Financial Data and Key Metrics Changes - The company reported a gross billings increase of 16% year-over-year, reaching $1.68 billion for the PEO business, while staffing revenues increased by 18% to $28.9 million [13][7] - Average worksite employees (WSEs) rose by 9% compared to the prior year, with average billing per WSE increasing by 6% due to higher wages [13][14] - The company generated positive net income in Q1 for the first time in over 10 years, typically showing a loss in Q1 due to payroll tax timing [16] Business Line Data and Key Metrics Changes - The PEO business saw a 16% increase in gross billings, driven by stronger client growth and hiring [13][14] - The staffing business experienced an 18% year-over-year growth, with improvements in applicant placement and fill ratios despite a tight labor market [7][8] - The company added approximately 3,500 worksite employees year-over-year from net new clients, marking the best quarter in over five years [6][29] Market Data and Key Metrics Changes - PEO gross billings growth varied by region, with the Mountain States growing by 38%, East Coast by 25%, and Southern California by 13% [14] - The company operates in 13 states and 68 markets, maintaining consistent market presence compared to the previous quarter [9] Company Strategy and Development Direction - The company is focused on a three-pronged strategy to enhance sales leads, including deepening relationships with existing partners and utilizing technology for new client acquisition [4][5] - An asset-light model is being employed to enter new markets, allowing for efficient client servicing and sales through digital initiatives [9][39] - The company plans to continue investing in technology and growth initiatives while maintaining a disciplined approach to acquisitions [12][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's trajectory, citing strong client retention and growth in prospects [11][50] - Despite macroeconomic challenges such as inflation and labor market tightness, the company does not see immediate signs of a slowdown in its data [10][50] - The company raised its full-year guidance for gross billings growth to 10%-12%, up from 7%-9%, reflecting confidence in continued performance [19] Other Important Information - The company has a new $75 million stock repurchase plan and has already purchased 241,000 shares at an average price of $74.80 [18] - The unrestricted cash investments decreased to $127 million from $166 million at year-end, primarily due to payroll tax payments and stock repurchases [17] Q&A Session Summary Question: Can you talk about the distribution of revenue and earnings in the final three quarters of 2022? - Management expects sequential growth each quarter, with Q4 potentially impacted by one less business day [22][23] Question: Will the company be more cautious on acquisitions given economic risks? - Management indicated that pricing has improved for sellers, and they remain active in the acquisition market while being prudent [24][25] Question: What was the year-over-year same customer WSE growth in the quarter? - The company added approximately 3,400 worksite employees from net new customers and about 6,500 from customer hiring year-over-year [29] Question: Can you comment on the asset-light model and its progress? - Management reported positive outcomes from the asset-light model, with markets performing at or better than expectations [39] Question: Is the average WSE growth guidance of 4% to 6% conservative? - Management acknowledged some conservatism in the guidance, considering the tight labor market and hiring trends [42][44]

Client Base and Employee Support - In 2021, the company supported over 7,600 PEO clients with an average of 112,928 worksite employees (WSEs), compared to 7,500 clients and 108,249 WSEs in 2020, reflecting a growth in client base and employee support [26]. - As of December 31, 2021, the company had a total of 121,660 employees, including 116,154 under PEO client service agreements [42]. - The small and mid-sized business segment remains a key focus for the company, as it is large, underserved, and generally more dependent on external resources [30]. Revenue and Financial Performance - Total revenues for 2021 were $955,166 thousand, an increase from $880,824 thousand in 2020, representing a growth of 8.5% [125]. - Revenues increased by 8.4% in 2021 but decreased by 6.5% in 2020, indicating volatility in revenue growth [64]. - Net income for 2021 was $38,079 thousand, compared to $33,765 thousand in 2020, reflecting an increase of 12.9% [125]. - Professional employer service fees accounted for 88.3% of total revenues in 2021, remaining consistent with 2020 [125]. - Gross billings for 2021 reached $6,569,986 thousand, up from $5,924,539 thousand in 2020, indicating a growth of 10.9% [128]. Operational Model and Technology - The company operates a decentralized delivery model with 50 branch locations across 47 states and the District of Columbia, enhancing local decision-making and client service [20]. - The company’s client-facing technology platform, myBBSI, provides tools for payroll processing, time and attendance management, and human resource information, enhancing operational efficiency for clients [33]. - The company’s operations are affected by the need to constantly improve technology to meet client expectations, with potential risks associated with technological upgrades [59]. Risk Management and Compliance - The company emphasizes risk mitigation and workplace safety, tying the employment of area managers and risk management consultants to their effectiveness in managing client safety compliance [36]. - The company is subject to various federal and state laws and regulations, which impose compliance costs but have not had a material adverse effect on its business to date [45]. - The company faces risks related to compliance with complex and evolving laws and regulations, which could adversely affect profitability and competitiveness [90]. Workers' Compensation and Claims Management - Approximately 82% of the company's workers' compensation exposure is covered through an insured program, which allows for premium adjustments based on overall portfolio performance, with potential savings of up to $20 million [38]. - The company’s self-insured programs cover approximately 18% of its workers' compensation exposure, with specific retention limits based on state regulations [40]. - The company has a comprehensive claims management program aimed at reducing workers' compensation costs through managed-care systems and early settlements [41]. Economic and Market Conditions - California operations accounted for approximately 73% of total revenues in 2021, making the company highly dependent on the economic and regulatory conditions in California [65]. - Economic downturns may lead to reduced revenues as small- and mid-sized clients could cut costs or cease operations, impacting the company's ability to attract new clients [67]. - The company is vulnerable to economic fluctuations, which can affect demand for staffing services and the availability of qualified employees [68]. Shareholder and Investment Activities - The company has repurchased a total of 91,104 shares during the quarter ended December 31, 2021, with an aggregate purchase price of $25.3 million as of that date [107]. - The company has authorized a new repurchase program of up to $75 million of its common stock over a two-year period starting February 28, 2022 [107]. - The investment portfolio is subject to market and credit risks, which could adversely impact the company's financial condition or results of operations [85]. Financial Position and Assets - The company's total current assets decreased slightly to $406.719 million in 2021 from $407.875 million in 2020 [157]. - Total liabilities decreased to $538.422 million in 2021 from $576.715 million in 2020, indicating a reduction of approximately 6.6% [157]. - The company's retained earnings increased to $178.323 million in 2021, up from $165.710 million in 2020, marking a growth of 7.7% [157]. Employee Relations and Community Engagement - The company’s employee relations with management employees are reported to be good, emphasizing the importance of attracting and retaining talent [42]. - The company has implemented a program providing paid volunteer time to encourage management employees' participation in community service projects [42].

Barrett Business Services, Inc. (NASDAQ:BBSI) Q4 2021 Earnings Conference Call March 2, 2022 5:00 PM ET Company Participants Gary Kramer - President & Chief Executive Officer Anthony Harris - Chief Financial Officer Conference Call Participants Chris Moore - CJS Securities Jeff Martin - ROTH Capital Partners Vincent Colicchio - Barrington Research Matt Dane - Titan Capital Management Operator Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's Financial Res ...

Financial Data and Key Metrics Changes - The company reported a 12% increase in gross billings year-over-year, reaching $1.66 billion, and a 5% sequential increase from Q2 [17] - Average worksite employees (WSEs) increased by 8% year-over-year, exceeding expectations, with higher average billing per WSE up 3% [17][18] - Workers' compensation liabilities decreased by nearly $19 million due to the transition to a fully insured program [20] Business Line Data and Key Metrics Changes - Staffing revenues increased by 2% year-over-year to $29 million, although growth was constrained by labor market tightness [17][7] - The staffing business faced challenges in filling orders, but improvements in applicant numbers were noted post-government stimulus expiration [7] Market Data and Key Metrics Changes - PEO gross billings growth varied by region: Mountain States grew 35%, East Coast 16%, Pacific Northwest 14%, Northern California 13%, and Southern California 6% [18] - Client retention rates are stronger than pre-pandemic levels, indicating improved client relationships and service value [11] Company Strategy and Development Direction - The company is focusing on expanding its branch footprint, with new branches opened in Nashville and Pittsburgh, while consolidating others for efficiency [9][10] - A new strategy targeting asset-light markets is being implemented, leveraging remote operations and digital initiatives [14] - The company is enhancing its technology platform, myBBSI, to offer additional products and services, aiming to increase client engagement and retention [15][51] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery and its impact on business performance, leading to an increased full-year outlook for gross billings and WSE growth [6][23] - The management team is actively preparing clients for potential vaccine mandates, emphasizing the importance of their support during challenging times [43] Other Important Information - The company remains debt-free, with $116 million in unrestricted cash and investments, and has returned capital to shareholders through dividends and stock repurchases [22] - The company is committed to maintaining competitive pricing while ensuring strong client retention [57] Q&A Session Summary Question: Impact of the Chubb agreement on workers' compensation claims - Management confirmed that the current agreement with Chubb covers claims from 2019-2021, with only self-insured claims remaining on the balance sheet [26][27] Question: Future LPTs and claims aging - Management indicated plans to evaluate future LPTs based on economic sense and pricing [30] Question: Investment income and decline rate - Investment balances are expected to decline gradually as claims are paid, with a rule of thumb of 25% of remaining claims paid annually [32] Question: SG&A run rate and future expectations - Q3's SG&A was higher due to variable compensation linked to exceeding revenue targets, and it is expected to decrease in Q4 [36] Question: Pricing pressures from wage increases - Management noted no significant pushback on pricing, maintaining flat renewal rates despite competitive market conditions [56] Question: Performance of new branches - New branches in Pittsburgh and Nashville are still in early stages, and management is optimistic about their future performance [62]

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Unaudited Interim Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited interim financial statements for Barrett Business Services, Inc. as of September 30, 2021, and for the three and nine-month periods then ended, including balance sheets, statements of operations, comprehensive income, stockholders' equity, cash flows, and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets increased to **$809.0 million** from **$775.0 million** at year-end 2020, driven by higher trade accounts receivable, while total liabilities rose to **$601.3 million** from **$576.7 million** due to increased accrued payroll and benefits, and total stockholders' equity grew to **$207.6 million** from **$198.2 million** Condensed Consolidated Balance Sheet Highlights (In Thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,860 | $68,688 | | Trade accounts receivable, net | $240,293 | $118,506 | | Total current assets | $463,285 | $407,875 | | Total assets | $808,967 | $774,950 | | **Liabilities & Equity** | | | | Accrued payroll, payroll taxes and related benefits | $249,713 | $149,989 | | Workers' compensation claims liabilities (Current & Long-term) | $296,999 | $357,746 | | Total liabilities | $601,334 | $576,715 | | Total stockholders' equity | $207,633 | $198,235 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q3 2021, total revenues increased to **$247.0 million** from **$227.5 million** in Q3 2020, but net income decreased to **$14.9 million** from **$18.5 million**, while nine-month revenues grew to **$698.6 million** from **$647.6 million** with net income slightly increasing to **$27.5 million** from **$26.6 million** Q3 Financial Performance (In Thousands, Except Per Share) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Total Revenues | $246,950 | $227,513 | | Gross Margin | $60,235 | $59,234 | | Income from Operations | $17,723 | $22,306 | | Net Income | $14,929 | $18,511 | | Diluted EPS | $1.96 | $2.40 | Nine-Month Financial Performance (In Thousands, Except Per Share) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Total Revenues | $698,598 | $647,648 | | Gross Margin | $148,573 | $131,928 | | Income from Operations | $30,667 | $27,459 | | Net Income | $27,465 | $26,614 | | Diluted EPS | $3.59 | $3.46 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash used in operating activities was **$60.3 million**, net cash used in investing activities was **$133.3 million**, and net cash used in financing activities increased to **$18.0 million**, resulting in a total decrease in cash, cash equivalents, and restricted cash of **$211.6 million** Cash Flow Summary (Nine Months Ended Sep 30, In Thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(60,304) | $(78,861) | | Net cash (used in) provided by investing activities | $(133,308) | $2,178 | | Net cash used in financing activities | $(18,007) | $(8,380) | | **Net decrease in cash, cash equivalents and restricted cash** | **$(211,619)** | **$(85,063)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail key accounting policies and events, including PEO revenue reporting, significant workers' compensation liabilities, Loss Portfolio Transfer agreements, a **$33.0 million** revolving credit facility, ongoing IRS tax examinations, and the Kaanaana class action lawsuit - PEO revenues are reported net of direct payroll costs as the company is not the primary obligor for these payments. Staffing revenues are recognized as services are rendered[39](index=39&type=chunk) - On June 30, 2021, the company entered into a second Loss Portfolio Transfer (LPT 2) agreement, which reduced outstanding workers' compensation liabilities by **$53.1 million** for policies issued up to June 30, 2018[70](index=70&type=chunk) - The company is involved in the Kaanaana class action lawsuit, where a California Supreme Court ruling affirmed that certain work was subject to prevailing wage requirements. Potential liability is not currently estimable and not accrued, though an estimated **$4.0 million** is accrued for this and other legal matters[81](index=81&type=chunk) - The IRS is examining federal tax returns for 2011-2014 and 2017-2019. The company disagrees with a proposed disallowance of certain tax credits for 2011-2014 and has not recorded a reserve[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting an **8.5%** revenue increase in Q3 2021 driven by PEO services growth, despite a Q3 net income decrease to **$14.9 million** from **$18.5 million** due to higher SG&A expenses, while nine-month revenues grew **7.9%** with a slight net income increase [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q3 2021 revenue grew **8.5%** to **$247.0 million**, driven by a **9.5%** increase in PEO service fees and an **8.0%** increase in average worksite employees (WSEs), but Q3 net income fell to **$14.9 million** from **$18.5 million** due to a **$5.6 million** rise in SG&A expenses, while nine-month revenue increased **7.9%** to **$698.6 million** and net income rose slightly to **$27.5 million** Worksite Employee (WSE) Growth | Period | Metric | 2021 | % Change | 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | **Q3** | Average WSEs | 116,258 | 8.0% | 107,600 | -8.1% | | **9 Months** | Average WSEs | 111,640 | 3.6% | 107,809 | -5.2% | - The increase in SG&A expenses was primarily due to the reversal of cost reductions implemented in 2020 in response to the COVID-19 pandemic, as well as higher variable employee compensation in 2021[102](index=102&type=chunk) - The company uses non-GAAP measures like gross billings and non-GAAP gross workers' compensation expense to manage operations. Non-GAAP gross workers' compensation as a percentage of gross billings decreased from **3.4%** to **3.0%** for Q3 and from **3.8%** to **3.0%** for the nine-month period, year-over-year[93](index=93&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's total cash, cash equivalents, and restricted cash decreased by **$211.6 million** in the first nine months of 2021, primarily due to **$133.3 million** used in investing activities and **$60.3 million** used in operating activities, with financing activities using **$18.0 million** largely for stock repurchases and dividends - Net cash used in operating activities was **$60.3 million**, primarily due to a **$121.8 million** increase in trade accounts receivable and a **$60.2 million** decrease in workers' compensation claims liabilities[107](index=107&type=chunk) - In April 2021, the company replaced a **$63.7 million** standby letter of credit with other collateral, releasing **$38.7 million** of collateral from the bank and transferring a total of **$63.7 million** to its trust accounts[77](index=77&type=chunk)[109](index=109&type=chunk) - The company maintains a credit agreement with financial covenants requiring EBITDA of at least **$30 million** on a rolling four-quarter basis and a ratio of cash/investments to workers' comp/safety incentive liabilities of at least **1.0:1.0**. The company was in compliance as of September 30, 2021[77](index=77&type=chunk)[109](index=109&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to changes in interest rates, affecting its investment portfolio of corporate bonds, mortgage-backed securities, and U.S. treasuries, with a hypothetical **50 basis point** interest rate increase estimated to result in a **$7.0 million** negative effect on the portfolio's fair value - The company's investment portfolio at September 30, 2021, included **$170.6 million** in corporate bonds, **$91.8 million** in mortgage-backed securities, and **$67.9 million** in U.S. treasuries[114](index=114&type=chunk) - A hypothetical **50 basis point** increase in market interest rates would have a **$7.0 million** negative impact on the fair value of the investment portfolio. The effect on outstanding debt would be immaterial[114](index=114&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2021, with no material changes to internal control over financial reporting during the third quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2021[115](index=115&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[116](index=116&type=chunk) [Part II - Other Information](index=30&type=section&id=Part%20II%20-%20Other%20Information) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to **Note 6** of the financial statements for details on legal proceedings, primarily the Kaanaana v. Barrett Business Services, Inc. class action lawsuit concerning prevailing wage laws in California - For information regarding legal proceedings, the report directs readers to **Note 6** of the condensed consolidated financial statements[119](index=119&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company highlights that its business may be negatively affected by disease outbreaks, specifically the ongoing COVID-19 pandemic, posing **significant risk** through impacts on PEO fees, client liquidity, compliance with evolving legislation, increased workers' compensation claims exposure, and **heightened security risks** from remote work - The COVID-19 pandemic poses a **significant risk**, as government restrictions and economic disruptions affecting the company's small- and mid-sized client base could materially harm business operations and revenue[121](index=121&type=chunk) - Evolving laws and regulations related to the pandemic, such as payroll tax credits and changes to workers' compensation standards, create compliance risks and could increase claims exposure[121](index=121&type=chunk) - Increased remote work exposes the company to **heightened security risks**, including cyber-attacks, and the continuation of the pandemic could lead to an economic downturn, impacting receivables and investment values[123](index=123&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2021, the company repurchased **55,547** shares of common stock under a **$50.0 million** plan authorized in August 2019, with approximately **$31.2 million** remaining available for future repurchases as of September 30, 2021 Stock Repurchases for Q3 2021 | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 7,687 | $71.54 | | August | — | — | | September | 47,860 | $76.19 | | **Total** | **55,547** | | - The repurchases are part of a **$50.0 million** stock repurchase plan authorized in August 2019. As of September 30, 2021, **$31.2 million** remained available under the plan[125](index=125&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including CEO and CFO certifications required by the Sarbanes-Oxley Act and various Inline XBRL documents for financial data tagging - Filed exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350[127](index=127&type=chunk)[128](index=128&type=chunk) - The filing includes Inline XBRL documents for financial data tagging, as required by the SEC[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)

Financial Data and Key Metrics Changes - The company reported a 17% increase in gross billings compared to the prior year's quarter, exceeding expectations [4][14] - Average worksite employees (WSEs) increased by 10% year-over-year and 6% sequentially from Q1 [4] - Gross margin as a percentage of gross billings improved, benefiting from favorable developments in workers' compensation [6][22] Business Line Data and Key Metrics Changes - Staffing business revenues increased by 20% over the prior year to $24.7 million [14] - The staffing business faced challenges in filling orders due to a tight labor market, with 1,300 open job positions nationally [5] - PEO gross billings increased by 17% year-over-year, with regional growth varying significantly [14][15] Market Data and Key Metrics Changes - The Mountain states saw a 36% growth in PEO gross billings, while Southern California only grew by 8% [14][15] - Southern California remains the only region with negative year-to-date WSE growth through Q2 compared to the prior year [15] - The average client wage in Southern California is historically lower than in Northern California, impacting growth [15] Company Strategy and Development Direction - The company is focused on operational efficiencies, consolidating branches to reduce costs while maintaining service quality [8] - A strategic milestone was achieved with two material workers' compensation insurance transactions that derisk the business model [6][7] - The company plans to open three new branches in Q3 2021, indicating ongoing expansion efforts [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, citing strong client retention and positive trends in business performance [12][13] - The company is cautious about the recovery in Southern California but sees potential upside as government stimulus ends [42][43] - The outlook for gross billings has been raised to an expected increase of 6% to 8% for the year [24] Other Important Information - The company remains debt-free except for a $4 million mortgage on its headquarters and returned $2.3 million in dividends and $3 million in stock repurchases [24] - Workers' compensation expenses are trending favorably, with a reduction of estimated liabilities of $5.5 million in Q2 [16][19] - The company has $110 million of unrestricted cash and investments as of June 30, down from $143 million at the end of Q1 [23] Q&A Session Summary Question: Can you explain the new workers' comp structure and its implications? - Management confirmed that the new structure reduces risk but may lead to a decrease in investment income as funds are no longer held prior to claims [27][28] Question: How will premium adjustments work under the new model? - Premium adjustments will be assessed at set milestones, with the first milestone occurring several years later [29][30] Question: Why is 18% still self-insured? - The self-insured model has less frictional cost, and the economics of an insured program may not be beneficial in certain states [32][33] Question: What are the specifics around firming workers' comp rates? - The company experienced slightly positive rate increases during Q2, a significant improvement compared to previous years [34][35] Question: Can you break down the 17% gross billings growth in PEO? - The growth was driven by a 10% increase in WSEs and a 6% increase in billing per WSE [44][45] Question: What is the outlook for worksite employee growth? - The guidance remains conservative due to slow recovery in Southern California, but there is potential for upside as stimulus ends [41][42] Question: How is the digital campaign performing? - The company is testing multiple strategies across different markets and will scale successful initiatives [58] Question: Will staffing revenues continue to grow? - Growth is constrained by the ability to find candidates, but management is optimistic about future hiring as stimulus subsides [60][61]

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Unaudited Interim Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) The company's unaudited interim financials show increased assets, revenues, and net income for the six months ended June 30, 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities grew as of June 30, 2021, driven by higher receivables and accrued payroll Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $2,469 | $68,688 | | Trade accounts receivable, net | $226,582 | $118,506 | | Total current assets | $462,417 | $407,875 | | Total assets | $866,118 | $774,950 | | **Liabilities & Equity** | | | | Accrued payroll, payroll taxes and related benefits | $235,928 | $149,989 | | Workers' compensation claims liabilities (current) | $86,047 | $102,040 | | Total current liabilities | $406,848 | $290,637 | | Total liabilities | $666,696 | $576,715 | | Total stockholders' equity | $199,422 | $198,235 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenues and net income increased for both the three and six-month periods ended June 30, 2021, compared to the prior year Q2 2021 vs Q2 2020 Performance (in thousands, except per share) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Total Revenues | $233,203 | $201,031 | | Gross Margin | $57,473 | $46,643 | | Income from Operations | $20,483 | $12,217 | | Net Income | $17,090 | $11,510 | | Diluted EPS | $1.51 | $1.06 | H1 2021 vs H1 2020 Performance (in thousands, except per share) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total Revenues | $451,648 | $420,135 | | Gross Margin | $88,338 | $72,694 | | Income from Operations | $12,944 | $5,153 | | Net Income | $12,536 | $8,103 | | Diluted EPS | $1.64 | $1.06 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive while significant cash was used for investing, resulting in a net decrease in total cash Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,621 | $(114,389) | | Net cash (used in) provided by investing activities | $(211,539) | $1,983 | | Net cash used in financing activities | $(10,756) | $(5,405) | | **Net decrease in cash, cash equivalents and restricted cash** | **$(219,674)** | **$(117,811)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail key accounting policies, investment portfolio composition, and significant legal proceedings like the Kaanaana case - The company reports Professional Employer Organization (PEO) revenues **net of direct payroll costs** because it is not the primary obligor for these payments[39](index=39&type=chunk) - On June 30, 2021, the company entered into a second loss portfolio transfer agreement (LPT 2) to remove outstanding workers' compensation claims obligations, **reducing liabilities by $53.1 million**[70](index=70&type=chunk) - The California Supreme Court affirmed a lower court's decision in the Kaanaana case, concluding that certain staffing work was a **"public work" subject to prevailing wage requirements**[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue growth was driven by higher PEO service fees, while improved gross margin resulted from favorable workers' compensation claims [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q2 2021 net income grew due to increased revenue from higher average billing and a rise in worksite employees (WSEs) Gross Billings and Wages (in thousands) | Period | Gross Billings | PEO and Staffing Wages | | :--- | :--- | :--- | | **Q2 2021** | $1,601,339 | $1,384,861 | | **Q2 2020** | $1,369,990 | $1,177,855 | | **H1 2021** | $3,072,880 | $2,656,253 | | **H1 2020** | $2,809,110 | $2,410,435 | Worksite Employee (WSE) Growth | Period | Metric | 2021 | % Change | 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | **Q2** | Average WSEs | 112,363 | 9.5% | 102,602 | -10.1% | | **H1** | Average WSEs | 109,311 | 1.3% | 107,914 | -5.6% | - The decrease in workers' compensation expense in Q2 2021 was primarily due to a **favorable adjustment of $5.5 million** related to claims from prior periods[101](index=101&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Total cash decreased due to investment purchases and higher receivables, though the company maintains an undrawn credit facility - **Net cash provided by operating activities was $2.6 million** for H1 2021, compared to net cash used of $114.4 million in H1 2020[107](index=107&type=chunk) - In April 2021, a **$63.7 million standby letter of credit was replaced** with other collateral assets, and the company transferred funds to its trust accounts[109](index=109&type=chunk)[78](index=78&type=chunk) - The company **repurchased $6.6 million of common stock** and paid $4.5 million in dividends during the first six months of 2021[107](index=107&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate changes affecting its investment portfolio's fair value - As of June 30, 2021, a **50 basis point increase in market interest rates** would have a **$10.8 million negative effect** on the fair value of the Company's investment portfolio[114](index=114&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the Company's **disclosure controls and procedures were effective** as of June 30, 2021[115](index=115&type=chunk) - **No material changes in internal control** over financial reporting occurred during the quarter[116](index=116&type=chunk) [Part II - Other Information](index=30&type=section&id=Part%20II%20-%20Other%20Information) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 6 for details on legal matters, primarily the Kaanaana class action lawsuit - For details on legal proceedings, the report **refers to Note 6** of the condensed consolidated financial statements[119](index=119&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company identifies ongoing risks from the COVID-19 pandemic as a material factor affecting its business - The primary risk factor update relates to the **ongoing COVID-19 pandemic** and its potential negative effects on the business[120](index=120&type=chunk)[121](index=121&type=chunk) - Specific pandemic-related risks include workforce reductions at client businesses, client liquidity issues, complex government relief programs, and **increased workers' compensation exposure**[121](index=121&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 42,342 shares in Q2 2021, with $35.6 million remaining under its repurchase authorization Stock Repurchases for Q2 2021 | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April | 0 | $ - | | May | 11,643 | $75.25 | | June | 30,699 | $73.78 | | **Total** | **42,342** | **N/A** | - As of June 30, 2021, approximately **$35.6 million remained available for repurchase** under the company's stock repurchase plan[125](index=125&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data files

Barrett Business Services, Inc. (NASDAQ:BBSI) Q1 2021 Results Conference Call May 5, 2021 5:00 PM ET Company Participants Gary Kramer - President and Chief Executive Officer Anthony Harris - Chief Financial Officer Conference Call Participants Chris Moore - CJS Securities Jeff Martin - ROTH Capital Partners Bill Dezellem - Tieton Capital Management Vincent Colicchio - Barrington Research Operator Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSIs financial ...