2024 ANNUAL REPORT ON FORM 10-K" This is an annual report filed by Barrett Business Services, Inc. with the Securities and Exchange Commission (SEC) for the fiscal year ended December 31, 2024.
Barrett Business Services, Inc. (BBSI) filed its annual report on Form 10-K for the fiscal year ended December 31, 2024. The company reported total revenue of $1.23 billion, a 10% increase from the prior year. Net income was $43.1 million, a 15% decrease from the prior year. The company’s gross profit margin decreased to 24.1% from 25.3% in the prior year, primarily due to increased costs and expenses. BBSI’s diluted earnings per share (EPS) was $1.69, a 12% decrease from the prior year. The company’s cash and cash equivalents decreased to $143.1 million from $173.1 million in the prior year, primarily due to the payment of dividends and share repurchases. As of February 14, 2025, the company had 25,833,116 shares of common stock outstanding.
Overview of BBSI’s Business
BBSI is a leading provider of business management solutions for small and mid-sized companies. The company has developed a platform that combines management consulting expertise with human resource outsourcing tools. This helps their business owner clients run their companies more effectively through the efficient use of human capital. BBSI operates in two main service categories: professional employer (PEO) services and staffing.
In the PEO model, BBSI becomes the administrative employer while the client maintains control of their workforce. PEO services are billed as a percentage of client payroll, with the total invoice covering direct payroll costs plus additional amounts for payroll taxes, workers’ compensation, and BBSI’s margin. For staffing services, BBSI generates revenue from short-term staffing, contract staffing, on-site management, and direct placement, with invoiced amounts including direct payroll, payroll taxes, workers’ compensation, and a margin.
The majority of BBSI’s revenues (over 70%) come from its California operations, so economic conditions, regulations, or major events in that state can significantly impact the company’s financial results.
Critical Accounting Estimate: Workers’ Compensation Costs
A critical accounting estimate for BBSI is the cost of workers’ compensation. For all workers’ compensation claims, the company records an estimate of the total costs, including payments to claimants, premiums to insurers, and related administrative expenses.
When a claim is reported, BBSI’s third-party claims administrator establishes a case reserve based on their assessment of the expected ultimate loss. BBSI also estimates an additional amount for potential future increases in claim costs and claims that have occurred but not yet been reported (IBNR). This IBNR estimate is based on actuarial analysis and informed judgment.
The process of estimating workers’ compensation costs involves significant uncertainty, as actual future outcomes may differ from current estimates. A 5% increase in estimated ultimate losses would result in a $0.5 million increase in workers’ compensation expense, while a 5% decrease would lead to a $7.1 million decrease. This asymmetric impact is due to BBSI’s insured program, which limits the company’s expense if claims costs rise but passes through savings if costs are lower than expected.
BBSI believes its recorded workers’ compensation estimates are reasonable, but future adjustments may be required as claim development differs from the company’s projections, which could materially impact results.
Financial Performance Trends
The following table summarizes BBSI’s key financial metrics over the past 3 years:
| Metric | 2024 | 2023 | 2022 |
|---|---|---|---|
| Total Revenues | $1,144.5M | $1,069.3M | $1,054.3M |
| PEO Services Revenue | $1,063.4M | $982.3M | $937.4M |
| Staffing Services Revenue | $81.1M | $87.0M | $117.0M |
| Gross Margin | 22.2% | 22.7% | 22.3% |
| Net Income | $53.0M | $50.6M | $47.3M |
| Diluted EPS | $1.98 | $1.85 | $1.71 |
Key takeaways:
- Total revenues have grown each year, driven by an 8.3% increase in PEO services revenue in 2024.
- Gross margin as a percentage of revenue declined slightly in 2024 due to higher payroll taxes and benefits costs.
- Net income and diluted EPS have steadily improved over the 3-year period.
BBSI has seen consistent revenue growth, particularly in its core PEO business. However, rising payroll-related costs have put some pressure on gross margins. Overall profitability has improved, with net income and EPS increasing each year.
Strengths and Weaknesses
Strengths:
- Differentiated PEO platform that helps small/mid-sized businesses operate more effectively
- Dominant market position in California, which accounts for over 70% of revenues
- Steady revenue growth, especially in the higher-margin PEO segment
- Improving profitability, with rising net income and EPS
Weaknesses:
- High concentration in California market, making the business vulnerable to economic, regulatory, or natural disaster risks in that state
- Exposure to fluctuating workers’ compensation costs, which are a significant expense
- Potential for volatility in quarterly results due to seasonality and other factors
BBSI’s key strength is its specialized PEO platform that provides value-added services to its small and mid-sized business clients. This has driven consistent revenue growth, especially in the higher-margin PEO segment. However, the company’s heavy reliance on the California market is a vulnerability, and its significant workers’ compensation costs introduce uncertainty.
Outlook and Future Considerations
Looking ahead, BBSI faces both opportunities and challenges. On the positive side, the company’s PEO model and focus on helping businesses operate more efficiently should continue to drive demand. Expanding beyond California could also unlock new growth avenues.
However, BBSI remains exposed to risks in its core California market, as well as the inherent volatility of workers’ compensation costs. Effectively managing these variable expenses will be crucial. The company’s ability to pass through cost increases to clients while maintaining a competitive edge will be tested.
Additionally, BBSI will need to navigate evolving regulations, such as changes to healthcare laws, that could impact its business model. Adapting its service offerings to meet the needs of its small and mid-sized clients will be important.
Overall, BBSI appears well-positioned for continued growth, but managing its workers’ compensation exposure, geographic concentration, and regulatory environment will be critical to sustaining its financial performance in the years ahead.
