Release Date: November 06, 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 third quarter with financial results exceeding expectations.
- Gross billings increased by 9% over the prior year quarter, driven by a record number of worksite employees from new client additions.
- Client retention remains high, attributed to the value provided by BBSI's teams.
- The company successfully entered new markets with an asset-light model, hiring additional local talent to support clients.
- BBSI benefits, the new health insurance offering, is gaining traction with a strategic partnership with Kaiser Permanente, leading to more new subscribers.
Negative Points
- Staffing business declined by 2% over the prior year quarter due to strategic repricing and client jettisoning.
- The Pacific Northwest region experienced a decline in PEO gross billings by 1%, impacted by slower client growth.
- Client hiring rates remain below historical averages, affecting overall growth potential.
- SG&A expenses increased due to variable employee compensation and incentive pay related to stronger financial results.
- The competitive environment remains challenging, with intense competition in the workers' compensation market.
Q & A Highlights
Q: Can you discuss the competitive environment and whether BBSI benefits are helping you outpace growth relative to peers?
A: Gary Kramer, President and CEO, explained that BBSI's clients are in a favorable position in the macro economy, with modest hiring and high retention rates. The company has focused on improving its sales pipeline and efficiency, leading to more referrals and client acquisitions. The introduction of BBSI benefits has attracted new referral partners and clients, contributing to growth.
Q: Will you provide additional details about the benefits offering in 2025, and how accretive could it be in the mid to long term?
A: Anthony Harris, CFO, stated that as the benefits product grows, disclosures will be enhanced. The benefits product is already profitable, and they expect to see earnings leverage in 2025. The gross margin rate on benefits is higher than the current average, and as sales increase, it should significantly impact the bottom line.
Q: Can you update us on the pipeline and which sources of leads are contributing the most?
A: Gary Kramer noted that BBSI is a referral partner-friendly PEO, focusing on P&C brokers, employee benefits brokers, and CPAs. The company has improved in bringing on more referral partners and has started direct efforts through SEO and SEM, resulting in positive outcomes.
Q: What kind of environment would be needed to consistently grow double digits in gross billings?
A: Gary Kramer explained that controllable growth is strong, but client hiring is below historical levels. If client hiring increases, it would likely lead to double-digit growth. Currently, client hiring is positive but at a fraction of historical levels.
Q: How does BBSI's model compare to competitors like TriNet and Insperity?
A: Gary Kramer emphasized BBSI's strength in local service teams, which differentiates them from competitors. The company focuses on blue-gray collar clients and has de-risked its operations by not taking risks on workers' comp or health insurance, aiming for consistent growth and profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
