November 6, 2019 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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 September 30, 2019

☐	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 November 1, 2019, 7,494,281 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

	Condensed Consolidated Balance Sheets - September 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months Ended September 30, 2018	6

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months Ended September 30, 2019	7

	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2018	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

Part II - Other Information

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 6.	Exhibits	32

Signature		33

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)

	September 30,		December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	35,452	$	35,371
Investments		101,748		416
Trade accounts receivable, net		187,467		151,597
Prepaid expenses and other		15,974		13,880
Restricted cash and investments		107,702		120,409
Total current assets		448,343		321,673
Investments		—		1,687
Property, equipment and software, net		29,575		24,812
Operating lease right-of-use assets		23,784		—
Restricted cash and investments		311,882		348,165
Goodwill		47,820		47,820
Other assets		3,253		3,474
Deferred income taxes		5,523		8,458
	$	870,180	$	756,089
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	221	$	221
Accounts payable		5,432		4,336
Accrued payroll, payroll taxes and related benefits		197,686		158,683
Income taxes payable		3,408		4,403
Current operating lease liabilities		6,448		—
Other accrued liabilities		13,244		20,566
Workers' compensation claims liabilities		113,623		109,319
Safety incentives liability		27,727		29,210
Total current liabilities		367,789		326,738
Long-term workers' compensation claims liabilities		316,423		304,078
Long-term debt		3,785		3,951
Long-term operating lease liabilities		17,906		—
Customer deposits and other long-term liabilities		4,106		2,285
Total liabilities		710,009		637,052
Commitments and contingencies (Notes 4, 5 and 7)
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 7,494 and 7,395 shares issued and outstanding		75		74
Additional paid-in capital		18,259		15,437
Accumulated other comprehensive income (loss)		2,619		(5,068	)
Retained earnings		139,218		108,594
Total stockholders' equity		160,171		119,037
	$	870,180	$	756,089

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

Barrett Business Services, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In Thousands, Except Per Share Amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Professional employer service fees	$	214,156		$	206,320		$	607,840		$	592,559
Staffing services		33,806			40,967			89,319			110,307
Total revenues		247,962			247,287			697,159			702,866
Cost of revenues:
Direct payroll costs		25,464			30,842			67,298			83,265
Payroll taxes and benefits		104,847			100,348			321,341			322,784
Workers' compensation		46,887			56,412			154,290			172,388
Total cost of revenues		177,198			187,602			542,929			578,437
Gross margin		70,764			59,685			154,230			124,429
Selling, general and administrative expenses		41,352			36,670			113,517			101,713
Depreciation and amortization		970			949			2,909			3,228
Income from operations		28,442			22,066			37,804			19,488
Other income (expense):
Investment income, net		2,882			2,235			9,286			6,455
Interest expense		(394	)		(465	)		(1,352	)		(574	)
Other, net		—			10			12			15
Other income, net		2,488			1,780			7,946			5,896
Income before income taxes		30,930			23,846			45,750			25,384
Provision for income taxes		5,959			4,759			9,172			4,178
Net income	$	24,971		$	19,087		$	36,578		$	21,206
Basic income per common share	$	3.34		$	2.59		$	4.92		$	2.89
Weighted average number of basic common shares outstanding		7,483			7,369			7,433			7,327
Diluted income per common share	$	3.24		$	2.50		$	4.76		$	2.77
Weighted average number of diluted common shares outstanding		7,711			7,643			7,686			7,652

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

Barrett Business Services, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In Thousands)

	Three Months Ended
	September 30,
	2019		2018
Net income	$	24,971	$	19,087
Unrealized gains (losses) on investments, net of tax of $376 and ($396) in 2019 and 2018, respectively		987		(1,037	)
Comprehensive income	$	25,958	$	18,050

	Nine Months Ended
	September 30,
	2019		2018
Net income	$	36,578	$	21,206
Unrealized gains (losses) on investments, net of tax of $2,935 and ($2,325) in 2019 and 2018, respectively		7,687		(5,976	)
Comprehensive income	$	44,265	$	15,230

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

Barrett Business Services, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2018

(Unaudited)

(In Thousands)

									Accumulated
									Other
						Additional			Comprehensive
	Common Stock					Paid-in			(Loss)			Retained
	Shares			Amount		Capital			Income			Earnings			Total
Balance, December 31, 2017		7,301		$	73	$	12,311		$	(1,430	)	$	77,880		$	88,834
Common stock issued on exercise of options and vesting of restricted stock units		7			—		53			—			—			53
Common stock repurchased on vesting of restricted stock units		(1	)		—		(76	)		—			—			(76	)
Share-based compensation expense		—			—		1,542			—			—			1,542
Cash dividends on common stock ($0.25 per share)		—			—		—			—			(1,826	)		(1,826	)
Unrealized loss on investments, net of tax		—			—		—			(3,964	)		—			(3,964	)
Net loss		—			—		—			—			(9,123	)		(9,123	)
Balance, March 31, 2018		7,307		$	73	$	13,830		$	(5,394	)	$	66,931		$	75,440
Common stock issued on exercise of options and vesting of restricted stock units		5			—		48			—			—			48
Common stock repurchased on vesting of restricted stock units		(1	)		—		(92	)		—			—			(92	)
Share-based compensation expense		—			—		1,041			—			—			1,041
Cash dividends on common stock ($0.25 per share)		—			—		—			—			(1,827	)		(1,827	)
Unrealized loss on investments, net of tax		—			—		—			(975	)		—			(975	)
Net income		—			—		—			—			11,240			11,240
Balance, June 30, 2018		7,311		$	73	$	14,827		$	(6,369	)	$	76,344		$	84,875
Common stock issued on exercise of options and vesting of restricted stock units		100			1		222			—			—			223
Common stock repurchased on vesting of restricted stock units		(30	)		—		(2,784	)		—			—			(2,784	)
Share-based compensation expense		—			—		1,409			—			—			1,409
Cash dividends on common stock ($0.25 per share)		—			—		—			—			(1,844	)		(1,844	)
Unrealized loss on investments, net of tax		—			—		—			(1,037	)		—			(1,037	)
Net income		—			—		—			—			19,087			19,087
Balance, September 30, 2018		7,381		$	74	$	13,674		$	(7,406	)	$	93,587		$	99,929

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

Barrett Business Services, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2019

(Unaudited)

(In Thousands)

									Accumulated
									Other
						Additional			Comprehensive
	Common Stock					Paid-in			(Loss)			Retained
	Shares			Amount		Capital			Income			Earnings			Total
Balance, December 31, 2018		7,395		$	74	$	15,437		$	(5,068	)	$	108,594		$	119,037
Common stock issued on exercise of options and vesting of restricted stock units and performance awards		17			—		122			—			—			122
Common stock repurchased on vesting of restricted stock units and performance awards		(2	)		—		(178	)		—			—			(178	)
Share-based compensation expense		—			—		1,387			—			—			1,387
Cash dividends on common stock ($0.25 per share)		—			—		—			—			(1,852	)		(1,852	)
Unrealized gain on investments, net of tax		—			—		—			3,657			—			3,657
Net loss		—			—		—			—			(2,300	)		(2,300	)
Balance, March 31, 2019		7,410		$	74	$	16,768		$	(1,411	)	$	104,442		$	119,873
Common stock issued on exercise of options and vesting of restricted stock units		4			—		56			—			—			56
Share-based compensation expense		—			—		2,441			—			—			2,441
Cash dividends on common stock ($0.25 per share)		—			—		—			—			(1,853	)		(1,853	)
Unrealized gain on investments, net of tax		—			—		—			3,043			—			3,043
Net income		—			—		—			—			13,907			13,907
Balance, June 30, 2019		7,414		$	74	$	19,265		$	1,632		$	116,496		$	137,467
Common stock issued on exercise of options and vesting of restricted stock units		116			1		279			—			—			280
Common stock repurchased on vesting of restricted stock units		(36	)		—		(2,958	)		—			—			(2,958	)
Share-based compensation expense		—			—		1,673			—			—			1,673
Cash dividends on common stock ($0.30 per share)		—			—		—			—			(2,249	)		(2,249	)
Unrealized gain on investments, net of tax		—			—		—			987			—			987
Net income		—			—		—			—			24,971			24,971
Balance, September 30, 2019		7,494		$	75	$	18,259		$	2,619		$	139,218		$	160,171

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

Barrett Business Services, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	36,578		$	21,206
Reconciliations of net income to net cash provided by operating activities:
Depreciation and amortization		2,909			3,228
Non-cash lease expense		5,243			—
Investment (accretion) amortization and (gains) losses recognized		940			36
Share-based compensation		5,501			3,992
Changes in certain operating assets and liabilities:
Trade accounts receivable		(35,870	)		(25,910	)
Income taxes receivable		—			1,686
Prepaid expenses and other		(2,094	)		(6,720	)
Accounts payable		1,096			(702	)
Accrued payroll, payroll taxes and related benefits		40,763			13,079
Other accrued liabilities		(7,322	)		(772	)
Income taxes payable		(995	)		2,429
Workers' compensation claims liabilities		16,857			35,391
Safety incentives liability		(1,483	)		68
Operating lease liabilities		(4,673	)		—
Other assets and liabilities, net		75			(109	)
Net cash provided by operating activities		57,525			46,902
Cash flows from investing activities:
Purchase of property and equipment		(7,672	)		(4,442	)
Purchase of investments		(658	)		(1,688	)
Proceeds from sales and maturities of investments		15,941			1,481
Purchase of restricted investments		(3,946	)		(103,861	)
Proceeds from sales and maturities of restricted investments		42,409			54,819
Net cash provided by (used in) investing activities		46,074			(53,691	)
Cash flows from financing activities:
Proceeds from credit-line borrowings		18,843			8,500
Payments on credit-line borrowings		(18,843

Form: 10-Q

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