What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 64 added, 40 removed, 126 unchanged (45% of the section changed)

22 unchanged sentences

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.

It begins with a process of assessment and discovery in which the business owner’s business objectives, philosophies, and culture are aligned with BBSI’s processes, controls and culture.

This stage includes an implementation process, which addresses the administrative components of employment.

11 unchanged sentences

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, 2025 and 2024 ($ 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, 2025 and 2024 ($ in thousands):

Percentage of Total Net Revenues

Three Months Ended

Six Months Ended

Professional employer services

6 unchanged sentences

Total cost of revenues

Selling, general and administrative expenses

Selling, general and administrative

Depreciation and amortization

Loss from operations

Income from operations

Other income, net

Loss before income taxes

Benefit from income taxes

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, 2025 and 2024.

We therefore present for purposes of analysis gross billings and wage information for the three and six months ended June 30, 2025 and 2024.

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

6 unchanged sentences

Three Months Ended

Year-over-year % Growth

Three Months Ended March 31, 2025 and 2024

Net loss for the first quarter of 2025 amounted to $1.0 million compared to net loss of $0.1 million for the first quarter of 2024.

Diluted net loss per share for the first quarter of 2025 was $0.04 compared to diluted net loss per share of $0.01 for the first quarter of 2024.

Revenue for the first quarter of 2025 totaled $292.6 million, an increase of $26.8 million or 10.1% over the first quarter of 2024, which reflects an increase in the Company’s PEO services revenue of $28.7 million or 11.7% and a decrease in staffing services revenue of $2.0 million or 10.0%.

The increase in PEO services revenue was primarily attributable to a 7.6% increase in average number of WSEs as well as a 2.6% increase in average billing per WSE.

Gross margin for the first quarter of 2025 totaled $42.6 million or 14.6% of revenue compared to $39.6 million or 14.9% of revenue for the first quarter of 2024.

Year-over-year

Six Months Ended

Year-over-year

Three Months Ended June 30, 2025 and 2024

Net income for the second quarter of 2025 amounted to $18.5 million compared to net income of $16.7 million for the second quarter of 2024.

Diluted net income per share for the second quarter of 2025 was $0.70 compared to diluted net income per share of $0.62 for the second quarter of 2024.

Revenue for the second quarter of 2025 totaled $307.7 million, an increase of $28.0 million or 10.0% over the second quarter of 2024, which reflects an increase in the Company’s PEO services revenue of $30.3 million or 11.7% and a decrease in staffing services revenue of $2.3 million or 11.5%.

The increase in PEO services revenue was primarily attributable to an 8.0% increase in the average number of WSEs as well as a 1.7% increase in average billing per WSE per day.

Gross margin for the second quarter of 2025 totaled $73.3 million or 23.8% of revenue compared to $67.9 million or 24.2% of revenue for the second quarter of 2024.

The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

Direct payroll costs for the first quarter of 2025 totaled $13.3 million or 4.5% of revenue compared to $14.7 million or 5.5% of revenue for the first quarter of 2024.

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 2024.

Payroll taxes and benefits for the first quarter of 2025 totaled $187.0 million or 63.9% of revenue compared to $161.9 million or 60.9% of revenue for the first quarter of 2024.

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 2025 and PEO client benefit costs of $17.0 million in the first quarter of 2025 compared to $6.6 million in the first quarter of 2024, primarily due to expanded adoption of the Company’s additional employee benefit programs.

Workers’ compensation expense for the first quarter of 2025 totaled $49.6 million or 17.0% of revenue compared to $49.6 million or 18.7% of revenue for the first quarter of 2024.

The decrease in workers’ compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the first quarter of 2025, including favorable prior year liability and premium adjustments of $3.8 million in the first quarter of 2025, compared to favorable prior year liability and premium adjustments of $3.0 million in the first quarter of 2024.

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2025 totaled $44.8 million or 15.3% of revenue compared to $42.4 million or 16.0% of revenue for the first quarter of 2024.

increase of $2.4 million in SG&A expense was primarily attributable to increased employee-related costs compared to the first quarter of 2024.

Other income, net for the first quarter of 2025 totaled $2.6 million compared to other income, net of $3.3 million for the first quarter of 2024.

The decrease was primarily attributable to a decrease in investment income in the first quarter of 2025.

Our effective income tax rate for the first quarter of 2025 was 33.6% compared to 90.3% for the first quarter of 2024.

The decrease in our effective income tax rate was primarily attributable to reduced discrete tax benefits in the first quarter of 2025, primarily due to the reduction of an unrecognized tax benefit in the first quarter of 2024, with no comparable benefit recorded in the first quarter of 2025.

The impact of discrete items on our effective income tax rate is greater when our pre-tax income or loss is lower.

Additionally, 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.

Direct payroll costs for the second quarter of 2025 totaled $13.2 million or 4.3% of revenue compared to $14.7 million or 5.3% of revenue for the second quarter of 2024.

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 2024.

Payroll taxes and benefits for the second quarter of 2025 totaled $173.3 million or 56.3% of revenue compared to $148.8 million or 53.2% of revenue for the second quarter of 2024.

The increase in payroll taxes and benefits expense as a percentage of revenue was primarily due to expanded adoption of our PEO client benefit programs, resulting in client benefit costs of $17.7 million in the second quarter of 2025 compared to $7.1 million in the second quarter of 2024, as well as higher average payroll tax rates in the second quarter of 2025.

Workers’ compensation expense for the second quarter of 2025 totaled $48.0 million or 15.6% of revenue compared to $48.3 million or 17.3% of revenue for the second quarter of 2024.

The decrease in workers’ compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the second quarter of 2025, which included favorable prior year liability and premium adjustments of $8.8 million, compared to favorable prior year liability and premium adjustments of $8.9 million in the second quarter of 2024.

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2025 totaled $48.2 million or 15.7% of revenue compared to $45.6 million or 16.3% of revenue for the second quarter of 2024.

The increase of $2.6 million in SG&A expense was primarily attributable to increased employee-related costs compared to the second quarter of 2024.

Other income, net for the second quarter of 2025 totaled $2.3 million compared to other income, net of $3.1 million for the second quarter of 2024.

The decrease was primarily attributable to a decrease in investment income in the second quarter of 2025.

Our effective income tax rate for the second quarter of 2025 was 27.1% compared to 28.8% for the second quarter of 2024.

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, 2025 and 2024

Net income for the first six months of 2025 amounted to $17.4 million compared to net income of $16.6 million for the first six months of 2024.

Diluted net income per share for the first six months of 2025 was $0.66 compared to diluted net income per share of $0.62 for the first six months of 2024.

Revenue for the first six months of 2025 totaled $600.2 million, an increase of $54.8 million or 10.0% over the first six months of 2024, which reflects an increase in the Company's PEO services revenue of $59.0 million or 11.7% and a decrease in staffing services revenue of $4.2 million or 10.7%.

The increase in PEO services revenue was primarily attributable to a 7.8% increase in the average number of WSEs as well as a 2.3% increase in average billing per WSE per day.

Gross margin for the first six months of 2025 totaled $115.9 million or 19.3% of revenue compared to $107.5 million or 19.7% of revenue for the first six months of 2024.

The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.

Direct payroll costs for the first six months of 2025 totaled $26.5 million or 4.4% of revenue compared to $29.4 million or 5.4% of revenue for the first six months of 2024.

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 2024.

Payroll taxes and benefits for the first six months of 2025 totaled $360.3 million or 60.0% of revenue compared to $310.7 million or 57.0% of revenue for the first six months of 2024.

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 2025 and PEO client benefit costs of $34.7 million in the first six months of 2025 compared to $13.7 million in the first six months of 2024.

Workers' compensation expense for the first six months of 2025 totaled $97.6 million or 16.3% of revenue compared to $97.9 million or 17.9% of revenue for the first six months of 2024.

The decrease in workers' compensation expense as a percentage of revenue was primarily due to lower workers' compensation costs in the first six months of 2025, including favorable prior year liability and premium adjustments of $12.6 million in the first six months of 2025 compared to favorable prior year liability and premium adjustments of $11.8 million in the first six months of 2024.

SG&A expense for the first six months of 2025 totaled $93.0 million or 15.5% of revenue compared to $88.0 million or 16.1% of revenue for the first six months of 2024.

The increase of $5.0 million in SG&A expense was primarily attributable to increased employee-related costs compared to the first six months of 2024.

Other income, net for the first six months of 2025 totaled $4.9 million compared to other income, net of $6.3 million for the first six months of 2024.

The decrease was primarily attributable to a decrease in investment income in the first six months of 2025.

Our effective income tax rate for the first six months of 2025 was 26.7% compared to 24.9% for the first six months of 2024.

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

7 unchanged sentences

Liquidity and Capital Resources

The Company’s cash balance of $43.0 million, which includes cash, cash equivalents, and restricted cash, decreased $39.6 million for the three months ended March 31, 2025, compared to an increase of $13.0 million for the comparable period of 2024.

The decrease in cash at March 31, 2025 as compared to December 31, 2024 was primarily due to the factors discussed below.

Net cash provided by operating activities for the three months ended March 31, 2025 amounted to $5.2 million, compared to cash provided of $9.0 million for the comparable period of 2024.

For the three months ended March 31, 2025, net cash provided by operating activities was primarily due to increased premium payable of $15.9 million, increased accrued payroll and related benefits of $15.7 million, and increased payroll taxes payable of $15.4 million, largely offset by increased trade accounts receivable of $26.8 million, increased prepaid expenses of $10.8 million, and decreased workers’ compensation claims liabilities of $7.2 million.

Net cash used in investing activities for the three months ended March 31, 2025 totaled $32.0 million, compared to cash provided of $14.1 million for the comparable period of 2024.

For the three months ended March 31, 2025, net cash used in investing activities consisted of purchases of investments and restricted investments of $39.2 million and purchases of property, equipment and software of $4.5 million, partially offset by proceeds from sales and maturities of investments and restricted investments of $11.7 million.

Net cash used in financing activities for the three months ended March 31, 2025 was $12.8 million, compared to cash used of $10.1 million for the comparable period of 2024.

For the three months ended March 31, 2025, net cash used in financing activities primarily consisted of repurchases of common stock of $9.2 million, repurchases of common stock on the vesting of restricted stock units and performance awards of $2.3 million, and dividend payments of $2.1 million.

The Company’s cash balance of $37.2 million, which includes cash, cash equivalents, and restricted cash, decreased $45.4 million for the six months ended June 30, 2025, compared to a decrease of $4.8 million for the comparable period of 2024.

The decrease in cash at June 30, 2025 as compared to December 31, 2024 was primarily due to the factors discussed below.

Net cash used in operating activities for the six months ended June 30, 2025 amounted to $48.6 million, compared to cash used of $42.4 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash used in operating activities was primarily due to decreased premium payable of $41.2 million, increased trade accounts receivable of $29.6 million, decreased workers’ compensation claims liabilities of $14.4 million, decreased payroll taxes payable of $8.7 million, and increased prepaid expenses of $7.1 million, partially offset by increased accrued payroll and related benefits of $24.2 million, net income of $17.4 million, and share-based compensation of $4.9 million.

Net cash provided by investing activities for the six months ended June 30, 2025 totaled $26.1 million, compared to cash provided of $57.0 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $77.8 million, partially offset by purchases of investments and restricted investments of $42.8 million and purchases of property, equipment and software of $8.9 million.

Net cash used in financing activities for the six months ended June 30, 2025 was $22.9 million, compared to cash used of $19.5 million for the comparable period of 2024.

For the six months ended June 30, 2025, net cash used in financing activities primarily consisted of repurchases of common stock of $17.3 million and dividend payments of $4.1 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 $211.6 million and $197.1 million at March 31, 2025 and December 31, 2024, respectively.

The balance in the trust account was $153.9 million and $197.1 million at June 30, 2025 and December 31, 2024, 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.

46 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, 2025, a 50 basis point increase in market interest rates would have a $4.1 million downward effect on the fair value of the Company’s investment portfolio.

Based on the Company’s overall interest exposure at June 30, 2025, a 50 basis point increase in market interest rates would have a $3.8 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, 2025, the Company had no outstanding borrowings on its line of credit.

At June 30, 2025, 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