Barrett Business Services, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023; comparison is primarily with FY 2022. BBSI provides professional employer organization (PEO), staffing, and business-management services to small and mid-sized businesses. PEO services accounted for most revenue. The company reported one operating and reportable segment.
Financial performance and position
| Metric | FY 2023 | FY 2022 | Change or context |
|---|---|---|---|
| Total revenue | $1,069.3 million | $1,054.3 million | Up 1.4% |
| PEO revenue | $982.3 million | $937.4 million | Up 4.8%; 91.9% of 2023 revenue |
| Staffing revenue | $87.0 million | $117.0 million | Down 25.6% |
| Gross margin | $242.5 million; 22.7% | $234.8 million; 22.3% | Margin improved 0.4 percentage points |
| Income from operations | $60.7 million; 5.7% of revenue | $59.0 million; 5.6% of revenue | Up 2.8% |
| Net income | $50.6 million | $47.3 million | Up 7.1% |
| Diluted earnings per share | $7.39 | $6.54 | Up from prior year |
| Operating cash flow | $67.2 million | $27.8 million | Improved; included a $54.2 million increase in premium payable |
| Cash, cash equivalents and restricted cash | $74.8 million | $107.4 million | Down $32.5 million |
| Workers’ compensation claims liabilities | $167.8 million | $216.0 million | Down $48.2 million |
- Payroll taxes and benefits expense rose to $555.8 million from $522.4 million, reflecting higher average payroll tax rates and $10.5 million of benefit costs associated with benefits newly offered to PEO clients.
- Workers’ compensation expense was $206.0 million versus $209.1 million. The company recorded favorable prior-year liability and premium adjustments of $14.9 million, compared with $13.4 million in 2022.
- Other income, net increased to $8.3 million from $6.3 million, primarily because of higher investment income. The effective tax rate declined to 26.6% from 27.6%.
- At year-end, total assets were $721.5 million and stockholders’ equity was $199.1 million. Current assets were $447.5 million and current liabilities were $343.3 million.
- BBSI had no long-term debt and no outstanding revolving-credit borrowings at year-end. Its credit facility provides a $50 million revolving line and a $25 million standby-letter-of-credit sublimit; the company reported compliance with covenants.
- Investing activities used $55.2 million, chiefly for investment and restricted-investment purchases and property, equipment and software. Financing activities used $44.6 million, including $34.2 million of share repurchases and $8.1 million of dividends.
Material changes and business developments
- Average worksite employees (WSEs) increased 1.9% to 124,306; year-end WSEs rose 3.4% to 126,446. Gross billings increased to $7.716 billion from $7.394 billion.
- Revenue growth slowed to 1.4% from 10.4% in 2022, with PEO growth partly offset by the substantial staffing-revenue decline. California generated approximately 72% of 2023 revenue, versus 73% in each of 2022 and 2021.
- BBSI began offering sponsored employee-benefit programs to PEO clients in 2023, including medical, dental and vision coverage and other benefits.
- The board authorized a new $75 million share-repurchase program in July 2023, covering a two-year period. BBSI repurchased $34.2 million of shares during 2023.
Outlook, risks and unusual items
- The filing gives no specific numerical revenue or earnings guidance. Management expects quarterly results to remain subject to seasonality, payroll-tax wage limits, customer activity, staffing demand and workers’ compensation claims development; it notes that first quarters have historically produced losses or minimal income.
- Workers’ compensation reserve estimates are a significant judgment area and the independent auditor identified claims liabilities as a critical audit matter. Actual claim costs may differ materially from estimates. Insurers covered approximately 84% of workers’ compensation exposure; insured-program coverage was committed through June 30, 2024. The 2023–2024 policy allows favorable-performance savings participation up to $28.5 million and does not permit additional premium charges for adverse claims development.
- The company’s California concentration exposes it to regional economic, regulatory and natural-disaster risks. Other key risks include client retention and credit, competition, labor-market conditions, cybersecurity and privacy, regulatory changes, and availability or cost of insurance and employee benefits. Client agreements are generally terminable on 30 days’ notice.
- A California wage-and-hour class action involving alleged joint-employer status remains pending; BBSI says it will defend the claim, and management cannot estimate a potential loss range. The IRS has proposed disallowing certain wage-based credits for 2017–2020, with estimated additional taxes of $7.4 million and penalties of $1.7 million; similar disallowance for 2021 could add $0.6 million. BBSI disputes the IRS position and recorded no reserve for these matters.
- Investment values remain exposed to interest-rate changes; management estimated a 50-basis-point rate increase would reduce portfolio fair value by $5.0 million. No cybersecurity threat was reported as having materially affected, or reasonably likely to materially affect, the company.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The audit’s critical audit matter was workers’ compensation claims liabilities.
Important facts for investors to verify
- Whether PEO WSE growth and average billing per WSE can sustain revenue growth as staffing revenue declines.
- Future development of workers’ compensation claims, the adequacy of the $167.8 million reserve, and renewal terms for insured-program coverage after June 30, 2024.
- Whether California’s share of revenue and the company’s geographic concentration create material exposure to local economic or regulatory changes.
- The outcome and potential financial effect of the IRS tax-credit dispute and the pending California class action.
- Cash generation excluding working-capital movements, particularly the increase in premium payable, and the liquidity implications of collateral and restricted investments.
- Costs, client uptake and renewal availability for the new PEO benefit offering, whose insurance arrangement was described as running through December 31, 2024.