Q1 2024 Barrett Business Services Inc Earnings Call
Unknown Executive: Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's financial results for the first quarter ended March 31, 2024. Joining us today are BBSI's President and CEO, Mr. Gary Kramer, and the company's CFO, Mr. Anthony Harris.
Good afternoon, everyone and thank you for participating in today's conference call to discuss Bbsi's financial results for the first quarter ended March 31st 'twenty 'twenty for joining us today are P. B S ice president and CEO, Mr. Gary Kramer and the company's CFO Mr.
Anthony Harris following their remarks, well open the call for questions before we go further please take note of the company's Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995. The statement provides important questions regarding forgot forwardlooking statements.
Unknown Executive: Following the remarks, we will open the call for questions. Before we go further, please take note of the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. The statement provides important questions regarding forward-looking statements. The company's remarks during today's conference call will include forward-looking statements. These statements, along with other information presented that does not reflect historical fact, are subject to a number of risks and uncertainties.
Company's remarks during todays conference call will include forward looking statements. These statements along with other information presented that does not reflect historical fact are subject to a number of risks and uncertainties actual results may differ materially from those implied by these forward looking statements. Please refer.
Unknown Executive: Actual results may differ materially from those implied by these forward-looking statements. Please refer to the company's recent earnings release and to the company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward-looking statements. I would like to remind everybody that this call will be available for replay through June 1, 2024, starting at 8 p.m. Eastern Time tonight.
Part of the company's recent earnings release and to the company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward looking statements.
I would like to remind everybody that this call will be available for replay through June 1st 'twenty 'twenty four starting at eight P. M. Eastern time Tonight, a webcast replay will also be available via the link provided in today's press release as well as available on the company's website at Www Dot P. B S.
Unknown Executive: A webcast replay will also be available via the link provided in today's press release, as well as on the company's website at www.bbsi.com. Now, I would like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Please go ahead, sir.
<unk> Dot com now I would like to turn the call over to the President and Chief Executive Officer of E. P. S. <unk> Mr. Gary Kramer. Please go ahead Sir.
Gary Edward Kramer: Thank you and good afternoon, everyone, and thank you for joining the call. I am pleased to report that we had a strong start to the year, and our financial results are in line with our full year projections. We continued to execute our short and long-term objectives, and we added a record amount of worksite employees for our first quarter. Moving on to our financial results and worksite employee status During the quarter, our gross billings increased 7% over the prior year quarter and were in line with our expectations.
Gary Edward Kramer: Thank you and good afternoon, everyone and thank you for joining the call I am pleased to report that we had a strong start of the year and our financial results are in line with our full year projections, we continue to execute our short and long term objectives, and we added a record amount of worksite employees for first quarter.
Moving to our financial results and Worksite employee status during the quarter, our gross billings increased 7% over the prior year quarter and was in line with our expectations. We continue to execute on our various strategies to increase the top of the sales funnel and we are seeing positive results, we added 11% more.
Gary Edward Kramer: We continue to execute on our various strategies to increase the top of the sales funnel, and we are seeing positive results; we added 11% more WSEs from new client ads than the prior year quarter. Additionally, our client retention continues to trend better than pre-pandemic levels. I'd like to attribute that to the work we do with our clients and the value our teams provide. The result of all these efforts, or what I refer to as controllable growth, is that we added approximately 3,100 worksite employees year over year from that new client. We mentioned previously that we began to see our client's workforce stabilize in Q3 and Q4. We are pleased to report that our clients began to hire modestly in the first quarter, as we were forecasting.
Gary Edward Kramer: <unk> from new client adds in the prior year quarter.
Gary Edward Kramer: Our client retention continues to trend better than pre pandemic levels.
Gary Edward Kramer: Like to attribute that to the work, we do with our clients and the value our teams provide.
Gary Edward Kramer: The result of all these efforts or what I refer to as controllable growth is that we added approximately 3100 worksite employees year over year from net new clients.
Gary Edward Kramer: We mentioned previously that we began to see our clients' workforce stabilized in Q3 and Q4. We are pleased to report that our clients began to higher modestly in the first quarter as we were forecasting.
Gary Edward Kramer: To summarize, for the quarter, we grew our worksite employees by 3.1% as we sold and retained more business and experienced the benefit from our clients' moderate net hiring. Moving to our staffing operations, Our staffing business declined by 12% over the prior year quarter and was within our expected range. We continue to execute on our strategy to recruit for our PEO clients and placed 79 applicants in the quarter. We are also experiencing macroeconomic factors, including supply and demand imbalances, which vary by geography.
Gary Edward Kramer: To summarize for the quarter, we grew our worksite employees by three 1% as we fold into retained more business and experience the benefit from our clients moderate net hiring.
Gary Edward Kramer: Moving to our staffing operations.
Gary Edward Kramer: Our staffing business declined by 12% over the prior year quarter and was within our expected range.
Gary Edward Kramer: Continuing to execute on our strategy to recruit for our PEO clients and placed 79 applicants in the quarter.
Gary Edward Kramer: We are also experiencing macroeconomic factors, including supply and demand imbalances, which vary by geography.
Gary Edward Kramer: As we look to the remainder of the year, we will be going against softer comparables starting in Q2, and we are forecasting our staffing business to stabilize. Moving to the field operational update, we are very pleased with our entrance into new markets with our Asset Light model. We have 15 total new market development managers in various stages of their development.
Gary Edward Kramer: As we look to the remainder of the year, we will be going against softer comparable starting in Q2, and we are forecasting our staffing business to stabilize.
Gary Edward Kramer: Moving to the field operational updates.
Gary Edward Kramer: We're very pleased with our entrance into new markets with our asset light model. We have 15 total new market development managers in various stages of their development, they are doing well and largely achieving their goals of adding servicing new clients and new referral partners.
Gary Edward Kramer: They are doing well and largely achieving their goals of adding and servicing new clients and new referral partners. In two of the markets, we have hired additional folks to support our clients and are in the process of moving into a traditional brick and mortar BBSI brand. We continue to see positive results from our investments in new markets and are actively recruiting additional new market development managers. Regarding our product update, we continue to execute on the sale and service of BBSI Benefits, our new health insurance offer.
Gary Edward Kramer: The markets, we have hired additional folks to support our clients and are in the process of moving into a traditional brick and mortar BBSI branch.
Gary Edward Kramer: We continue to see positive results from our investments in new markets and are actively recruiting additional new market development managers.
Gary Edward Kramer: Regarding our product updates.
Gary Edward Kramer: We continue to execute on the sale and service of BBSI benefits, our new health insurance offering.
Gary Edward Kramer: We had a successful year-end selling season, and I am pleased to report that through March, we have approximately 280 clients on our various plans, with more than 7,000 total participants. We continue to invest in and evolve our business product offering. Earlier in the month, we announced that we entered into a strategic multi-year partnership with Kaiser Permanente for programs effective 7-1-24 and greater. Kaiser is renowned for its excellence in healthcare services and offers one of the most complete and competitive HMO products in the marketplace. This offering folds into our workers' comp and health insurance framework, where we take no underwriting risk. The addition of Kaiser will further round out our product offering for blue and gray-colored clients.
Gary Edward Kramer: We had a successful year end selling season and I am pleased to report that through March we Havent proximately 280 clients on our various plans with more than 7000 total participants.
Gary Edward Kramer: We continue to invest and evolve our business product offering.
Gary Edward Kramer: Earlier in the month, we announced that we entered into a strategic multi year partnership with Kaiser Permanente for programs. The fact that 724 and greater.
Gary Edward Kramer: Kaiser is renowned for its excellence in health care services and offers one of the most complete and competitive HMO products in the marketplace.
Gary Edward Kramer: This offering folds into our workers' comp and health insurance framework, where we take no underwriting risk.
Gary Edward Kramer: The addition of Kaiser will further round out our product offering or blue and gray collar clients.
Gary Edward Kramer: We'll be offering a national PPO side by side with the Kaiser HMO, and we are receiving positive feedback from our clients and referral partners. We believe that this is going to give us a lift for 7.1, but more importantly, be accelerated to growth as we look out to 2025 and beyond. We are pleased with the results of BBSI benefits, and this product will be accretive to earnings in 2024. We are bullish on this product and will now reap the benefit of leverage through scale.
Gary Edward Kramer: We will be offering a national P. P O side by side with the Kaiser HMO and we are receiving positive feedback from our clients and referral partners. We believe that this is going to give us a lift for seven one but more importantly be an accelerant to growth as we look out to 2025 and beyond.
Gary Edward Kramer: We are pleased with the results of BBSI benefits and this product will be accretive to earnings in 2024, we are bullish on this product.
Gary Edward Kramer: Now reap the benefit of leverage through scale.
Gary Edward Kramer: Next, I would like to shift to our view of the remainder of the year. We have consecutive quarters of great momentum. We met our worksite employee expectations. We continue to be optimistic about the road ahead. We have consistently achieved strong, controllable growth by focusing on the needs of our clients and by adding new clients. We have more product to sell, more folks selling it, and more referral partners recommending DBSI. Overall, our view of the economy has changed. [inaudible] Dislocation in the Economy. Brose in 20
Speaker Change: Next I would like to shift to our view of the remainder of the year.
Speaker Change: We had consecutive quarters of great momentum.
Gary Edward Kramer: Met our Worksite employee expectations, we continue to be optimistic about the road ahead.
Gary Edward Kramer: We have consistently achieved strong controllable growth by focusing on the needs of our clients and by adding new clients, we have more product to sell more folks selling it and more referral partners recommending BBSI.
Gary Edward Kramer: Overall, our view.
Gary Edward Kramer: Comedy.
Gary Edward Kramer: Material.
Gary Edward Kramer: This location in the economy.
Gary Edward Kramer: [noise].
Gary Edward Kramer: This growth in 'twenty.
Gary Edward Kramer: Of course.
Unknown Executive: Your phone is cutting out on us. Thank you, Gary.
Speaker Change: Your phone is cutting out on us Thank you Gary.
Speaker Change: Can you hear me now.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Shall I continue.
Gary Edward Kramer: Yes go ahead.
Gary Edward Kramer: Okay.
Unknown Executive: Thank you. We're going to need to transition. I know. Maybe that's a good time when we reach that little intermission.
Gary Edward Kramer: Thank you you learn with the transition.
Gary Edward Kramer: So we settled intermission.
Anthony J. Harris: Thank you, and hello, everyone. I'm pleased to report we finished Q1 with strong results, consistent with our plan and with continued positive momentum in our sales pipeline. Growth buildings increased 7% to $1.9 billion in Q1 24 versus $1.8 billion in the prior year quarter. PEO growth billings increased 7% in the quarter to $1.89 billion, while staffing revenues declined 12% to $20 million in the quarter. Our PEO looks at employees grew by 3.1% versus the year-ago quarter, which is the result of strong controllable growth from net new PEO clients, as well as modest hiring within our existing customer base.
Speaker Change: Thank you and Hello, everyone.
Speaker Change: I'm pleased to report that we finished Q1 with strong results consistent with our plan and the continued positive momentum in our sales pipeline gross billings increased 7% to $1 $9 billion in Q1, 24 versus $1 8 billion in the prior year quarter.
Speaker Change: PEO gross billings increased 7% in the quarter to $1 89 billion, while staffing revenues declined 12% to 20.
Speaker Change: Sure.
Speaker Change: Our PEO Worksite employees grew by three 1% versus the year ago quarter, which is the result of strong controllable growth from net new PEO clients as well as modest hiring within our existing customer base.
Anthony J. Harris: Looking at trends and client hiring more closely, we saw moderate positive hiring in every region except for the Northwest region. The Northwest continues to be most impacted by declines in the construction sector, while all other regions are now seeing modest increases in construction hiring on a year-over-year basis. The pace of hiring remains broadly slower than historical trends across all regions, but it is in line with our expectations.
Speaker Change: Looking at trends in client hiring more closely we saw moderate positive hiring in every region, except for the northwest region.
Speaker Change: Quest continues to be most impacted by declines in the construction sector. While all other regions are now seeing modest increases in construction hiring on a year over year basis.
Speaker Change: The pace of hiring remains broadly slower than historical trends across all regions.
Speaker Change: This is in line with our expectations.
Anthony J. Harris: Looking at hours worked, overtime hours per employee have remained stable, and for the second quarter in a row, total overtime hours worked were higher than the prior year quarter. Wage rates continue to increase. The average billing per WSE increased 3.5% in the quarter. Looking at PEO gross building growth by region versus the prior year first quarter, the East Coast grew by 17%, while Mountain States and Southern California both grew by 7%. Northern California grew by 4%, and the Pacific Northwest declined by 6%.
Speaker Change: Looking at ours works overtime hours per employee have remained stable and for the second quarter in a row total overtime hours worked were higher than the prior year quarter.
Speaker Change: Wage rates continue to increase.
Speaker Change: And average billing per WSB increased three 5% in the quarter.
Speaker Change: Looking at PEO gross billings growth by region versus the prior year first quarter East.
Speaker Change: East Coast grew by 17%.
Speaker Change: Mountain States and southern California, both grew by 7%.
Speaker Change: Northern California grew by 4%.
Speaker Change: Pacific Northwest declined by 6%.
Anthony J. Harris: Turning to margin and profitability, our Workers' Compensation Program continues to perform well and benefit from favorable claim frequency trends and favorable claim development. This strong performance has once again resulted in favorable adjustments for prior claims. In Q124, we recognize favorable prior year liability and premium adjustments of $3 million compared to favorable adjustments of $1.1 million in the first quarter of 2023. As a reminder, our client workers compensation exposure is now primarily covered by our fully insured program with no retained liability by BBSI.
Speaker Change: Turning to margin and profitability, our workers' compensation program continues to perform well and benefit from favorable claim frequency trends and favorable claim development.
Speaker Change: This strong performance is once again resulted in favorable adjustments for prior year claims and.
Speaker Change: In Q1, 'twenty four we recognized favorable prior year liability at premium adjustment of $3 million compared to a favorable adjustment of $1 1 million in the first quarter of 'twenty three.
Speaker Change: As a reminder, our client workers' compensation exposure at that primarily covered by a fully insured program no routine liability by BBSI.
Speaker Change: Yeah.
Anthony J. Harris: Payroll taxes are typically highest in Q1 as wage caps reset, and this year has seen a modestly higher effective client unemployment tax rate than recent years. These higher rates are reflected in our billing rates over the course of the year, and our gross margin rate remains in line with expectations both for the quarter and the year. Our overall profitability has continued to benefit from operating cost management. For Q1, SG&A expense increased by approximately 3%, growing slower than our building's growth rate and providing ongoing operating leverage.
Speaker Change: Payroll taxes are typically highest in Q1 as wage caps reset. This year has seen a modestly higher effective client unemployment tax rate than recent years.
Speaker Change: These higher rates are reflected in our billing rates over the course of the year and our gross margin rate remained in line with expectation.
Speaker Change: Quarter end of the year.
Speaker Change: Our overall profitability has continued to benefit from operating cost management for Q1, SG&A expense increased by approximately 3% growing slower than our billings growth rate and providing ongoing operating leverage.
Anthony J. Harris: Moving to investment income, our investment portfolios were 3.2 million in the first quarter, up 0.9 million from the prior year. Our investments continue to be managed conservatively, with average quality of AA and average book yield of 2.9%. Net loss for the first quarter was $0.1 million or $0.02 per diluted share compared to net income of $0.8 million or $0.12 per diluted share in the year-ago quarter. The decrease is primarily attributable to an increase in payroll taxes, partially offset by decreased workers' compensation expense, and an increase in investment income.
Speaker Change: Moving to investment income our investment portfolios earned $3 2 million in the first quarter up 9 million from the prior year. Our investments continue to be managed conservatively that the average quality of double a an average book yield of two 9%.
Speaker Change: Net loss for the first quarter was $1 million or two cents per diluted share compared to net income of <unk> 8 million or 12 cents per diluted share in the year ago quarter.
Speaker Change: This decrease is primarily attributable to an increase in payroll taxes, partially offset by decreased worker's compensation expense and the increase in investment income.
Anthony J. Harris: Our balance sheet remains strong, with $124 million of unrestricted cash investments at March 31st and no debt. We continue our approach to capital allocation, making investments back into the company through product enhancement and geographic expansion, and distributing excess capital to our shareholders through our dividend and stock buyback plan. Continuing under the board's July 2023 repurchase program, EBSI repurchased $7 million of shares in the first quarter at an average price of $120 per share, with $52 million remaining available under the program at quarter end.
Speaker Change: Our balance sheet remains strong with $124 million of unrestricted cash investments at March 31.
Speaker Change: And no debt.
Speaker Change: We continue our approach to capital allocation, making investments back into the company.
Speaker Change: Alex enhancements and geographic expansion and distributing excess capital to our shareholders through our dividend and stock buyback plan.
Speaker Change: Continuing under the boards July 2023 repurchase program <unk> repurchased $7 million of shares in the first quarter and average price of $120 per share.
Speaker Change: $52 million remaining available under the program at corporate.
Anthony J. Harris: The company also paid $2 million in dividends in the quarter and reaffirmed its dividend for the following quarter. The board also announced its intent to execute a four for one stock split pending approval by shareholders of a related increase in the number of authorized shares. Executing this stock split is intended to increase our flow, benefit liquidity and trading efficiency for our shareholders, and speak to our optimism about the long-term value of our company and our trajectory. The effective date of the split is expected to be in June, pending the results of the shareholder vote.
Speaker Change: The company also paid $2 million in dividends in the quarter and reaffirmed its dividend for the following quarter.
Speaker Change: The board also announced their intent to execute a four for one stock split pending approval by shareholders of the related increase in the number of authorized shares.
Speaker Change: Executing this stock split is intended to increase workflow benefiting liquidity and trading efficiency for our shareholders.
Speaker Change: So our optimism about the long term value of our company and our trajectory.
Speaker Change: The effective date of the split is expected to be in June pending the results of the shareholder vote.
Anthony J. Harris: Looking to our outlook for the full year, our results for Q1 are in line with our plan, and our expectations for 2024 remain consistent with our prior outlook. We continue to expect growth billings to increase between 6% and 8% for the year. We expect average WSE to increase between 4% and 5%. We expect gross margin as a percent of growth billings to be between 2.95% and 3.15%. And we expect our effective annual tax rate to be between 26% and 27%. I will now turn the call back to the operator for questions.
Speaker Change: Looking to our outlook for the full year, our results for Q1 or in line with our plan and our expectations for 2024 remained consistent with our prior outlook.
Speaker Change: We continue to expect gross billings to increase to six 8% for the year, we expect average W. Each increased three four and 5%.
Speaker Change: We expect gross margin as a percent of gross billings to be between $2 95 to one 5%.
Speaker Change: Okay, Daniel texture to between 26 and 27%.
Speaker Change: I will now turn the call back to the operator for questions.
Speaker Change: Okay.
Unknown Executive: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jeff Martin with Relata Capital Partners. Please proceed.
Speaker Change: Thank you and she would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question friendly Q and for participants using speaker equipment may be necessary.
Speaker Change: Please pickup your handset before pressing the star Keys. Our first question is from Jeff Martin with Roth Capital Partners. Please proceed.
Jeffrey Michael Martin: Good afternoon, guys. How are you?
Jeffrey Michael Martin: Hey, good afternoon, guys how are you.
Unknown Executive: Good. Thanks, Jeff.
Jeffrey Michael Martin: Hi, Jessica.
Jeffrey Michael Martin: I guess let's dive in by starting with the gross billings growth. Obviously, guidance is reiterated, but four to five percent WSC growth that implies pretty low age inflation and pretty modest net hiring, I would assume. I'm just curious if you could elaborate on those.
Jeffrey Michael Martin: I guess, let's let's dive in by starting with the gross billings growth. Obviously guidance is reiterated with four to five per cent WMC growth that implies pretty low wage inflation and and.
Jeffrey Michael Martin: Pretty modest net hiring I would assume just curious if you could elaborate on those items.
Anthony J. Harris: Yeah, I think you're correct. I think we went into this expecting really flat growth this year; we're expecting modest growth. We've seen that modest growth. You know, we've messaged that to the extent that there is upside and economic activity, particularly in the construction sector, that would be a benefit to our building spec. Yeah, I would say the lion's share of our revenue growth is going to come from our controllable growth this year, right?
Jessica: Yeah, I think Youre correct that this is going into that.
Jeffrey Michael Martin: Expecting them.
Speaker Change: Really flat.
Speaker Change: Last year, we had a net negative client hiring this year, we're expecting modest growth.
Speaker Change: <unk> seen that modest growth.
Speaker Change: Message that to the extent that there is upside in economic activity, particularly in the construction sector that would be a benefit to our business.
Speaker Change: Yes, I would say the lion's share of our revenue growth is going to come from our <unk>.
Speaker Change: Controllable growth this year right. So.
Anthony J. Harris: So we've got a good track record over the last couple years of adding and retaining business. And that's really going to carry us forward and 24. And then, if the economy picks up and our clients start to hire again, then that's just a tailwind that's not really baked into our forecasts.
Speaker Change: We had a good track record over the last couple of years of adding and retaining business.
Speaker Change: That's really going to carry us through.
Speaker Change: Forward in 'twenty four and then it's.
Speaker Change: If the economy picks up and our clients start to hire again and that's just.
Speaker Change: A tailwind that's not really baked into our forecast.
Jeffrey Michael Martin: Yep. And then, if I recall correctly, at the end of Q4, you had 275 clients on the health care plan. And we just ended a renewal period for a 1-1 renewal. Now we're at 280. Is there something I'm missing here?
Speaker Change: Yeah, and then if I recall correctly you had at the end of Q4, you had $2 75 clients on the health care plan.
Speaker Change: We just ended a renewal period.
Speaker Change: For one one renewal now we're at 280 or is there something I'm missing here I would think you'd see a pretty.
Anthony J. Harris: I would think you'd see a pretty significant step up from Q4 to Q1 in terms of clients on the healthcare plan.
Speaker Change: Significant step up from Q4 to Q1 in terms of clients on the health care plan.
Anthony J. Harris: So when I, uh, good question. When I gave those stats on the last earnings call, I gave them, uh, as of the end of January, because I was trying to show, uh, the investment community, how successful we were for the first one. So really all, all we're taking credit for now in this role forward is February and March, which I think is like a small number of clients, uh, cause they're not real big healthcare months.
Speaker Change: So when I a good good question, what I when I gave those stats last earnings call I gave them.
Speaker Change: As of the end of January.
Speaker Change: I was trying to show.
Speaker Change: The investment community how successful we were for the one one so really all you all are taking credit for now in this roll forward as February and March, which I think is like a small amount of clients.
Speaker Change: Because they're not real big health care models.
Jeffrey Michael Martin: Got it. Okay. And then in terms of the July 1, you know, kickoff with Kaiser, just curious, what kind of initial expectations we should expect.
Speaker Change: Got it Okay and then in terms of the July 1st kickoff with Kaiser just curious what kind of initial expectations.
Speaker Change: We should expect.
Gary Edward Kramer: I don't want to tell you what I expect because I expect too much. So I will, I will check for this.
Speaker Change: I don't want to tell you what I expect is I expect two months, so I won't suffer this.
Gary Edward Kramer: You know, 7-1-1 is our launch for the program. We started to market and sell it in April. It's still early, right? So we're four weeks into the selling season for 7-1. We've quoted 60 plus some deals so far. We've got more in the queue to quote. We've got about 10 that we've closed so far for 7-1.
Speaker Change: You know at certain ones are our launch for the program, we started to market and sell it in April.
Speaker Change: It's still early right. So we're we're four weeks into the selling season for seven one we've quoted.
Gary Edward Kramer: But I would say that, you know, this is Yes, specifically in the geographies we're in, right? Because if you look at California and you look at Oregon, they're two pretty heavyweights, Kaiser Estates. And then the interesting part about Kaiser is, you know, I feel like folks are born into it, and they're raised on it, and then when they become adults, they want to have it as well, because it's what they know and what they trust.
Speaker Change: 60, plus some deals so far we've got more in the in the queue to quote.
Speaker Change: We've got about 10 that was closed so far for seven one.
Speaker Change: But I would say that you know this is.
Speaker Change: Specifically in the geographies, we're in right because if you look at California, and you look at the Oregon, there too pretty heavy Kaiser.
Speaker Change: Kaiser States.
Speaker Change: And then the interesting part about Kaiser is.
Speaker Change: I feel like folks are born into it and they're raised their newest and then when they become adults they want to have it as well because it's what they know and what they trust.
Gary Edward Kramer: They've really built a good brand, and we're just pleased that we can put the BBSI brand next to the Kaiser brand, plus with a national partner for the PPO, we think it really rounds out the offering in those states. 7-1 is our second biggest season, but really, this is, I'll say, learning the craft and the dance with Kaiser so that when we get to 1-1 for 2020.
Speaker Change: They've really border really built a good brands and we're just pleased that we can we can put the BBSI brand next to the Kaiser Grad plus with a national partner for the P. P. O. We think it really rounds out you'll all three of those states.
Speaker Change: Seven one.
Speaker Change: Southern ones, our second biggest season, but really this is al.
Speaker Change: I'll say learning the craft and the dance with Kaiser so that when we get to the one one for 25, we can be successful and set ourselves up for a good 125.
Jeffrey Michael Martin: Great. And then just one more if I can, and then I'll circle back around.
Speaker Change: Great and then just one more if I could and then I'll circle back around but.
Jeffrey Michael Martin: But in terms of the Kaiser offering, is it, am I understanding correctly, it's HMO only? And curious if it didn't include PPO. Why? Why? [inaudible]
Speaker Change: In terms of the kinds of offering is it my understanding correctly, it's H M O M and curious if it's if it doesn't include P. P O Y why it doesn't have that option.
Gary Edward Kramer: Um, we have a very competitive PPO on our national partner. So really, when we when we put the product offering out there, clients have the opportunity to buy the PPO on our national partner or if they would like the HMO Kaiser Kaiser predominantly sells in this small business space. The lion's share is predominantly the HMO.
Speaker Change: We had we were very competitive PPO international partner.
Speaker Change: So really when we when we put the product offering out there. They can buy the clients had the opportunity to buy the P. P O on our national or if they would like the H M O Kaiser Kaiser.
Speaker Change: Cells in the small business space it's.
Speaker Change: The lion's share is.
Speaker Change: Predominantly the HMO.
Speaker Change: Got it thank you.
Unknown Executive: Our next question is from Chris Moore with CJS Securities. Please proceed.
Speaker Change: Our next question is from Chris Moore with CJS Securities. Please proceed.
Christopher Paul Moore: Hey, good evening, guys. Thanks for taking the time to ask a couple of questions. Maybe I'll just start with the benefits where Jeff left off.
Christopher Paul Moore: Hey, good evening guys. Thanks for taking a couple of questions.
Christopher Paul Moore: Maybe I'll just start with the benefits, where Jeff left off I, just want to make sure that I understand that the the enrollment process. So it's July 1st with with Kaiser.
Christopher Paul Moore: I just want to make sure that I understand the enrollment process. So it's July 1st with Kaiser. There will be ongoing enrollment throughout the year, but there's a bias towards, you know, starting on January 1st. Just trying to understand how that works.
Christopher Paul Moore: There'll be ongoing enrollment during 'twenty, four but but there's a bias towards you know starting on January 1st just trying to understand how that works.
Gary Edward Kramer: Yeah, the lion's share of health insurance. I said the lion's share three times already, but the lion's share for health insurance is effective 1-1, and part of the reason for that is it ties into the HSA accounts. Where you don't have an HSA, it's less beholden to a 1-1 effective date, but 1-1 is the biggest. https://www.barrett.com A large portion of them will be 7-1 and 1-1.
Christopher Paul Moore: Yeah.
Christopher Paul Moore: The lion's share for health insurance.
Christopher Paul Moore: So last year three times already but the lion's share for health insurers is effective one one and part of the reason for that is it.
Christopher Paul Moore: It ties into the HSA accounts.
Christopher Paul Moore: Where you don't have HSA, it's less beholden to a one one effective date.
Christopher Paul Moore: But 1111 is the biggest effective date 71 is the second largest effective date and then it kind of.
Christopher Paul Moore: It's kind of snyder's and from there by month I mean, we add we add clients every month.
Christopher Paul Moore: A large portion of them will be serving more than one one.
Christopher Paul Moore: Okay.
Speaker Change: Got it maybe.
Christopher Paul Moore: Got it. Maybe we could talk a little bit more about the Asset Light Model.
Christopher Paul Moore: Maybe we could talk a little bit more about the.
Gary Edward Kramer: It sounds like within the 15, there's potentially two kinds of traditional BBSI branches that are beginning to form. Is that right? Roughly, where is that geographically?
Christopher Paul Moore: The asset light model. It so it sounds like within 15, theres potentially to kind of traditional be beside branches that are beginning to form is that is that right and.
Christopher Paul Moore: Roughly where where is that geographically.
Gary Edward Kramer: Yeah, so we've had a first we we've got a good client base there, and we're, and we're covering the cost of the program. So we make additional investments. And the first investment we make is typically, it's been so far, we hire an HR professional locally. And then we also build out a true branch, you know, a BBSI brick and mortar, as we call it. So in two of the markets, we've hired additional folks locally to support our clients, and we're in the process now of tenant improvements and moving into Dallas and Chicago.
Speaker Change: Yes, so we've had.
Speaker Change: First we've got a good client base, there and where and we're covering the cost of the program. So we make additional investments in the first investment we make is.
Speaker Change: Yes, typically it's been so far we hire an HR professional locally.
Speaker Change: And then we also then build out a true branch.
Speaker Change: Sigh brick and mortar as we call it.
Speaker Change: So intuitive markets, we've hired additional folks locally to support our clients and we're in the process now of tenant.
Speaker Change: Tenant improvements and moving into Dallas and Chicago.
Speaker Change: Gotcha very helpful.
Speaker Change: Paul.
Speaker Change: And maybe just the last one for me.
Christopher Paul Moore: Gotcha. Very well. And maybe just the last one for me. May we talk about the cadence of earnings, Q2 and Q4. Is it, you know, I think in the past it's often been Q2 and Q4 kind of in that same range, and Q3 a little bit higher. Is that the way we should be looking at it now? Is there anything, you know, kind of different at this stage?
Speaker Change: Maybe talk about the case.
Speaker Change: Kate You said earnings Q2, and Q4 is it you know I think in the past, it's often been Q2 and Q4 kind of in that same range in Q3, a little bit higher is that the way we should be looking at it now is there anything kind of different at this stage.
Anthony J. Harris: Yes, similar pattern. Our operations peak seasonally in Q3, and that's when we see our highest profit. Usually, you know, Q2 and Q4 would be similar, a little weighting more towards the back half of the year, just a little bit more trending. But yeah, that's right. In Q1, we always have very low margins because of the payroll taxes, as I mentioned.
Kate: Yeah, similar pattern, our operations peak seasonally in Q3 and Thats, what we see our highest profit.
Kate: Usually Q2 Q4 would be similar.
Kate: Little weighting more towards the back half of the year just to do that are trending.
Kate: But yes, that's right through Q1, we obviously had very low margins because of the payroll taxes as I mentioned.
Christopher Paul Moore: Got it. All right. I will leave it there. I appreciate it, guys.
Speaker Change: Got it alright, I will leave it there I appreciate it guys.
Kate: Thanks.
Unknown Executive: Our next question is from Vincent Colicchio with Barrington Research. Please proceed.
Kate: Our next question is from Vincent Colicchio with Barrington Research. Please proceed.
Kate: Okay.
Vincent Alexander Colicchio: Yes, Gary, I'll let you finish your comment. You were cut off; all I heard was the economy. I suppose you were going to discuss your thoughts on the economy versus last quarter.
Vincent Alexander Colicchio: Yes, Gary I'll, let you finish your comment you were cut off on Oh, I heard was the economy.
Vincent Alexander Colicchio: I suppose you were going to discuss your thoughts on the economy versus last quarter.
Gary Edward Kramer: I guess I had my Forrest Gump moment there, but the way we're looking at the economy, there was no material change in Q1 versus Q4. And when we're looking ahead, we're saying, you know, if the economy trades the way, you know, behaves the way it is now. We still anticipate greater growth in billings growth in 24 than in 23, which is obviously reflected in our higher guide for 24 than what we realized for 23.
Vincent Alexander Colicchio: I guess I had by Forrest Gump moment, there but.
Vincent Alexander Colicchio: Yes, the way the way we're looking at the economy. There was no material change in Q1 versus Q4.
Vincent Alexander Colicchio: I mean, we're looking ahead, we're saying.
Vincent Alexander Colicchio: If the economy trades the way it behaves the way it is now.
Vincent Alexander Colicchio: We still anticipate greater growth billings growth in 'twenty, four and then in 'twenty three.
Vincent Alexander Colicchio: Which is obviously reflected in our higher guide for 'twenty four than what we realized for 'twenty three.
Vincent Alexander Colicchio: And a follow-up on the asset light model: of the remaining programs that are not moving to an office, if I heard you right, two are moving to an office, right? Do you expect any of them to also move to that next stage this year?
Vincent Alexander Colicchio: And a follow up on the asset light model of the.
Vincent Alexander Colicchio: Remaining programs that are not moving to an office.
Vincent Alexander Colicchio: And if I, if I heard you right two or moving to an office right.
Vincent Alexander Colicchio: Do you expect any of them to also move to that next stage this year.
Gary Edward Kramer: I mean, ultimately, we expect all of them to graduate to a BBSI branch. It's just a question of when, and that has to do with what their profitability and sell-through rate is. I'd have to get back to, I'll speak to that next quarter. Maybe I'll lay out a better projection for how we think the end of 24 and 25 is going to go for fiscal branch bill.
Kate: I mean, ultimately we expect all of them to graduate to a BBSI branch. It's just a question of when.
Kate: And that has to do with.
Kate: Well what they are.
Kate: What's their profitability and sell through rate is.
Speaker Change: I'd have to get back to I'll speak to that next quarter, maybe I'll lay out a better projection for how we think.
Kate: The end of 'twenty four 'twenty five is going to go for physical branch sale.
Vincent Alexander Colicchio: And I think you said last quarter that you would add three more asset light markets. Is that accurate?
Kate: And I think you said last quarter, you would add three more asset light markets is that accurate.
Gary Edward Kramer: It's It's an evolving number because, you know, we hired two, and one doesn't make it type of thing. So really, it's a fluid number where, you know, we hire everybody, we have a good compensation package, we train folks. We, you know, give them immersion training; we go into the market and help them. And ultimately, we try to make sure that they're successful. But it's a tough job. And, you know, there are some that are successful; we've had a few that haven't been. But when they're not, we backfill and start again. So it's, you know, sometimes it's, you know, three steps forward, one step back.
Kate: It's.
Kate: It's an evolving number because you know we hired two in one does it make it type of thing Hum So really it's it's.
Kate: A fluid number where we hire everybody well we have a good compensation package. We trained folks we would give them immersion training would go into the market and help them and ultimately we try to make sure that they're successful but is.
Kate: It's a tough job and there are some that are successful we've had a few that haven't been but when.
Kate: They're not we backfill them and start again so it's.
Kate: Sometimes it's through steps forward one step back.
Vincent Alexander Colicchio: And last question, as you roll out this healthcare product, are you getting better at adding large clients? What does that progression look like?
Speaker Change: And our last question.
Speaker Change: As you roll out this health care product are you getting better at adding large clients what is the progression look like.
Gary Edward Kramer: Uh, you know what? If you don't mind, ask me that next quarter when I actually have this when we have 7-1 under our belt right now. Right now, I'm still looking ahead, and we don't... Most folks don't make their buying decision for 7-1 until May or the middle of May. So we have a lot of folks that we've presented to that we think we have a chance to win. But ultimately, they haven't given us the order yet. When we get to the next quarter, we'll have a true tally of what our 7-1 results were.
Speaker Change: Oh yeah.
Speaker Change: If you don't mind I asked me that.
Speaker Change: Next quarter, what I actually had this when we have seven one under our belt right now.
Speaker Change: Right now I'm still I'm still looking ahead and wheel.
Speaker Change: Most of the folks don't make their buying decision for seven one until.
Kate: May or middle of May So we have a lot of a lot of folks that we've presented to them. We think we have a chance to win but ultimately they haven't given us the order yet when we get to next quarter. We will have a true tally of what our set alone results were.
Speaker Change: Okay. Thank you.
Unknown Executive: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Jeff Martin with Roth Capital Markets. Please proceed.
Kate: As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is a follow up from Jeff Martin with Roth Capital markets. Please proceed.
Jeffrey Michael Martin: Thank you. I wanted to ask you about payroll taxes. I know, you know, state unemployment rates have remained low for an unusually I'm looking at gross margin down about 25 basis points year-over-year. You did comment that it was in line with your, you know, internal budget expectations. But just curious, with the strong pricing that you're experiencing, this would imply that you get more of a trampoline effect in the later part of the year when you hit the pseudocaps. Just curious if you could comment on that.
Jeffrey Michael Martin: Thank you I wanted to ask about payroll taxes, I know yeah state unemployment.
Jeffrey Michael Martin: Rates had remained low for an unusually yeah sizable a period of time and it appears that states are catching up to that now.
Jeffrey Michael Martin: I'm looking at you know gross.
Jeffrey Michael Martin: Gross margin down about 25 basis points year over year, you did comment that it was.
Jeffrey Michael Martin: In line with your internal budget expectations, but just curious.
Jeffrey Michael Martin: With strong pricing that you've you're experiencing.
Jeffrey Michael Martin: This would imply that you get more of a trampling effect in the later part of the year when you get to the caps just just curious if you could comment on that.
Anthony J. Harris: Yeah, you're spot on there. So higher payroll tax rates really across every region for us that are our clients, just the trend you had said that was, and we've seen payroll tax rates coming down with a strong economy in the last couple years. And even after COVID, you know, a lot of states put policies in place to really update a lot of the effects of the COVID layoffs, right? But now with the turn, we're seeing higher rates.
Speaker Change: Yeah, you are spot on there so.
Speaker Change: Higher payroll tax really across every region for us and our clients just the trend you had said that was.
Speaker Change: We see payroll tax rate coming down.
Speaker Change: The strong economy. The last couple of years that even after Covid a lot of states put policies in place, it's really a data all of the effects of the Covid layoffs right, but now with the turn we're seeing higher rates, we didn't bake that into our pricing, but as you noted.
Anthony J. Harris: We do bake that into our pricing, as you noted. That'll flow through over the course of the year, so we'll have somewhat of a trampoline effect, as you noted, a little lower margin than usual this quarter, and that'll rebound over the next three quarters.
Jeffrey Michael Martin: Great. Thanks for clarifying that.
Speaker Change: That will flow through over the course of the year. So it will be somewhat of a trampoline affected you noted a little lower margin than usual this quarter and that will rebound over the next few quarters.
Speaker Change: Okay.
Speaker Change: Thanks for clarifying.
Unknown Executive: At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Kramer for closing remarks.
Gary Edward Kramer: At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Kramer for closing remarks.
Gary Edward Kramer: I want to thank everybody for dialing in. I would like to thank all of the BBSI professionals for their hard work. We had a great quarter and a great start of the year, and just thank you, everybody. Thank you. This will conclude today's program.
Kramer: Well, thank you everybody for dialing in.
Kramer: I think all of the BBSI professionals for their hard work.
Kramer: We had a great quarter and a great start of the year and just thank you everybody.
Unknown Executive: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Kramer: Okay.
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Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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