Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Barrett Business Services Inc (BBSI, Financial) reported a strong second quarter with financial results in line with their full-year outlook.
- Gross billings increased by 6% over the prior year's quarter, reaching $2 billion, driven by strong controllable growth from net new PEO clients.
- The company added a record number of worksite employees, growing by 4% year-over-year, attributed to successful client retention and new client additions.
- BBSI's new health insurance offering, BBSI Benefits, is showing positive results with a strategic partnership with Kaiser Permanente, leading to increased new subscribers.
- The company has a strong balance sheet with $110 million of unrestricted cash investments and no debt, allowing for continued investments and shareholder returns through dividends and stock buybacks.
Negative Points
- The staffing business declined by 3% over the prior-year quarter, impacted by macroeconomic headwinds and supply-demand imbalances.
- The Pacific Northwest region experienced a decline of 3% in PEO gross billings, affected by slower client growth and negative client hiring trends.
- Payroll taxes remained higher than the prior year, impacting gross margin rates, although these are being addressed in pricing strategies.
- The benefits broker channel for BBSI Benefits is growing slower than expected, with less traction than anticipated.
- The construction industry in the Pacific Northwest has been slower to rebound, affecting client growth in that region.
Q & A Highlights
Q: Can you provide more details on the $8.9 million favorable workers' compensation adjustment and its future outlook?
A: Gary Kramer, President and CEO, explained that the company has a conservative approach to workers' compensation, with a mature organization and strong focus on risk management. This has resulted in 22 consecutive quarters of favorable adjustments. The trend is expected to continue due to the company's disciplined approach and effective partnerships.
Q: How is the Kaiser Permanente partnership progressing, and when will it impact revenue significantly?
A: Gary Kramer noted that the Kaiser partnership is off to a good start, with measurable health insurance premiums contributing to GAAP revenue growth. The major impact is expected in 2025, particularly after the 1/1 selling season, as the company gains confidence in its product and process.
Q: How is the referral partner network performing, especially with new partners related to BBSI Benefits?
A: Gary Kramer stated that the referral partner network is growing, with more active partners than ever before. While there is some traction with benefits brokers, it is slower than expected. The company is seeing new business from PEO takeaways due to its competitive health offering.
Q: Can you provide insights into the performance of Northern and Southern California markets?
A: Anthony Harris, CFO, reported steady growth in Northern California, with positive client hiring across industries, including construction. Southern California continues to grow, and the company has not experienced significant customer migration out of the state.
Q: What is the status of the Pacific Northwest region, and is the construction industry affecting it?
A: Anthony Harris mentioned that the Pacific Northwest, particularly Portland, faces challenges due to economic factors and slower construction rebound. However, there is stability within the quarter, and the company is monitoring the situation closely.
Q: How does the current client pipeline compare to historical levels, and are larger clients being added?
A: Gary Kramer indicated that the client pipeline is growing, with more volume than the previous year. The company focuses on small businesses and does not aim to target mid-market clients, although larger clients occasionally join due to the compelling value proposition.
Q: Are you primarily signing existing clients on benefits plans, or are new clients also being attracted?
A: Gary Kramer noted that the majority of benefits sales are to existing clients, with about 20% new business during the 7/1, 8/1 season. The company aims to sell to all clients and attract new ones with its competitive offerings.
Q: How is the company's approach to capital allocation and shareholder returns?
A: Anthony Harris highlighted that BBSI continues to invest in product enhancement and geographic expansion while returning excess capital to shareholders through dividends and stock buybacks. The company repurchased $7 million of shares in Q2 and increased its quarterly dividend rate by 7%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
