Barrett Business Services(BBSI) - 2021 Q2 - Quarterly Report

Part I - Financial Information Unaudited Interim Condensed Consolidated Financial Statements 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 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 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 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 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] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth was driven by higher PEO service fees, while improved gross margin resulted from favorable workers' compensation claims Results of Operations 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] Liquidity and Capital Resources 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] - 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][78] - The company repurchased $6.6 million of common stock and paid $4.5 million in dividends during the first six months of 2021[107] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter[116] Part II - Other Information Legal Proceedings 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] Risk Factors 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][121] - Specific pandemic-related risks include workforce reductions at client businesses, client liquidity issues, complex government relief programs, and increased workers' compensation exposure[121] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data files