November 4, 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 September 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 October 21, 2020, 7,646,324 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, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2020 and 2019	4

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

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months Ended September 30, 2020	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, 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)

	September 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	61,193	$	44,570
Investments		86,679		82,590
Trade accounts receivable, net		212,362		163,561
Income taxes receivable		1,740		1,335
Prepaid expenses and other		13,883		14,919
Restricted cash and investments		90,608		116,873
Total current assets		466,465		423,848
Property, equipment and software, net		35,148		31,724
Operating lease right-of-use assets		23,730		23,805
Restricted cash and investments		245,035		327,326
Goodwill		47,820		47,820
Other assets		5,081		3,618
Deferred income taxes		—		2,788
	$	823,279	$	860,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	221	$	221
Accounts payable		6,447		5,993
Accrued payroll, payroll taxes and related benefits		205,476		174,168
Current operating lease liabilities		7,303		6,671
Other accrued liabilities		6,603		8,846
Workers' compensation claims liabilities		96,583		118,273
Safety incentives liability		23,354		27,950
Total current liabilities		345,987		342,122
Long-term workers' compensation claims liabilities		250,765		320,713
Long-term debt		3,565		3,730
Deferred income taxes		2,947		—
Long-term operating lease liabilities		17,355		17,883
Customer deposits and other long-term liabilities		5,348		4,682
Total liabilities		625,967		689,130
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 7,646 and 7,514 shares issued and outstanding		76		75
Additional paid-in capital		23,938		20,227
Accumulated other comprehensive income		7,649		2,819
Retained earnings		165,649		148,678
Total stockholders' equity		197,312		171,799
	$	823,279	$	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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues:
Professional employer service fees	$	199,082		$	214,156		$	573,162		$	607,840
Staffing services		28,431			33,806			74,486			89,319
Total revenues		227,513			247,962			647,648			697,159
Cost of revenues:
Direct payroll costs		21,452			25,464			56,325			67,298
Payroll taxes and benefits		100,142			104,847			313,275			321,341
Workers' compensation		46,685			46,887			146,120			154,290
Total cost of revenues		168,279			177,198			515,720			542,929
Gross margin		59,234			70,764			131,928			154,230
Selling, general and administrative expenses		35,587			41,352			100,957			113,517
Depreciation and amortization		1,341			970			3,512			2,909
Income from operations		22,306			28,442			27,459			37,804
Other income (expense):
Investment income, net		1,664			2,882			6,431			9,286
Interest expense		(366	)		(394	)		(907	)		(1,352	)
Other, net		(4	)		—			169			12
Other income, net		1,294			2,488			5,693			7,946
Income before income taxes		23,600			30,930			33,152			45,750
Provision for income taxes		5,089			5,959			6,538			9,172
Net income	$	18,511		$	24,971		$	26,614		$	36,578
Basic income per common share	$	2.42		$	3.34		$	3.51		$	4.92
Weighted average number of basic common shares outstanding		7,639			7,483			7,572			7,433
Diluted income per common share	$	2.40		$	3.24		$	3.46		$	4.76
Weighted average number of diluted common shares outstanding		7,709			7,711			7,688			7,686

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,
	2020		2019
Net income	$	18,511	$	24,971
Unrealized gains on investments, net of tax of $263 and $376 in 2020 and 2019, respectively		688		987
Comprehensive income	$	19,199	$	25,958

	Nine Months Ended
	September 30,
	2020		2019
Net income	$	26,614	$	36,578
Unrealized gains on investments, net of tax of $1,847 and $2,935 in 2020 and 2019, respectively		4,830		7,687
Comprehensive income	$	31,444	$	44,265

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, 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
Common stock issued on exercise of options, purchase of ESPP shares and vesting of restricted stock units		66			—			300			—			—			300
Common stock repurchased on vesting of restricted stock units		(18	)		—			(928	)		—			—			(928	)
Share-based compensation expense		—			—			1,145			—			—			1,145
Cash dividends on common stock ($0.30 per share)		—			—			—			—			(2,292	)		(2,292	)
Unrealized gain on investments, net of tax		—			—			—			688			—			688
Net income		—			—			—			—			18,511			18,511
Balance, September 30, 2020		7,646		$	76		$	23,938		$	7,649		$	165,649		$	197,312

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			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		—			—

Form: 10-Q

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