10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 1, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(IRS Employer |
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(Address of principal executive offices) |
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(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 |
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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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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
As of July 17, 2024,
BARRETT BUSINESS SERVICES, INC.
INDEX TO FORM 10-Q
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)
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June 30, |
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December 31, |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investments |
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Trade accounts receivable, net |
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Income taxes receivable |
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Prepaid expenses and other |
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Restricted cash and investments |
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Total current assets |
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Property, equipment and software, net |
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Operating lease right-of-use assets |
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Restricted cash and investments |
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Goodwill |
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Other assets |
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Deferred income taxes |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued payroll, payroll taxes and related benefits |
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Current operating lease liabilities |
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Current premium payable |
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Other accrued liabilities |
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Workers' compensation claims liabilities |
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Total current liabilities |
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Long-term workers' compensation claims liabilities |
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Long-term premium payable |
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Long-term operating lease liabilities |
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Customer deposits and other long-term liabilities |
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Total liabilities |
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) |
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Stockholders' equity: |
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Common stock, $ |
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Additional paid-in capital (1) |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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(1)
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)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues: |
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Professional employer services |
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$ |
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$ |
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$ |
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$ |
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Staffing services |
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Total revenues |
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Cost of revenues: |
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Direct payroll costs |
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Payroll taxes and benefits |
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Workers' compensation |
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Total cost of revenues |
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Gross margin |
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Selling, general and administrative expenses |
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Depreciation and amortization |
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Income from operations |
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Other income (expense): |
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Investment income, net |
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Interest expense |
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( |
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— |
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( |
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Other, net |
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Other income, net |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Basic income per common share (1) |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of basic common shares |
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Diluted income per common share (1) |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of diluted common |
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(1)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Barrett Business Services, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In Thousands)
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Three Months Ended |
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June 30, |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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Unrealized losses on investments, net of tax of ($ |
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( |
) |
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( |
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Comprehensive income |
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$ |
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$ |
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Six Months Ended |
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June 30, |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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Unrealized (losses) gains on investments, net of tax of ($ |
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( |
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Comprehensive income |
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$ |
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$ |
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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 and Six Months Ended June 30, 2024
(Unaudited)
(In Thousands)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shares (1) |
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Amount (1) |
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Capital (1) |
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Loss |
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Earnings |
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Total |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Common stock issued on exercise of options, |
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— |
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— |
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Common stock repurchased on vesting of |
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( |
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( |
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( |
) |
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— |
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— |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Company repurchases of common stock |
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( |
) |
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( |
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( |
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— |
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( |
) |
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( |
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Cash dividends on common stock ($ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Unrealized loss on investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common stock issued on exercise of options, |
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— |
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— |
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— |
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Common stock repurchased on vesting of |
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( |
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— |
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( |
) |
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— |
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— |
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( |
) |
Share-based compensation expense |
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— |
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— |
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— |
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— |
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Company repurchases of common stock |
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( |
) |
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( |
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( |
) |
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— |
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( |
) |
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( |
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Cash dividends on common stock ($ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Unrealized loss on investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net income |
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— |
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— |
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— |
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— |
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Balance, June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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(1)
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 and Six Months Ended June 30, 2023
(Unaudited)
(In Thousands)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Retained |
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Shares (1) |
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Amount (1) |
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Capital (1) |
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Loss |
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Earnings |
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Total |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common stock issued on exercise of options, |
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— |
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— |
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Common stock repurchased on vesting of |
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( |
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— |
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( |
) |
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— |
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— |
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( |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Company repurchases of common stock |
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( |
) |
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( |
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( |
) |
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— |
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( |
) |
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( |
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Cash dividends on common stock ($ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Unrealized gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common stock issued on exercise of options, |
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— |
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— |
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— |
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Common stock repurchased on vesting of |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
) |
Share-based compensation expense |
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— |
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— |
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— |
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— |
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Company repurchases of common stock |
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( |
) |
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( |
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( |
) |
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— |
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( |
) |
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( |
) |
Cash dividends on common stock ($ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Unrealized loss on investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net income |
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— |
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— |
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— |
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— |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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(1)
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)
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Six Months Ended |
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June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Reconciliations of net income to net cash |
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Depreciation and amortization |
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Non-cash lease expense |
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Net investment (accretion) amortization and (gains) losses recognized |
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( |
) |
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Share-based compensation |
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Changes in certain operating assets and liabilities: |
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Trade accounts receivable |
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( |
) |
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( |
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Income taxes |
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Prepaid expenses and other |
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Accounts payable |
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( |
) |
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( |
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Accrued payroll, payroll taxes and related benefits |
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Other accrued liabilities |
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( |
) |
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( |
) |
Premium payable |
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( |
) |
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( |
) |
Workers' compensation claims liabilities |
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( |
) |
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( |
) |
Operating lease liabilities |
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( |
) |
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( |
) |
Other assets and liabilities, net |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchase of property, equipment and software |
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( |
) |
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( |
) |
Purchase of investments |
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— |
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( |
) |
Proceeds from sales and maturities of investments |
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Purchase of restricted investments |
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( |
) |
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( |
) |
Proceeds from sales and maturities of restricted investments |
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Net cash provided by (used in) investing activities |
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( |
) |
|
Cash flows from financing activities: |
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Proceeds from credit-line borrowings |
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|
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|
— |
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Payments on credit-line borrowings |
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|
( |
) |
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— |
|
Repurchases of common stock |
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|
( |
) |
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|
( |
) |
Common stock repurchased on vesting of stock awards |
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|
( |
) |
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|
( |
) |
Dividends paid |
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|
( |
) |
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( |
) |
Proceeds from exercise of stock options and purchase of ESPP |
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Net cash used in financing activities |
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|
( |
) |
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|
( |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
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|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
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||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
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|
$ |
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||
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
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.
9
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 consist of the employer’s portion of Social Security and Medicare taxes and federal and state unemployment taxes. Benefit costs primarily comprise health insurance premiums paid to third-party carriers as part of our fully insured PEO benefits programs 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
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
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 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 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 from operations.
10
Allowance for expected credit losses
The Company had an allowance for expected credit losses of $
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
Comprehensive income includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s stockholders.
11
Other comprehensive income refers to revenues, expenses, gains and losses that under U.S. generally accepted accounting principles (“GAAP”) are included in comprehensive income, but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. Our other comprehensive income comprises unrealized holding gains and losses on our available-for-sale investments.
Statements of cash flows
Interest paid during the six months ended June 30, 2024 and 2023 did not materially differ from interest expense. Income taxes paid by the Company during the six months ended June 30, 2024 and 2023 totaled $
Bank deposits and other cash equivalents that are restricted for use are classified as restricted cash.
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
December 31, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2023 |
|
|
2022 |
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted cash, included in restricted cash and |
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|
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Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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.
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2024 |
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2023 |
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2024 |
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