August 5, 2020 - 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 June 30, 2020

☐	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 July 22, 2020, 7,635,723 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 - June 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Six Months Ended June 30, 2020	6

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

	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II - Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 6.	Exhibits	31

Signature		32

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)

	June 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	62,210	$	44,570
Investments		67,473		82,590
Trade accounts receivable, net		188,383		163,561
Income taxes receivable		3,506		1,335
Prepaid expenses and other		17,377		14,919
Restricted cash and investments		82,567		116,873
Total current assets		421,516		423,848
Property, equipment and software, net		35,278		31,724
Operating lease right-of-use assets		24,985		23,805
Restricted cash and investments		239,032		327,326
Goodwill		47,820		47,820
Other assets		3,707		3,618
Deferred income taxes		—		2,788
	$	772,338	$	860,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	221	$	221
Accounts payable		4,951		5,993
Accrued payroll, payroll taxes and related benefits		181,406		174,168
Current operating lease liabilities		7,244		6,671
Other accrued liabilities		6,553		8,846
Workers' compensation claims liabilities		89,868		118,273
Safety incentives liability		25,767		27,950
Total current liabilities		316,010		342,122
Long-term workers' compensation claims liabilities		246,636		320,713
Long-term debt		3,620		3,730
Deferred income taxes		2,685		—
Long-term operating lease liabilities		18,630		17,883
Customer deposits and other long-term liabilities		4,869		4,682
Total liabilities		592,450		689,130
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 7,598 and 7,514 shares issued and outstanding		76		75
Additional paid-in capital		23,421		20,227
Accumulated other comprehensive income		6,961		2,819
Retained earnings		149,430		148,678
Total stockholders' equity		179,888		171,799
	$	772,338	$	860,929

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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenues:
Professional employer service fees	$	180,488		$	203,157		$	374,080		$	393,684
Staffing services		20,543			27,825			46,055			55,513
Total revenues		201,031			230,982			420,135			449,197
Cost of revenues:
Direct payroll costs		15,796			20,992			34,873			41,834
Payroll taxes and benefits		93,671			101,697			213,133			216,494
Workers' compensation		44,921			53,174			99,435			107,403
Total cost of revenues		154,388			175,863			347,441			365,731
Gross margin		46,643			55,119			72,694			83,466
Selling, general and administrative expenses		33,255			39,005			65,370			72,165
Depreciation and amortization		1,171			970			2,171			1,939
Income from operations		12,217			15,144			5,153			9,362
Other income (expense):
Investment income, net		1,800			3,332			4,767			6,404
Interest expense		(306	)		(481	)		(541	)		(958	)
Other, net		172			—			173			12
Other income, net		1,666			2,851			4,399			5,458
Income before income taxes		13,883			17,995			9,552			14,820
Provision for income taxes		2,373			4,088			1,449			3,213
Net income	$	11,510		$	13,907		$	8,103		$	11,607
Basic income per common share	$	1.52		$	1.88		$	1.07		$	1.57
Weighted average number of basic common shares outstanding		7,557			7,410			7,539			7,408
Diluted income per common share	$	1.51		$	1.81		$	1.06		$	1.51
Weighted average number of diluted common shares outstanding		7,647			7,692			7,678			7,674

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
	June 30,
	2020		2019
Net income	$	11,510	$	13,907
Unrealized gains on investments, net of tax of $2,630 and $1,164 in 2020 and 2019, respectively		6,877		3,043
Comprehensive income	$	18,387	$	16,950

	Six Months Ended
	June 30,
	2020		2019
Net income	$	8,103	$	11,607
Unrealized gains on investments, net of tax of $1,584 and $2,561 in 2020 and 2019, respectively		4,142		6,700
Comprehensive income	$	12,245	$	18,307

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 Six Months Ended June 30, 2020

(Unaudited)

(In Thousands)

										Accumulated
										Other
							Additional			Comprehensive
	Common Stock						Paid-in			Income			Retained
	Shares			Amount			Capital			(Loss)			Earnings			Total
Balance, December 31, 2019		7,514		$	75		$	20,227		$	2,819		$	148,678		$	171,799
Common stock issued on exercise of options, purchase of ESPP shares and vesting of restricted stock units and performance awards		56			1			903			—			—			904
Common stock repurchased on vesting of restricted stock units and performance awards		(6	)		—			(378	)		—			—			(378	)
Share-based compensation expense		—			—			342			—			—			342
Company repurchase of common stock		(59	)		(1	)		(169	)		—			(2,817	)		(2,987	)
Cash dividends on common stock ($0.30 per share)		—			—			—			—			(2,262	)		(2,262	)
Unrealized loss on investments, net of tax		—			—			—			(2,735	)		—			(2,735	)
Net loss		—			—			—			—			(3,407	)		(3,407	)
Balance, March 31, 2020		7,505		$	75		$	20,925		$	84		$	140,192		$	161,276
Common stock issued on exercise of options and vesting of restricted stock units		96			1			1,809			—			—			1,810
Common stock repurchased on vesting of restricted stock units		(3	)		—			(110	)		—			—			(110	)
Share-based compensation expense		—			—			797			—			—			797
Cash dividends on common stock ($0.30 per share)		—			—			—			—			(2,272	)		(2,272	)
Unrealized gain on investments, net of tax		—			—			—			6,877			—			6,877
Net income		—			—			—			—			11,510			11,510
Balance, June 30, 2020		7,598		$	76		$	23,421		$	6,961		$	149,430		$	179,888

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 Six Months Ended June 30, 2019

(Unaudited)

(In Thousands)

									Accumulated
									Other
						Additional			Comprehensive
	Common Stock					Paid-in			Income			Retained
	Shares			Amount		Capital			(Loss)			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

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)

		Six Months Ended

Form: 10-Q

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