What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 64 added, 37 removed, 111 unchanged (48% of the section changed)

34 unchanged sentences

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.

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.

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

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):

Percentage of Total Net Revenues

Three Months Ended

Six Months Ended

Professional employer services

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Depreciation and amortization

Loss from operations

Income from operations

Other income, net

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Income before income taxes

Provision for income taxes

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.

We therefore present for purposes of analysis gross billings and wage information for the three and six months ended June 30, 2024 and 2023.

Three Months Ended

Six Months Ended

(in thousands)

4 unchanged sentences

Percentage of Gross Billings

Three Months Ended

Six Months Ended

PEO and staffing wages

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Three Months Ended

Three Months Ended March 31, 2024 and 2023

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.

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%.

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.

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.

Year-over-year % Growth

Six Months Ended

Year-over-year % Growth

Three Months Ended June 30, 2024 and 2023

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.

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%.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

Six Months Ended June 30, 2024 and 2023

Net income for the first six months of 2024 amounted to $16.6 million compared to net income of $17.8 million for the first six months of 2023.

Diluted net income per share for the first six months of 2024 was $0.62 compared to diluted net income per share of $0.64 for the first six months of 2023.

Revenue for the first six months of 2024 totaled $545.4 million, an increase of $26.1 million or 5.0% over the first six months of 2023, which reflects an increase in the Company's PEO services revenue of $29.5 million or 6.2% and a decrease in staffing services revenue of $3.4 million or 7.9%.

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

Gross margin for the first six months of 2024 totaled $107.5 million or 19.7% of revenue compared to $108.6 million or 20.8% of revenue for the first six months of 2023.

The separate components of gross margin are discussed below.

Direct payroll costs for the first six months of 2024 totaled $29.4 million or 5.4% of revenue compared to $32.0 million or 6.2% of revenue for the first six months 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 six months of 2023.

Payroll taxes and benefits for the first six months of 2024 totaled $310.7 million or 57.0% of revenue compared to $278.7 million or 53.7% of revenue for the first six months 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 six months of 2024 and PEO client benefit costs of $13.7 million in the first six months of 2024 compared to $3.2 million in the first six months of 2023.

Workers' compensation expense for the first six months of 2024 totaled $97.9 million or 17.9% of revenue compared to $100.0 million or 19.3% of revenue for the first six months 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 $11.8 million in the first six months of 2024 compared to favorable prior year liability and premium adjustments of $7.4 million in the first six months of 2023.

SG&A expense for the first six months of 2024 totaled $88.0 million or 16.1% of revenue compared to $85.0 million or 16.4% of revenue for the first six months of 2023.

The decrease as a percentage of revenue was primarily the result of decreased employee-related costs as a percentage of revenue.

Other income, net for the first six months of 2024 totaled $6.3 million compared to other income, net of $4.5 million for the first six months of 2023.

The increase was primarily attributable to an increase in investment income in the first six months of 2024.

Our effective income tax rate for the first six months of 2024 was 24.9% compared to 27.5% for the first six months 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.

Fluctuations in Quarterly Operating Results

5 unchanged sentences

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.

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.

Liquidity and Capital Resources

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

2 unchanged sentences

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.

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.

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.

5 unchanged sentences

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;

14 unchanged sentences

We attempt to limit our investment portfolio's exposure to market risk through low investment turnover and diversification.

Based on the Company’s overall interest exposure at March 31, 2024, a 50 basis point increase in market interest rates would have a $4.8 million downward effect on the fair value of the Company’s investment portfolio.

Based on the Company’s overall interest exposure at June 30, 2024, a 50 basis point increase in market interest rates would have a $4.6 million downward effect on the fair value of the Company’s investment portfolio.

Outstanding borrowings on the Company's line of credit bear interest at a variable market rate, which makes the cost of borrowing on the line of credit susceptible to changing interest rates.

At March 31, 2024, the Company had no outstanding borrowings on its line of credit.

At June 30, 2024, the Company had no outstanding borrowings on its line of credit.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis