BARRETT BUSINESS SERVICES, INC. General
Business Strategy Our strategy is to align local operations teams with the mission of small and mid-sized business owners, driving value to their business. To do so, BBSI:
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partners with business owners to leverage their investment in human capital through a high-touch, results-oriented approach;
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brings predictability to each client organization through a three-tiered management platform; and
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enables business owners to focus on their core business by reducing organizational complexity and maximizing productivity.
Business Organization We operate a decentralized delivery model using
operationally-focused business teams, typically located within 50 miles of our
client companies. These teams are led by senior level business generalists and
include senior level professionals with expertise in human resources,
organizational development, risk mitigation and workplace safety, recruiting,
employee benefits, and various types of administration, including payroll. These
teams are responsible for growth and profitability of their operations, and for
providing strategic leadership, guidance and expert consultation to our client
companies. The decentralized structure fosters autonomous decision-making in
which business teams deliver plans that closely align with the objectives of
each business owner client. We support clients with a local presence in 68
markets throughout
Services Overview BBSI's core purpose is to advocate for business owners, particularly in the small and mid-sized business segment. Our evolution from an entrepreneurially run company to a professionally managed organization has helped to form our view that all businesses experience inflection points at key stages of growth. The insights gained through our own growth, along with the trends we see in working with more than 7,770 companies each day, define our approach to guiding business owners through the challenges associated with being an employer. BBSI's business teams align with each business owner client through a structured three-tiered progression. In doing so, business teams focus on the objectives of each business owner and deliver planning, guidance and resources in support of those objectives.
Tier 1: Tactical Alignment
The first stage focuses on the mutual setting of expectations and is essential to a successful client relationship. It begins with a process of assessment and discovery in which the business owner's business objectives, attitudes, and culture are aligned with BBSI's processes, controls and culture. This stage includes an implementation process, which addresses the administrative components of employment.
Tier 2: Dynamic Relationship
The second stage of the relationship emphasizes organizational development as a means of achieving each client's business objectives. There is a focus on process improvement, development of best practices, supervisor training and leadership development.
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Tier 3: Strategic Counsel
With an emphasis on advocacy on behalf of the business owner, the third stage of the relationship is more strategic and forward-looking with a goal of cultivating an environment in which all efforts are directed by the mission and long-term objectives of the business owner.
In addition to serving as a resource and guide, BBSI can provide workers' compensation coverage as a means of meeting statutory requirements and protecting our clients from employment-related injury claims. Through our third-party administrators, we provide claims management services for our clients. We work to manage and reduce job injury claims, identify fraudulent claims and structure optimal work programs, including modified duty. In 2023, BBSI began offering employee benefits to our clients. The employee benefit programs are designed to provide strategic value to our clients through access to best-in-class plans and service. Benefit plans available to clients include medical, dental and vision plans, flexible spending accounts and health savings accounts, life insurance and voluntary accident coverage, and critical illness and disability coverage.
Results of Operations
The following table sets forth the percentages of total revenues represented by
selected items in the Company's condensed consolidated statements of operations
for the three months ended
Percentage of Total Net Revenues
Three Months Ended
March 31,
2023 2022
Revenues:
Professional employer services $ 232,307 91.2 % $ 217,433 88.3 %
Staffing services 22,360 8.8 28,942 11.7
Total revenues 254,667 100.0 246,375 100.0
Cost of revenues:
Direct payroll costs 16,871 6.6 21,921 8.9
Payroll taxes and benefits 144,582 56.8 135,865 55.1
Workers' compensation 51,670 20.3 48,236 19.6
Total cost of revenues 213,123 83.7 206,022 83.6
Gross margin 41,544 16.3 40,353 16.4Selling, general and administrative
expenses 41,226 16.2 40,165 16.3 Depreciation and amortization 1,677 0.7 1,508 0.6 Loss from operations (1,359 ) (0.6 ) (1,320 ) (0.5 ) Other income, net 2,313 0.9 1,636 0.7 Income before income taxes 954 0.3 316 0.1 Provision for income taxes 135 0.1 28 0.0 Net income$ 819 0.2 %$ 288 0.1 % 22
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We report PEO revenues net of direct payroll costs because we are not the
primary obligor for wage payments to our clients' employees. However, management
believes that gross billings and wages are useful in understanding the volume of
our business activity and serve as an important performance metric in managing
our operations, including the preparation of internal operating forecasts and
establishing executive compensation performance goals. We therefore present for
purposes of analysis gross billings and wage information for the three months
ended
(Unaudited)
Three Months Ended
March 31,
(in thousands) 2023 2022
Gross billings $ 1,789,218 $ 1,707,175
PEO and staffing wages $ 1,551,352 $ 1,482,201 In monitoring and evaluating the performance of our operations, management also reviews the following ratios, which represent selected amounts as a percentage of gross billings. Management believes these ratios are useful in understanding the efficiency and profitability of our service offerings.
(Unaudited)
Percentage of Gross Billings
Three Months Ended
March 31,
2023 2022
PEO and staffing wages 86.7% 86.8%
Payroll taxes and benefits 8.1% 8.0%
Workers' compensation 2.9% 2.8%
Gross margin 2.3% 2.4%
The presentation of revenue on a net basis and the relative contributions of staffing and PEO services revenue can create volatility in our gross margin as a percentage of revenue. Generally, a relative increase in PEO services revenue will result in a higher gross margin as a percentage of revenue. Improvement in gross margin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payroll and safety incentive costs.
We refer to employees of our PEO clients as worksite employees ("WSEs"). Management reviews average and ending WSE growth to monitor and evaluate the performance of our operations. Average WSEs are calculated by dividing the number of unique individuals paid in each month by the number of months in the period. Ending WSEs represents the number of unique individuals paid in the last month of the period.
(Unaudited)
Three Months Ended
March 31,
2023 % Change 2022 % Change
Average WSEs 119,313 2.7% 116,197 9.3%
Ending WSEs 121,363 2.9% 117,924 8.8%
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Three Months Ended
Net income for the first quarter of 2023 amounted to
Revenue for the first quarter of 2023 totaled
The increase in PEO services revenues was primarily attributable to an increase in the average number of WSEs as well as an increase in average billing per WSE. The decrease in staffing services revenue was due primarily to lower demand for temporary workers caused by inclement weather and continued tight labor market conditions.
Gross margin for the first quarter of 2023 totaled
Direct payroll costs for the first quarter of 2023 totaled
Payroll taxes and benefits for the first quarter of 2023 totaled
Workers' compensation expense for the first quarter of 2023 totaled
Selling, general and administrative ("SG&A") expenses for the first quarter of
2023 totaled
Other income, net for the first quarter of 2023 totaled
Our effective income tax rate for the first quarter of 2023 was 14.2% compared to 8.9% for the first quarter of 2022. Our income tax rate typically differs from the federal statutory tax rate of 21% primarily due to state taxes as well as federal and state tax credits.
Fluctuations in Quarterly Operating Results
We have historically experienced significant fluctuations in our quarterly
operating results, including losses or minimal income in the first quarter of
each year, and expect such fluctuations to continue in the future. Our operating
results may fluctuate due to a number of factors such as seasonality, wage
limits on statutory payroll taxes, claims experience for workers' compensation,
demand for our services, and competition. Payroll taxes, as a component of cost
of revenues, generally decline throughout a calendar year as the applicable
statutory wage bases for federal and state unemployment taxes and
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development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company's estimated workers' compensation expense.
Liquidity and Capital Resources
The Company's cash balance of
Net cash used in operating activities for the three months ended
Net cash used in investing activities for the three months ended
Net cash used in financing activities for the three months ended
The Company is required to maintain minimum collateral levels for certain
policies issued under the insured program, which is held in a trust account (the
"trust account"). The balance in the trust account was
See "Note 4 - Revolving Credit Facility and Long-Term Debt" to the unaudited
condensed consolidated financial statements included in Item 1 of Part I of this
report for additional information regarding the Company's credit agreement with
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Forward-Looking Information
Statements in this report include forward-looking statements which are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, discussion of economic conditions in our market areas and their effect on revenue levels, the lingering effects of the COVID-19 pandemic on our business operations, the competitiveness of our service offerings, the availability of certain fully insured medical and other health and welfare benefits to qualifying worksite employees, our ability to attract and retain clients and to achieve revenue growth, the effect of changes in our mix of services on gross margin, the effect of tight labor market conditions, the adequacy of our workers' compensation reserves, the effect of changes in estimates of our future claims liabilities on our workers' compensation reserves, including the effect of changes in our reserving practices and claims management process on our actuarial estimates, expected levels of required surety deposits and letters of credit, our ability to generate sufficient taxable income in the future to utilize our deferred tax assets, the effect of our formation and operation of two wholly owned licensed insurance subsidiaries, the risks of operation and cost of our insured program, the financial viability of our excess insurance carriers, the effectiveness of our management information systems, our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements, litigation costs, the effect of changes in the interest rate environment on the value of our investment securities, the adequacy of our allowance for doubtful accounts, and the potential for and effect of acquisitions.
All our forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors with respect to the Company include:
our ability to retain current clients and attract new clients; the effects of
governmental orders; laws or regulations imposing requirements related to the
COVID-19 pandemic; difficulties associated with integrating clients into our
operations; economic trends in our service areas; the potential for material
deviations from expected future workers' compensation claims experience; changes
in the workers' compensation regulatory environment in our primary markets;
security breaches or failures in the Company's information technology systems;
collectability of accounts receivable; changes in effective payroll tax rates
and federal and state income tax rates; the carrying values of deferred income
tax assets and goodwill (which may be affected by our future operating results);
the effects of inflation on our operating expenses and those of our clients; the
impact of and potential changes to the Patient Protection and Affordable Care
Act; escalating medical costs; and other health care legislative initiatives on
our business; the effect of conditions in the global capital markets on our
investment portfolio; and the availability of capital; borrowing capacity on our
revolving credit facility; or letters of credit necessary to meet state-mandated
surety deposit requirements for maintaining our status as a qualified
self-insured employer for workers' compensation coverage or our insured program.
Additional risk factors affecting our business are discussed in Item 1A of Part
I of our Annual Report on Form 10-K for the year ended
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