14,115

 

 

 

(2,041

)

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common stock

 

 

(7,056

)

 

 

(8,030

)

Common stock repurchased on vesting of stock awards

 

 

(1,456

)

 

 

(1,005

)

Dividends paid

 

 

(1,970

)

 

 

(2,067

)

Proceeds from exercise of stock options and purchase of ESPP

 

 

376

 

 

 

339

 

Net cash used in financing activities

 

 

(10,106

)

 

 

(10,763

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

12,988

 

 

 

(39,319

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

74,841

 

 

 

107,378

 

Cash, cash equivalents and restricted cash, end of period

 

$

87,829

 

 

$

68,059

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


 

Barrett Business Services, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 - Basis of Presentation of Interim Period Statements

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Barrett Business Services, Inc. (“BBSI”, the “Company”, “our” or “we”), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures typically included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. The accompanying condensed financial statements are prepared on a consolidated basis. All intercompany account balances and transactions have been eliminated in consolidation. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from such estimates and assumptions. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K at pages 33 - 61. The results of operations for an interim period are not necessarily indicative of the results of operations for a full year.

Revenue recognition

Professional employer (“PEO”) services are normally used by organizations to satisfy ongoing needs related to the management of human capital and are governed by the terms of a client services agreement which covers all employees at a particular work site. Staffing revenues relate primarily to short-term staffing, contract staffing and on-site management services. The Company’s performance obligations for PEO and staffing services are satisfied, and the related revenue is recognized, as services are rendered by our workforce.

Our PEO client service agreements have a minimum term of one year, are renewable on an annual basis and typically require 30 days’ written notice to cancel or terminate the contract by either party. In addition, our client service agreements provide for immediate termination upon any payment default of the client regardless of when notice is given. PEO customers are invoiced following the end of each payroll processing cycle, with payment generally due on the invoice date. Staffing customers are generally invoiced weekly based on agreed rates per employee and actual hours worked, typically with payment terms of 30 days. The amount of earned but unbilled revenue is classified as a receivable on the condensed consolidated balance sheets.

We report PEO revenues net of direct payroll costs because we are not the primary obligor for these payments to our clients’ employees. Direct payroll costs include salaries, wages, health insurance, and employee out-of-pocket expenses incurred incidental to employment.

Cost of revenues

Our cost of revenues for PEO services includes employer payroll-related taxes, workers’ compensation costs and employee benefits costs. Our cost of revenues for staffing services includes direct payroll costs, employer payroll-related taxes, and workers’ compensation costs. Direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages. Payroll taxes and benefits consist of the employer’s portion of Social Security and Medicare taxes, federal and state unemployment taxes, and employee benefit costs, which primarily comprise health insurance premiums paid to third-party insurers and underwriting and benefit consultant payroll. Workers’ compensation costs consist primarily of premiums paid to third-party insurers, claims reserves, claims administration fees, legal fees, medical cost containment (“MCC”) expense, state administrative agency fees, third-party broker commissions, and risk manager payroll, as well as costs associated with operating our two wholly owned insurance companies, Associated Insurance Company for Excess (“AICE”) and Ecole Insurance Company (“Ecole”).

9


 

Cash and cash equivalents

We consider non-restricted short-term investments that are highly liquid, readily convertible into cash, and have maturities at acquisition of less than three months to be cash equivalents for purposes of the condensed consolidated statements of cash flows and condensed consolidated balance sheets. The Company maintains cash balances in bank accounts that normally exceed FDIC insured limits. The Company has not experienced any losses related to its cash concentration.

Investments

The Company classifies investments as available-for-sale. The Company’s investments are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Investments are recorded as current on the condensed consolidated balance sheets as the invested funds are available for current operations. Management considers available evidence in evaluating potential impairment of investments, including the extent to which fair value is less than cost and adverse conditions related to the security. In the event of a credit loss, an allowance would be recognized to the extent that the fair value of the security is less than the present value of the expected future cash flows. Realized gains and losses on sales of investments are included in investment income in our condensed consolidated statements of operations.

Restricted cash and investments

The Company holds restricted cash and investments primarily for the future payment of insurance premiums and workers’ compensation claims. These investments are categorized as available-for-sale. They are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Restricted cash and investments are classified as current and noncurrent on the condensed consolidated balance sheets based on the nature of the restriction. Management considers available evidence in evaluating potential impairment of restricted investments, including the extent to which fair value is less than cost and adverse conditions related to the security. In the event of a credit loss, an allowance would be recognized to the extent that the fair value of the security is less than the present value of the expected future cash flows. Realized gains and losses on sales of restricted investments are included in investment income in our condensed consolidated statements of operations.

Restricted cash and investments also includes investments held as part of the Company’s deferred compensation plan. These investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a component of income (loss) from operations.

Allowance for doubtful accounts

The Company had an allowance for doubtful accounts of $0.9 million at March 31, 2024 and December 31, 2023. We make estimates of the collectability of our accounts receivable for services provided to our customers based on future expected credit losses. Management analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customers’ payment trends when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, additional allowances may be required.

10


 

Workers’ compensation claims liabilities

Our workers’ compensation claims liabilities do not represent an exact calculation of liability but rather management’s best estimate, utilizing actuarial expertise and projection techniques, at a given reporting date. The estimated liability for open workers’ compensation claims is based on an evaluation of information provided by our third-party administrator for workers’ compensation claims, coupled with an actuarial estimate of future loss development with respect to reported claims and incurred but not reported claims (together, “IBNR”). Workers’ compensation claims liabilities include case reserve estimates for reported losses, plus additional amounts for estimated IBNR claims, MCC and legal costs, unallocated loss adjustment expenses and estimated future recoveries. The estimate of incurred costs expected to be paid within one year is included in current liabilities, while the estimate of incurred costs expected to be paid beyond one year is included in long-term liabilities on our condensed consolidated balance sheets. These estimates are reviewed at least quarterly and adjustments to estimated liabilities are reflected in current operating results as they become known.

The process of arriving at an estimate of unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events, including changes in claims handling practices, changes in reserve estimation procedures, inflation, trends in the litigation and settlement of pending claims, and legislative changes.

Our estimates are based on actuarial analysis and informed judgment, derived from individual experience and expertise applied to multiple sets of data and analyses. We consider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts and circumstances become known. Due to the inherent uncertainty underlying loss reserve estimates, the expenses incurred through final resolution of our liability for our workers’ compensation claims will likely vary from the related loss reserves at the reporting date. Therefore, as specific claims are paid out in the future, actual paid losses may be materially different from our current loss reserves.

A basic premise in most actuarial analyses is that historical data and past patterns demonstrated in the incurred and paid historical data form a reasonable basis upon which to project future outcomes, absent a material change. Significant structural changes to the available data can materially impact the reserve estimation process. To the extent a material change affecting the ultimate claim liability becomes known, such change is quantified to the extent possible through an analysis of internal Company data and, if available and when appropriate, external data. Nonetheless, actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is more pronounced when faced with material uncertainties.

Customer deposits

We require deposits from certain PEO customers to cover a portion of our accounts receivable due from such customers in the event of default of payment.

Comprehensive income (loss)

Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders.

Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. generally accepted accounting principles (“GAAP”) are included in comprehensive income (loss), but excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. Our other comprehensive income (loss) comprises unrealized holding gains and losses on our available-for-sale investments.

Statements of cash flows

Interest paid during the three months ended March 31, 2024 and 2023 did not materially differ from interest expense. Income taxes paid by the Company during the three months ended March 31, 2024 and 2023 totaled $0.04 million and $0.01 million, respectively.

11


 

Bank deposits and other cash equivalents that are restricted for use are classified as restricted cash. The table below reconciles the cash, cash equivalents and restricted cash balances from our condensed consolidated balance sheets to the amounts reported on the condensed consolidated statements of cash flows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2023

 

 

2022

 

Cash and cash equivalents

 

$

51,267

 

 

$

71,168

 

 

$

52,635

 

 

$

91,423

 

Restricted cash, included in restricted cash and
   investments

 

 

36,562

 

 

 

3,673

 

 

 

15,424

 

 

 

15,955

 

Total cash, cash equivalents and restricted cash
   shown in the statements of cash flows

 

$

87,829

 

 

$

74,841

 

 

$

68,059

 

 

$

107,378

 

Basic and diluted earnings per share

Basic earnings per share are computed based on the weighted average number of common shares outstanding for each year using the treasury method. Diluted earnings per share reflect the potential effects of the issuance of shares in connection with the exercise of outstanding stock options, vesting of outstanding restricted stock units and performance share units, and the Company’s employee stock purchase plan. Basic and diluted shares outstanding are summarized as follows (in thousands):

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Weighted average number of basic shares outstanding

 

 

6,570

 

 

 

6,866

 

Effect of dilutive securities

 

 

 

 

 

119

 

Weighted average number of diluted shares outstanding

 

 

6,570

 

 

 

6,985

 

 

As a result of the net loss for the three months ended March 31, 2024, 135,405 potential common shares have been excluded from the calculation of diluted loss per share because their effect would be anti-dilutive.

Accounting estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. These affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are used for fair value measurement of investments, allowance for doubtful accounts, deferred income taxes, carrying values for goodwill and property, equipment and software, and accrued workers’ compensation liabilities. Actual results may or may not differ from such estimates.

Reclassifications

To conform to the current period’s presentation, safety incentives liability of $1.3 million was reclassified to other accrued liabilities in the prior period condensed consolidated balance sheets, and net cash outflows related to safety incentives liability of $0.3 million was reclassified to other accrued liabilities in the prior period condensed consolidated statements of cash flows. Additionally, to conform the current period’s presentation to reclassifications made in 2023, net cash outflows associated with premiums payable to third party insurance carriers of $1.4 million were reclassified from other accrued liabilities to premium payable in the prior period condensed consolidated statements of cash flows.

12


 

Recent accounting pronouncements

The following Accounting Standards Updates (ASUs) have been recently issued by the Financial Accounting Standards Board (FASB).

ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, which expands annual and interim reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. All disclosure requirements under the new guidance are also required for public entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are evaluating the impact of applying this new accounting guidance to our financial statement disclosures.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The ASU applies to all entities subject to income taxes. The new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. We are evaluating the impact of applying this new accounting guidance to our income tax disclosures.

Note 2 - Fair Value Measurement

The following table summarizes the Company’s investments at March 31, 2024 and December 31, 2023 measured at fair value on a recurring basis (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Recorded

 

 

 

 

 

Unrealized

 

 

Recorded

 

 

 

 

 

 

(Losses)

 

 

 

 

 

 

 

 

(Losses)

 

 

 

 

 

 

Cost

 

 

Gains

 

 

Basis

 

 

Cost

 

 

Gains

 

 

Basis

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,549

 

 

$

 

 

$

18,549

 

 

$

19,539

 

 

$

 

 

$

19,539

 

Total cash equivalents

 

 

18,549

 

 

 

 

 

 

18,549

 

 

 

19,539

 

 

 

 

 

 

19,539

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

32,319

 

 

 

(3,123

)

 

 

29,196

 

 

 

34,472

 

 

 

(3,159

)

 

 

31,313

 

U.S. government agency securities

 

 

12,806

 

 

 

(395

)

 

 

12,411

 

 

 

12,830

 

 

 

(408

)

 

 

12,422

 

U.S. treasuries

 

 

12,451

 

 

 

(1,369

)

 

 

11,082

 

 

 

12,448

 

 

 

(1,253

)

 

 

11,195

 

Mortgage backed securities

 

 

12,908

 

 

 

(2,677

)

 

 

10,231

 

 

 

13,084

 

 

 

(2,454

)

 

 

10,630

 

Asset backed securities

 

 

9,647

 

 

 

(157

)

 

 

9,490

 

 

 

13,659

 

 

 

(187

)

 

 

13,472

 

Emerging markets

 

 

 

 

 

 

 

 

 

 

 

2,003

 

 

 

(8

)

 

 

1,995

 

Total current investments

 

 

80,131

 

 

 

(7,721

)

 

 

72,410

 

 

 

88,496

 

 

 

(7,469

)

 

 

81,027

 

Restricted cash and investments (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasuries

 

 

125,052

 

 

 

(7,032

)

 

 

118,020

 

 

 

109,020

 

 

 

(6,415

)

 

 

102,605

 

Corporate bonds

 

 

82,816

 

 

 

(9,022

)

 

 

73,794

 

 

 

82,481

 

 

 

(8,454

)

 

 

74,027

 

Mortgage backed securities

 

 

42,418

 

 

 

(5,874

)

 

 

36,544

 

 

 

42,077

 

 

 

(5,216

)

 

 

36,861

 

U.S. government agency securities

 

 

16,854

 

 

 

(1,170

)

 

 

15,684

 

 

 

16,863

 

 

 

(1,199

)

 

 

15,664

 

Mutual funds

 

 

9,641

 

 

 

 

 

 

9,641

 

 

 

8,941

 

 

 

 

 

 

8,941

 

Asset backed securities

 

 

799

 

 

 

(2

)

 

 

797

 

 

 

799

 

 

 

 

 

 

799

 

Emerging markets

 

 

200

 

 

 

3

 

 

 

203

 

 

 

200

 

 

 

2

 

 

 

202

 

Money market funds

 

 

107

 

 

 

 

 

 

107

 

 

 

337

 

 

 

 

 

 

337

 

Total restricted cash and
   investments

 

 

277,887

 

 

 

(23,097

)

 

 

254,790

 

 

 

260,718

 

 

 

(21,282

)

 

 

239,436

 

Total investments

 

$

376,567

 

 

$

(30,818

)

 

$

345,749

 

 

$

368,753

 

 

$

(28,751

)

 

$

340,002

 

(1) Included in restricted cash and investments within the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 is restricted cash of $11.8 million and $3.6