BARRETT BUSINESS SERVICES INC

Previous wording

In 2023, BBSI began offering employee benefit programs 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, among others.

Current wording

In 2023, BBSI began offering employee benefit programs to our clients. The employee benefit programs are offered through fully insured arrangements with third-party carriers and 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, among others.

Previous wording

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 March 31, 2024 and 2023 ($ in thousands):

Current wording

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 and six months ended June 30, 2024 and 2023 ($ in thousands):

Previous wording

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 March 31, 2024 and 2023.

Current wording

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 and six months ended June 30, 2024 and 2023.

Previous wording

Net loss for the first quarter of 2024 amounted to $0.1 million compared to net income of $0.8 million for the first quarter of 2023. Diluted net loss per share for the first quarter of 2024 was $0.02 compared to diluted net income per share of $0.12 for the first quarter of 2023.

Current wording

Net income for the second quarter of 2024 amounted to $16.7 million compared to net income of $17.0 million for the second quarter of 2023. Diluted net income per share for the second quarter of 2024 was $0.62 compared to diluted net income per share of $0.62 for the second quarter of 2023.

Previous wording

Revenue for the first quarter of 2024 totaled $265.8 million, an increase of $11.1 million or 4.4% over the first quarter of 2023, which reflects an increase in the Company’s PEO services revenue of $13.9 million or 6.0% and a decrease in staffing services revenue of $2.8 million or 12.4%.

Current wording

Revenue for the second quarter of 2024 totaled $279.7 million, an increase of $15.1 million or 5.7% over the second quarter of 2023, which reflects an increase in the Company’s PEO services revenue of $15.6 million or 6.4% and a decrease in staffing services revenue of $0.6 million or 3.0%.

Previous wording

The increase in PEO services revenue was primarily attributable to an increase in average number of WSEs as well as an increase in average billing per WSE.

Current wording

The increase in PEO services revenue was primarily attributable to an increase in average number of WSEs and an increase in average billing per WSE, as well as an increase in PEO benefits revenue.

Previous wording

Gross margin for the first quarter of 2024 totaled $39.6 million or 14.9% of revenue compared to $41.5 million or 16.3% of revenue for the first quarter of 2023. The separate components of gross margin are discussed below.

Current wording

Gross margin for the second quarter of 2024 totaled $67.9 million or 24.2% of revenue compared to $67.0 million or 25.3% of revenue for the second quarter of 2023. The separate components of gross margin are discussed below.

Previous wording

Direct payroll costs for the first quarter of 2024 totaled $14.7 million or 5.5% of revenue compared to $16.9 million or 6.6% of revenue for the first quarter of 2023. The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the first quarter of 2023.

Current wording

Direct payroll costs for the second quarter of 2024 totaled $14.7 million or 5.3% of revenue compared to $15.1 million or 5.7% of revenue for the second quarter of 2023. The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the second quarter of 2023.

Previous wording

Payroll taxes and benefits for the first quarter of 2024 totaled $161.9 million or 60.9% of revenue compared to $144.6 million or 56.8% of revenue for the first quarter of 2023. The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in the first quarter of 2024 and PEO client benefit costs of $6.6 million in the first quarter of 2024 compared to $1.4 million in the first quarter of 2023.

Current wording

Payroll taxes and benefits for the second quarter of 2024 totaled $148.8 million or 53.2% of revenue compared to $134.1 million or 50.7% of revenue for the second quarter of 2023. The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to higher average payroll tax rates in the second quarter of 2024 and PEO client benefit costs of $7.1 million in the second quarter of 2024 compared to $1.8 million in the second quarter of 2023.

Previous wording

Workers’ compensation expense for the first quarter of 2024 totaled $49.6 million or 18.7% of revenue compared to $51.7 million or 20.3% of revenue for the first quarter of 2023. The decrease in workers’ compensation expense as a percentage of revenue was primarily due to favorable prior year liability and premium adjustments of $3.0 million in the first quarter of 2024, compared to favorable prior year liability and premium adjustments of $1.1 million in the first quarter of 2023.

Current wording

Workers’ compensation expense for the second quarter of 2024 totaled $48.3 million or 17.3% of revenue compared to $48.4 million or 18.3% of revenue for the second quarter of 2023. The decrease in workers’ compensation expense as a percentage of revenue was primarily due to favorable prior year liability and premium adjustments of $8.9 million in the second quarter of 2024, compared to favorable prior year liability and premium adjustments of $6.3 million in the second quarter of 2023.

Previous wording

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2024 totaled $42.4 million or 16.0% of revenue compared to $41.2 million or 16.2% of revenue for the first quarter of 2023. The decrease as a percentage of revenue was primarily the result of decreased employee-related costs as a percentage of revenue.

Current wording

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2024 totaled $45.6 million or 16.3% of revenue compared to $43.8 million or 16.6% of revenue for the second quarter of 2023. The decrease as a percentage of revenue was primarily the result of decreased employee-related costs as a percentage of revenue.

Previous wording

Other income, net for the first quarter of 2024 totaled $3.3 million compared to other income, net of $2.3 million for the first quarter of 2023. The increase was primarily attributable to an increase in investment income in the first quarter of 2024.

Current wording

Other income, net for the second quarter of 2024 totaled $3.1 million compared to other income, net of $2.1 million for the second quarter of 2023. The increase was primarily attributable to an increase in investment income in the second quarter of 2024.

Previous wording

Our effective income tax rate for the first quarter of 2024 was 90.3% compared to 14.2% for the first quarter of 2023. 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.

Current wording

Our effective income tax rate for the second quarter of 2024 was 28.8% compared to 28.1% for the second quarter of 2023. 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.

Previous wording

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 Social Security taxes are exceeded on a per employee basis. Our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers’ businesses in the agriculture, food processing and forest products-related industries. In addition, revenues in the fourth quarter may be reduced by many customers’ practice of operating on holiday-shortened schedules. Workers’ compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims. In addition, positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company’s estimated workers’ compensation expense.

Current wording

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 Social Security taxes are exceeded on a per employee basis. Our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers’ businesses in the agriculture, food processing and forest products-related industries. In addition, revenues in the fourth quarter may be reduced by many customers’ practice of operating on holiday-shortened schedules. Workers’ compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims. Positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company’s estimated workers’ compensation expense.

Previous wording

The Company’s cash balance of $87.8 million, which includes cash, cash equivalents, and restricted cash, increased $13.0 million for the three months ended March 31, 2024, compared to a decrease of $39.3 million for the comparable period of 2023. The increase in cash at March 31, 2024 as compared to December 31, 2023 was primarily due to increased premium payable, increased accrued payroll, payroll taxes and related benefits, and proceeds from sales and maturities of restricted and unrestricted cash and investments, partially offset by increased trade accounts receivable, decreased workers’ compensation claims liabilities, repurchases of common stock, and purchases of investments and restricted investments.

Current wording

The Company’s cash balance of $70.0 million, which includes cash, cash equivalents, and restricted cash, decreased $4.8 million for the six months ended June 30, 2024, compared to a decrease of $52.8 million for the comparable period of 2023. The decrease in cash at June 30, 2024 as compared to December 31, 2023 was primarily due to increased trade accounts receivable, decreased premium payable, decreased workers’ compensation claims liabilities, repurchases of common stock, and purchases of property, equipment and software, partially offset by proceeds from sales and maturities of restricted and unrestricted cash and investments, increased accrued payroll, payroll taxes and related benefits, and net income.

Previous wording

Net cash provided by operating activities for the three months ended March 31, 2024 amounted to $9.0 million, compared to cash used of $26.5 million for the comparable period of 2023. For the three months ended March 31, 2024, net cash provided by operating activities was primarily due to increased premium payable of $26.2 million and increased accrued payroll, payroll taxes and related benefits of $22.0 million, partially offset by increased trade accounts receivable of $29.0 million and decreased workers’ compensation claims liabilities of $9.8 million.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 amounted to $42.4 million, compared to cash used of $23.2 million for the comparable period of 2023. For the six months ended June 30, 2024, net cash used in operating activities was primarily due to increased trade accounts receivable of $40.2 million, decreased premium payable of $29.8 million, and decreased workers’ compensation claims liabilities of $18.3 million, partially offset by increased accrued payroll, payroll taxes and related benefits of $16.8 million, and net income of $16.6 million.

Previous wording

Net cash provided by investing activities for the three months ended March 31, 2024 totaled $14.1 million, compared to cash used of $2.0 million for the comparable period of 2023. For the three months ended March 31, 2024, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $21.5 million, partially offset by purchases of restricted investments of $4.6 million and purchases of property, equipment and software of $2.8 million.

Current wording

Net cash provided by investing activities for the six months ended June 30, 2024 totaled $57.0 million, compared to cash used of $6.4 million for the comparable period of 2023. For the six months ended June 30, 2024, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $72.4 million, partially offset by purchases of property, equipment and software of $7.7 million and purchases of restricted investments of $7.7 million.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2024 was $10.1 million, compared to cash used of $10.8 million for the comparable period of 2023. For the three months ended March 31, 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $7.1 million and dividend payments of $2.0 million.

Current wording

Net cash used in financing activities for the six months ended June 30, 2024 was $19.5 million, compared to cash used of $23.2 million for the comparable period of 2023. For the six months ended June 30, 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $14.1 million and dividend payments of $3.9 million.

Previous wording

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 $234.2 million and $210.9 million at March 31, 2024 and December 31, 2023, respectively. The trust account balance is included as a component of the current and long-term restricted cash and investments in the Company’s condensed consolidated balance sheets.

Current wording

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 $181.3 million and $210.9 million at June 30, 2024 and December 31, 2023, respectively. The trust account balance is included as a component of the current and long-term restricted cash and investments in the Company’s condensed consolidated balance sheets.

Previous wording

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, 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.

Current wording

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, 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 outcome of tax audits, 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 expected credit losses, and the potential for and effect of acquisitions.

Previous wording

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; 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 executive management; 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 December 31, 2023, which was filed with the SEC on March 1, 2024. We disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Current wording

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; 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; PEO client benefits costs; security breaches or failures in the Company’s information technology systems; collectability of accounts receivable; changes in executive management; 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 December 31, 2023, which was filed with the SEC on March 1, 2024. We disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments.