Barrett Business Services Inc 10-Q for FY2020 Q3

Barrett Business Services Inc (BBSI)

10-Q 2020-11-04 For: 2020-09-30

Added on April 08, 2026

About this 10-Q

Barrett Business Services Inc filed this 10-Q on November 4, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $227.51M; down 8.2% from $247.96M a year earlier
Net income: $18.51M; down 25.9% from net income of $24.97M a year earlier
Diluted EPS: $2,400.00; down 25.9% from $3,240.00 a year earlier

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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)


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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

	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

	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

										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

	September 30, 2020							December 31, 2019
			Gross							Gross
			Unrealized							Unrealized
			Gains			Recorded				Gains			Recorded
	Cost		(Losses)			Basis		Cost		(Losses)			Basis
Current:
Cash equivalents:
Money market funds	$	32,723	$	—		$	32,723	$	35,526	$	—		$	35,526
Discount notes		9,998		1			9,999		—		—			—
Total cash equivalents		42,721		1			42,722		35,526		—			35,526
Investments:
Corporate bonds		36,732		558			37,290		53,493		156			53,649
Asset backed securities		36,950		(330	)		36,620		14,017		(13	)		14,004
U.S. government agency securities		7,399		791			8,190		7,408		282			7,690
Mortgage backed securities		4,465		13			4,478		2,737		1			2,738
U.S. treasuries		100		1			101		4,500		9			4,509
Total investments		85,646		1,033			86,679		82,155		435			82,590
Restricted cash and investments ⁽¹⁾:
Corporate bonds		95,881		4,461			100,342		98,481		1,931			100,412
Mortgage backed securities		52,650		2,481			55,131		62,930		837			63,767
Money market funds		32,879		3			32,882		29,046		—			29,046
U.S. government agency securities		25,697		2,514			28,211		27,885		642			28,527
Commercial paper		5,998		1			5,999		—		—			—
Supranational bonds		4,773		29			4,802		4,770		30			4,800
U.S. treasuries		4,760		31			4,791		16,906		21			16,927
Mutual funds		4,712		—			4,712		3,466		—			3,466
Municipal bonds		4,062		14			4,076		—		—			—
Asset backed securities		270		5			275		303		—			303
Total restricted cash and investments		231,682		9,539			241,221		243,787		3,461			247,248
Total investments	$	360,049	$	10,573		$	370,622	$	361,468	$	3,896		$	365,364

	September 30, 2020
(In thousands)	Less than 1 Year		Between 1 to 5 Years		Between 5 to 10 Years		After 10 Years		Total
Corporate bonds	$	41,077	$	62,479	$	34,076	$	—	$	137,632
Money market funds		65,605		—		—		—		65,605
Asset backed securities		—		286		—		36,609		36,895
U.S. government agency securities		1,018		14,646		20,737		—		36,401
Discount notes		9,999		—		—		—		9,999
Commercial paper		5,999		—		—		—		5,999
U.S. treasuries		3,330		1,562		—		—		4,892
Supranational bonds		4,802		—		—		—		4,802
Municipal bonds		—		4,076		—		—		4,076
Total	$	131,830	$	83,049	$	54,813	$	36,609	$	306,301

	Percentage of Total Net Revenues
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2020				2019				2020				2019
Revenues:
Professional employer service fees	$	199,082	87.5	%	$	214,156	86.4	%	$	573,162	88.5	%	$	607,840	87.2	%
Staffing services		28,431	12.5			33,806	13.6			74,486	11.5			89,319	12.8
Total revenues		227,513	100.0			247,962	100.0			647,648	100.0			697,159	100.0
Cost of revenues:
Direct payroll costs		21,452	9.4			25,464	10.3			56,325	8.7			67,298	9.7
Payroll taxes and benefits		100,142	44.0			104,847	42.3			313,275	48.4			321,341	46.1
Workers’ compensation		46,685	20.5			46,887	18.9			146,120	22.6			154,290	22.1
Total cost of revenues		168,279	73.9			177,198	71.5			515,720	79.6			542,929	77.9
Gross margin		59,234	26.1			70,764	28.5			131,928	20.4			154,230	22.1
Selling, general and administrative expenses		35,587	15.6			41,352	16.7			100,957	15.6			113,517	16.3
Depreciation and amortization		1,341	0.6			970	0.4			3,512	0.5			2,909	0.4
Income from operations		22,306	9.9			28,442	11.4			27,459	4.2			37,804	5.4
Other income, net		1,294	0.6			2,488	1.0			5,693	0.9			7,946	1.1
Income before income taxes		23,600	10.4			30,930	12.4			33,152	5.1			45,750	6.5
Provision for income taxes		5,089	2.2			5,959	2.4			6,538	1.0			9,172	1.3
Net income	$	18,511	8.1	%	$	24,971	10.0	%	$	26,614	4.1	%	$	36,578	5.2	%

	(Unaudited)				(Unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2020		2019		2020		2019
Gross billings	$	1,511,908	$	1,552,882	$	4,321,018	$	4,377,089
PEO and staffing wages	$	1,300,352	$	1,322,469	$	3,710,788	$	3,725,416

	(Unaudited)		(Unaudited)
	Percentage of Gross Billings		Percentage of Gross Billings
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2020	2019	2020	2019
PEO and staffing wages	86.0%	85.2%	85.9%	85.1%
Payroll taxes and benefits	6.6%	6.8%	7.3%	7.3%
Non-GAAP gross workers' compensation	3.4%	3.6%	3.8%	4.0%

4.1		Second Amendment, dated as of September 25, 2020, to Second Amended and Restated Credit Agreement between the Registrant and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on October 6, 2020.
10.1		Form of Restricted Stock Units Award Agreement for Executive Officers under the Registrant’s 2020 Stock Incentive Plan (the “2020 Plan”).
10.2		Form of Restricted Stock Units Award Agreement for Non-Employee Directors under the 2020 Plan.
10.3		Form of Restricted Stock Units Award Agreement under the Registrant’s Nonqualified Deferred Compensation Plan.
10.4		Summary of Compensation Arrangements for Non-Employee Directors of the Registrant effective July 1, 2020.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32		Certification pursuant to 18 U.S.C. Section 1350.
101.INS		Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, has been formatted in Inline XBRL.

	BARRETT BUSINESS SERVICES, INC.
	Registrant

Date: November 4, 2020	By:	/s/ Anthony J. Harris
		Anthony J. Harris
		Executive Vice President and Chief Financial Officer and Treasurer

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Beginning balance
Workers' compensation claims liabilities	$	336,504		$	430,736		$	438,986		$	413,397
Add: claims expense accrual
Current period		35,138			37,404			106,359			118,934
Prior periods		(2,977	)		(5,593	)		(5,163	)		(10,245	)
		32,161			31,811			101,196			108,689
Less: claim payments related to
Current period		7,046			8,609			13,123			14,213
Prior periods		15,640			23,815			181,170			77,619
		22,686			32,424			194,293			91,832

Change in claims incurred in excess of retention limits		1,369			(77	)		1,459			(208	)

Ending balance
Workers' compensation claims liabilities	$	347,348		$	430,046		$	347,348		$	430,046
Incurred but not reported (IBNR)	$	203,595		$	274,344		$	203,595		$	274,344

Ratio of IBNR to workers' compensation claims liabilities		59	%		64	%		59	%		64	%