Q2 2024 Barrett Business Services Inc Earnings Call
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Operator: Good afternoon, everyone, and thank you for watching. I am participating in today's conference call to discuss BBSI's financial results for the first quarter ended June 30, 2024. Joining us today are BBSI's President and CEO, Mr. Gary Kramer, and the company's CFO, Mr. Anthony Harris. Following their remarks, I'll open the call to your questions. Before we go further, please take note of the company's Safe Harbor Statement under the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Good afternoon, everyone, and thank you for watching.
Speaker Change: Participating in today's conference call to discuss BBSI's financial results for the first quarter in the June 30, 2024. Joining us today are BBSI's President and CEO , Mr. Gary Kramer, and the company's CFO , Mr. Anthony Harris.
Speaker Change: Following their remarks, we'll open the call for your 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 cautions regarding forward-looking statements.
Operator: The statement provides important cautions 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. The 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 the risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward-looking statements.
Speaker Change: 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 facts, are subject to a number of risks and uncertainties.
Speaker Change: Actual results may differ materially from those implied by these forward-looking statements.
Speaker Change: 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 the risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward-looking statements.
Operator: I would like to remind everyone that this call will be available for replay through August 31, 2024, starting at 8 p.m. ET tonight. 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. Sir, please go ahead.
Speaker Change: I would like to remind everyone that this call will be available for replay through August 31, 2024, starting at 8 p.m. ET tonight.
Speaker Change: A webcast replay will also be available via the link provided in today's press release.
Speaker Change: as well as available 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. Sir, please go ahead.
Gary Edward Kramer: Thank you. Good afternoon, everyone, and thank you for joining the call. I am pleased to report that we had a strong second quarter and our financial results are in line with our full year outlook. We continue to execute our short-term and long-term objectives, and we added a record number of worksite employees for the second quarter. Moving to our financial results and worksite employees, during the quarter, our gross billings increased 6% over the prior year's quarter, which is in line with our expectations.
Gary Edward Kramer: Thank you. Good afternoon everyone and thank you for joining the call. I am pleased to report that we had a strong second quarter and our financial results are in line with our full year outlook.
Gary Edward Kramer: We continue to execute our short-term and long-term objectives, and we added a record number of worksite employees for second quarter.
Gary Edward Kramer: Moving to our financial results and worksite employees.
Gary Edward Kramer: During the quarter, our gross billings increased 6% over the prior year's quarter, which is in line with our expectations.
Gary Edward Kramer: We continue to execute on our various strategies to increase the top of the sales funnel, and we achieved a record number of WSEs from new client ads during the second quarter. Our client retention continues to trend well and is in line with our expectations. 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 2,500 worksite employees year over year from that new client.
Gary Edward Kramer: We continue to execute on our various strategies to increase the top of the sales funnel, and we achieved a record number of WSEs from new client ads during a second quarter.
Gary Edward Kramer: Our client retention continues to trend well and is in line with our expectations. I'd 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 2,500 worksite employees year-over-year from net new clients.
Gary Edward Kramer: We previously mentioned that we began to see our clients' workforce stabilize in Q4 and modestly grow in Q1. We are pleased to report that our client's growth accelerated in Q2. In fact, they experienced the greatest net hiring in six quarters.
Gary Edward Kramer: We previously mentioned that we began to see our clients' workforce stabilize in Q4 and modestly grow in Q1. We are pleased to report that our clients' growth accelerated in Q2.
Gary Edward Kramer: In fact, they experienced the greatest net hiring in six quarters.
Gary Edward Kramer: To summarize, for the quarter, we grew our worksite employees by 4% as we sold and retained more business and benefited from our clients' net hiring. Moving to our staffing operation, our staffing business declined by 3% over the prior year quarter and was within our expected range.
Gary Edward Kramer: To summarize, for the quarter we grew our worksite employees by 4% as we sold and retained more business and benefited from our clients' net hiring.
Gary Edward Kramer: Moving to our staffing operations.
Gary Edward Kramer: Our staffing business declined by 3% over the prior year quarter and was within our expected range. We continued to execute our strategy to recruit for our PEO clients and place 91 applicants in the quarter.
Gary Edward Kramer: We continue to execute our strategy to recruit for our PEO clients and place 91 applicants in the quarter. However, we were impacted by macroeconomic headwinds, including supply and demand imbalances, which vary by geography. We have seen our staffing business stabilize, and although we are expecting a modest decline year over year, we are forecasting our staffing business to grow sequentially in both Q3 and Q4. Moving to the field operational update. We are very pleased with our entrance into new markets with our AssetLight model. We have 17 total new market development managers in various stages of their development.
Gary Edward Kramer: But we were impacted by macroeconomic headwinds, including supply and demand imbalances, which vary by geography.
Gary Edward Kramer: We have seen our staffing business stabilize and although we are expecting modest decline year over year, we are forecasting our staffing business to grow sequentially in both Q3 and Q4.
Gary Edward Kramer: Moving to the Field Operational Updates.
Speaker Change: We are very pleased with our entrance into new markets with our Asset Light model. We have 17 total new market development managers in various stages of their development. They are doing well and largely achieving their goals of adding and 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 local talent to support our clients, and we are in the process of moving into traditional brick and mortar BVSI branches. We continue to see positive results from our investments in new markets and are actively recruiting additional new market development managers regarding product updates. We continue to execute on the sales and service of BBSI Benefits, our new health insurance offer.
Speaker Change: In two of the markets, we have hired additional local talent to support our client.
Speaker Change: and we are in the process of moving into traditional brick and mortar BVSI branches.
Speaker Change: We continue to see positive results from our investments in NewMarket and are actively recruiting additional NewMarket development managers.
Speaker Change: Regarding product updates...
Speaker Change: We continue to execute on the sales and service of BBSI benefits, our new health insurance offering. Last quarter we announced that we entered into a strategic multi-year partnership with Kaiser Permanente for programs effective 7-1-24 and onward.
Gary Edward Kramer: Last quarter, we announced that we entered into a strategic multi-year partnership with Kaiser Permanente for programs effective 7-1-24 and onward. Kaiser is renowned for its excellence in healthcare services and offers one of the most complete and competitive HMO products in the marketplace. And, just like our workers' compensation and existing health insurance offerings, we take no underwriting risks.
Speaker Change: Kaiser is renowned for its excellence in healthcare services and offers one of the most complete and competitive HMO products in the marketplace.
Speaker Change: And just like our workers' compensation and existing health insurance offerings, we take no underwriting risk.
Gary Edward Kramer: We are now offering a national PPO side-by-side with the Kaiser HMO, and our results are positive thus far. In July and August, we sold Kaiser to 20 new clients, with wins in Southern California, Northern California, and Oregon. Our new business resulted in more new subscribers in July and August than over the same prior-year period. I am pleased to report that today we have approximately 380 clients on our various medical plans, servicing more than 8,500 total participants.
Speaker Change: We are now offering a national PPO side-by-side with the Kaiser HMO, and our results are positive thus far.
Speaker Change: In July and August , we sold Kaiser to 20 new clients, with wins in Southern California, Northern California, and Oregon.
Speaker Change: Our new business resulted in more new subscribers in July and August than over the same prior year period.
Speaker Change: I am pleased to report that today we have approximately 380 clients on our various medical plans.
Speaker Change: servicing more than 8,500 total participants.
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 and will now reap the benefit of leverage through scale. As we look forward to 2025, our focus is on one selling. We have the people, the product, the technology, and the experience to be confident in our various offerings. Next, I'd like to shift to our view of the remainder of the year.
Speaker Change: We are pleased with the results of BBSI benefits and this product will be accretive to earnings in 2024.
Speaker Change: We are bullish on this product and will now reap the benefit of leverage through scale.
Speaker Change: As we look forward to 2025, our focus is on the 1-1 selling season.
Speaker Change: We have the people, the product, the technology, and the experience to be confident in our various offerings.
Speaker Change: Next, I'd like to shift to our view of the remainder of the year.
Gary Edward Kramer: We've had consecutive quarters of great momentum, and we are consistently growing our WSE stack. We ended Q2 with a record number of WSEs, and 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 products to sell, more folks selling them, and more referral partners recommending BBSI. Now, I'm going to turn the call over to Anthony for his prepared remarks. Thanks, Gary. Hello, everyone.
Speaker Change: We've had consecutive quarters of great momentum. We are consistently growing our WSE stack. We ended Q2 with a record number of WSEs, and we continue to be optimistic about the road ahead.
Speaker Change: We have consistently achieved strong, controllable growth by focusing on the needs of our clients and by adding new clients.
Speaker Change: We have more products to sell, more folks selling it, and more referral partners recommending BBSI.
Anthony J. Harris: I'm pleased to report we finished Q2 with strong results, in line with our plan and with continued positive momentum in our sales pipeline. Gross buildings increased 6% to $2 billion in Q2'24 versus $1.9 billion in the prior year quarter. PEO growth billings increased 6% in the quarter to $2.01 billion, while staffing revenues declined 3% to $20 million in the quarter. Our PEO worksite employees grew by 4% versus the year-ago quarter, which was the result of strong, controllable growth from net new PEO clients, as well as hiring within our customer base. Looking at client hiring more closely, we continue to see improved hiring rates in Q2. We are now seeing positive hiring across almost all industries, including construction.
Speaker Change: Now I'm going to turn the call over to Anthony for his prepared remarks.
Anthony J. Harris: Thanks Gary and hello everyone. I'm pleased to report we finished Q2 with strong results, consistent with our plan, and with continued positive momentum in our sales pipeline.
Anthony J. Harris: Gross buildings increased 6% to $2 billion in Q2'24 versus $1.9 billion in the prior year quarter.
Anthony J. Harris: PEO growth billings increased 6% in the quarter to $2.01 billion, while staffing revenues declined 3% to $20 million in the quarter.
Anthony J. Harris: Our PEO worksite employees grew by 4% versus the year ago quarter, which was the result of strong, controllable growth from net new PEO client, as well as hiring within our customer base.
Anthony J. Harris: Looking at client hiring more closely, we continue to see improved hiring rates in Q2. We are now seeing positive hiring across almost all industries, including construction.
Anthony J. Harris: The rate of client hiring remains lower than the long-term average, but the pace of hiring is improving and slightly exceeding our expectations. Looking at wage rates and hours worked, total hours and overtime hours have continued to remain stable, while wage rates continue to increase, and average billing per WSE increased 3% in a quarter. Looking at year over year PEO gross building growth by region, the East Coast grew by 19%, and the Mountain States grew by 7%. Southern California grew by 6%, Northern California grew by 4%, and the Pacific Northwest declined by 3%.
Anthony J. Harris: The rate of client hiring remains lower than the long-term average, but the pace of hiring is improving and slightly exceeding our expectations.
Anthony J. Harris: Looking at wage rates and hours worked, total hours and overtime hours have continued to remain stable, while wage rates continue to increase, and average billing per WSE increased 3% in a quarter.
Anthony J. Harris: Looking at year-over-year PEO growth, buildings growth by region.
Anthony J. Harris: East Coast grew by 19%, Mountain States grew by 7%, Southern California grew by 6%, Northern California grew by 4%, and the Pacific Northwest declined by 3%.
Anthony J. Harris: The Pacific Northwest region continues to be the most impacted by slower client growth, including being the only region with net negative client hiring and sustained low or average hours work. The East Coast growth is driven by a combination of strong, controllable growth and above average client hiring. 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 year claims.
Anthony J. Harris: The Pacific Northwest region continues to be the most impacted by slower client growth, including being the only region with net negative client hiring and sustained lower average hours worked.
Anthony J. Harris: The East Coast growth is driven by a combination of strong, controllable growth and above average client hiring.
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.
Anthony J. Harris: This strong performance has once again resulted in favorable adjustments for prior year claims.
Anthony J. Harris: In Q2, we recognize favorable prior year liability and premium adjustments of $8.9 million. As a reminder, our client workers' compensation exposure is now primarily covered by our fully insured program with no retained liability by BBSI. We renewed our fully insured workers compensation policies effective July 1, 2024. The program continues to perform well, and we once again renewed with favorable terms, including cost savings, a multi-year commitment. No downside risk to BBSI for any adverse claim development, and the continued ability for BBSI to participate in any favorable claim development.
Anthony J. Harris: In Q2, we recognize favorable prior year liability and premium adjustments of $8.9 million.
Anthony J. Harris: As a reminder, our client workers' compensation exposure is now primarily covered by our fully insured program with no retained liability by BBSI.
Anthony J. Harris: We renewed our Fully Insured Workers' Compensation Policies effective July 1, 2024.
Anthony J. Harris: The program continues to perform well, and we once again renewed with favorable terms, including cost savings, a multi-year commitment,
Anthony J. Harris: No downside risk to BBSI for any adverse claim development and the continued ability for BBSI to participate in any favorable claim development via return premium.
Anthony J. Harris: Last year, we introduced more favorable payment terms for the premiums on the fully insured program, and we were able to renew with similarly favorable terms that allowed us to hold these premium dollars for longer. As a result of these terms, there is a balloon premium payment in June of each year, which we just paid in Q2 for the prior policy period, and which, in turn, reduced our restricted investment balance and a corresponding premium payable balance.
Anthony J. Harris: Last year, we introduced more favorable payment terms for the premiums on the Fully Insured Program, and we were able to renew with similarly favorable terms that allow us to hold these premium dollars for longer.
Anthony J. Harris: As a result of these terms, there's a balloon premium payment in June of each year, which we just paid in Q2 for the prior policy period, and which in turn reduced our restricted investment balance and a corresponding premium payable balance.
Anthony J. Harris: These investment balances will continue to build again over the policy year until next June's payment, and investment income will continue to correlate. The Investment Balance. Payroll taxes remain higher than the prior year, as we discussed last quarter.
Anthony J. Harris: These investment balances will continue to build again over the policy year until next June's payment, and investment income will continue to correlate with the investment balance.
Anthony J. Harris: Payroll taxes remain higher than the prior year as we discussed last quarter. These higher rates are being contemplated in our pricing, which will contribute to higher gross margin rates in the latter half of the year.
Anthony J. Harris: These higher rates are being contemplated in our pricing, which will contribute to higher gross margin rates in the latter half of the year. Overall, our gross margin rate remains in line with expectations. Our overall profitability has continued to benefit from operating cost management. For Q2, SG&A expense increased by approximately 4 percent, growing slower than our billing growth, providing ongoing operating leverage.
Anthony J. Harris: Overall, our gross margin rate remains in line with expectation.
Anthony J. Harris: Our overall profitability has continued to benefit from operating cost management. For Q2, SG&A expense increased by approximately 4%, growing slower than our billings growth and providing ongoing operating leverage.
Anthony J. Harris: Moving to investment income, our investment portfolios earned $3 million in the second quarter, up $0.9 million from the prior year. Our investment portfolio continues to be managed conservatively with an average quality of investment at AA and an average book yield of 2.9%. The combined results of these activities were a net income per diluted share of $0.62, compared to $0.62 per diluted share a year ago. Our balance sheet remains strong with $110 million of unrestricted cash investments at June 30th and no debt.
Anthony J. Harris: Moving to investment income, our investment portfolios earned $3 million in the second quarter, up $0.9 million from the prior year.
Anthony J. Harris: Our investment portfolio continues to be managed conservatively with an average quality of investment at AA and average book yield of 2.9%.
Anthony J. Harris: The combined results of these activities was net income per diluted share of $0.62 compared to $0.62 per diluted share in the year-ago quarter.
Anthony J. Harris: Our balance sheet remains strong with $110 million dollars of unrestricted cash investments at June 30th and no debt.
Anthony J. Harris: 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 our $75 million July 2023 repurchase program, BBSI repurchased $7 million of shares in the second quarter at an average price of $31.63 per share, with $45 million remaining available under the program at quarter end.
Anthony J. Harris: 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.
Anthony J. Harris: Continuing under our $75 million July 2023 repurchase program.
Anthony J. Harris: BBSI repurchased $7 million of shares in the second quarter at an average price of $31.63 per share, with $45 million remaining available under the program at quarter end.
Anthony J. Harris: As announced today, our Board of Directors also approved an increase in the quarterly dividend rate from a split-adjusted 7.5 cents per share to 8 cents per share. This equates to a 7% increase in our dividend pay rate and reflects our ongoing optimism about our strong recurring cash flows and growth plan. Looking to our outlook for the full year, our results for Q2 are in line with our plan, and our expectations for 2024 remain generally consistent with our prior outlook.
Anthony J. Harris: As announced today, our Board of Directors also approved an increase in the quarterly dividend rate from a split-adjusted $0.075 per share to $0.08 per share.
Anthony J. Harris: This equates to a 7% increase in our dividend pay rate and reflects our ongoing optimism about our strong recurring cash flows and growth plans.
Anthony J. Harris: We continue to expect growth billings to increase between 6% and 8% for the year, continue to expect average WSEs to increase between 4 and 5 percent, and we're tightening our range of expected growth margin at the percent of gross billing to be between 3.0 and 3.1%. And we continue to expect our effective annual tax rate to remain between 26 and 27%. I will now turn the call back to the operator for questions.
Operator: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press the star key and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, if you would like to ask a question, please press star and then 1 now. The first question that we have comes from Chris Moore of CGS Securities. Please go ahead.
Speaker Change: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Christopher Paul Moore: Hey, good afternoon, congrats on another good quarter and congrats on the share split. Great idea. Maybe we can start on the workers comp adjustments. One of my favorite topics.
Christopher Paul Moore: 8.9 million favorable adjustment. That's the biggest adjustment I can remember at least over the last six or seven years. Just trying to understand, you know, kind of, First, how much visibility do you have, say, over the next 6 to 12 months on adjustments, and then just any additional thoughts in terms of, you know, was there something significantly unusual in this quarter or any other thoughts you might have there.
Speaker Change: Just trying to understand, you know, kind of...
Speaker Change: Infectation first, how much visibility do you have say over the next 6 to 12 months on adjustments and then just any additional thoughts in terms of you know was there something significantly
Speaker Change: Unusual in this quarter or any other thoughts you might have there?
Gary Edward Kramer: Hey, Chris, and we answered that one. Similarly, I want to say the last quarter of the quarter before, you know, just just the way that we designed our programs were conservative by nature.
Speaker Change: Hey Chris, we answered that one similarly, I want to say last quarter or the quarter before. Just the way that we design our programs, we're conservative by nature.
Gary Edward Kramer: You know, we've got a lot of focus and attention on workers' comp, right? We've got best-in-class structural partners. We've got a team of risk managers, we've got, you know, a full underwriting shop, we've got our own claims folks, we've got operations that are tied to it, we have our own actuaries. I say that because...
Speaker Change: You know, we've got a lot of focus and attention on workers' comp, right? We've got best-in-class structural partners.
Speaker Change: We've got a team of risk managers. We've got you know a full underwriting shop. We've got our own claims folks We've got operations that are tied to it. We have our own actuaries. I say that because
Gary Edward Kramer: It's a very mature organization. You know, we're early tech adopters. We make sure that whoever we partner with has great tech. We use AI. You know, we've got a couple hundred, you know, 200-plus folks directly or indirectly whose focus and attention is on workers' comp, right? So we've got a lot of focus and attention on it. We've got good tech on it. We're conservative by nature. We set these programs up so that they're designed to have returns that come back to us.
Speaker Change: It's a very mature organization.
Speaker Change: You know, we're tech adopters, we make sure that whoever we partner with has great tech, we use AI. You know, we've got a couple hundred, you know, 200 plus folks directly or indirectly that their focus and attention is on workers' comp.
Speaker Change: Right, so we've got a lot of focus and attention on it. We've got good tech on it. We're conservative by nature we set these programs up so that They're designed to have returns that come back to us. You know if we
Gary Edward Kramer: You know, if we stay true to who we are and stay true to our discipline, then we're going to set ourselves up for this in the future, right? So if you look at the trend, you know, I want to say that this, 22 quarters in a year of favorability, 22 quarters in a row of favorability. And honestly, trend is your friend, right? It doesn't turn quickly. We anticipate that this trend will
Speaker Change: If we stay true to who we are and stay true to our discipline, then we're going to set ourselves up for this in the future, right? So, if you look at trend, you know, I want to say that this is...
Speaker Change: 22 quarters in a year of favorability, 22 quarters in a row of favorability. And honestly, trend is your friend, right? It doesn't turn quickly. We anticipate that this trend will continue.
Gary Edward Kramer: Got it. It's helpful. In terms of the Kaiser relationship, it sounds like it's off to a good start. Just trying to get a sense as to how long, from a revenue standpoint, would it be, you know, would Kaiser be incrementally noticeable? Are we talking 12 months, 24 months? Just trying to get a sense as to, you know, kind of the trajectory.
Speaker Change: Got it. It's helpful. In terms of the Kaiser relationship, sounds like it's off to a good start. Just trying to get a sense as to, you know, how long from a
Speaker Change: From a revenue standpoint, would it be, you know, would the Kaiser be incrementally noticeable? Is it, are we talking 12 months, 24 months? Just trying to get a sense as to, you know, kind of the trajectory.
Gary Edward Kramer: Yeah, you know, it's a good question. I want to say that I've been here about eight years, and this is the first quarter that I can recall that our gross billings growth is the same as our gap revenue growth, right? You're kind of seeing that, you know, that inversion, I'll say. And part of that is because of the medical benefits that's flowing through the gap revenue line, right?
Speaker Change: Yeah, you know, it's a good question. I want to say that, you know, I've been I've been here about eight years and this is the first quarter that I can recall that our
Speaker Change: Our gross billings growth is the same as our gap revenue growth, right? You're kind of seeing that, you know, that inversion, I'll say. And part of that is because of the medical benefits that's flowing through the gap revenue line, right? So we're starting to get measurable health insurance premium and then commissions on those premiums.
Gary Edward Kramer: So we're starting to get measurable health insurance premiums and then commissions on those premiums. You know, Kaiser for 7-1, 7-1's not a huge selling season, you know, we moved business, we had a good 7-1, but 7-1 and 8-1 are nowhere near the volume of business as we expect on 1-1. You know, we launched on 7-1 because we wanted to, you know, learn how to dance better before we got to 1-1, and we were, I'll say, successful in the operations.
Speaker Change: Kaiser for 7-1. 7-1 is not a huge selling season. We moved business, we had a good 7-1, but 7-1 and 8-1 are nowhere near the volume of business as we expect on 1-1.
Speaker Change: You know we launched on 7-1 because we wanted to
Speaker Change: You know learn how to dance better before we got to 1-1 and we were I'll say we were Successful in the operations we have a good what I'll say plan for our our branches for 1-1
Gary Edward Kramer: We have a good, what I'll say, plan for our branches for 1-1. And more importantly, we have confidence, right? And it's the confidence that we went through it for 7-1; we know that 1-1's the big selling season. You know, we kind of got some experience getting through it this quarter, but really, that gives us the optimism for 1-1 of, you know, the optimism in the product, the optimism in the process, the optimism in the underwriting.
Speaker Change: And more importantly, we have the confidence, right? And it's the confidence that we went through it for 7-1. We know that 1-1 is the big selling season.
Speaker Change: We kind of got some experience getting through it this quarter, but really that gives us the optimism for one-one of the optimism in the product, the optimism in the process, the optimism in the underwriting. So as we think of this, you know, as these relationships.
Gary Edward Kramer: So, you know, as we think of this, you know, as these relationships, right, 20 and 25 are where it all is going to come down to how we do 1-1-1, but at 25, is where we start to expect that we'll have a better, meaningful contribution to gross margin from these products.
Speaker Change: Right, 20 and 25 is where, you know, it all is going to come down to how we do 1-1-1, but in 25 is where we start to expect that that will have better meaningful contribution to gross margin from these products.
Christopher Paul Moore: Got it. Very helpful. I will leave it there. Thanks, guys.
Speaker Change: Got it. Very helpful. I will leave it there. Thanks guys.
Jeffrey Michael Martin: Thank you, sir. The next question we have comes from Jeff Martin of Ross Capsule Partners. Please go ahead.
Speaker Change: Thank you, sir. The next question we have comes from Jeff Martin of Ross Capsule Partners. Please go ahead.
Jeffrey Michael Martin: Thanks. Good afternoon, guys. Gary, I wanted to start with, you know, how you feel about the referral partner network and whether there's been any noticeable improvements within that, particularly with some of your newer referral partners that may relate to BBS side benefits.
Jeffrey Michael Martin: Thanks. Good afternoon, guys.
Jeffrey Michael Martin: Gary, I wanted to start with, you know, how you're feeling about the referral partner network. If there's been any noticeable improvements within that, particularly with some of your newer referral partners that may relate to BBSI benefits.
Gary Edward Kramer: Yeah, I mean, just in general, right? So we have folks whose responsibility it is to just manage the referral partners and go get new referral partners, and they're doing a fabulous job, you know, in the markets we're in and then in the new markets, right? So as we think of our market development managers, that's, you know, half of their time is spent really recruiting new referral partners.
Speaker Change: Yeah, I mean, just in general, right, so we have a...
Speaker Change: You know folks whose responsibility it is to just manage the referral partners and go get new referral partners, and they're doing a fabulous job.
Speaker Change: in the markets we're in, and then in the new markets, right? So as we think of our market development managers, that's...
Speaker Change: you know, half of their time is spent.
Speaker Change: you know, really recruiting new referral partners. And the, you know, the fun part there is when they, you know, when we go to a market, you know, they make new relationships.
Gary Edward Kramer: And the, you know, the fun part there is when they, you know, when we go to a market, they make new relationships, number one, and number two, we're able to take the brand and our national relationships and help them out, right? So we can introduce them to national referral partners that have a local presence in those areas. So our referral partners, our referral partner channels, are growing. And this has been a strategy for us for the last three or four years, just to grow our referral partner bench.
Speaker Change: Number one, and number two, we're able to take the brand and our national relationships and help them out, right, so we can introduce them to national referral partners that have a local presence in those areas.
Speaker Change: So our referral partner...
Speaker Change: Our referral partner channels are growing, and this has been a strategy for us for the last three or four years, is just to grow our referral partner bench, and we're doing a really good job at that.
Gary Edward Kramer: And we're doing a really good job at that. We've got, you know, more active referral partners now than we've ever had. And, you know, part of this is when they're making, you know, new referral partners now. Now we have it in our discipline to go talk to benefits brokers because of our benefits product. We're seeing some traction there, not as much as I would like, that's a little slower than I was hoping for, but we are seeing... Programs come in from benefits brokers that we honestly never would have seen if we didn't have this product So I would say we're out of the gate there, but we have not yet hit our stride on the benefits broker side.
Speaker Change: We've got, you know, more active referral partners now than we've ever had. And, you know, part of this is when they're making, you know, new referral partners, now we have it into our discipline to go talk to benefits brokers because of our benefits product. We're seeing...
Speaker Change: Some traction there, not as much as I would like. That's a little slower than I was hoping for, but we are seeing
Speaker Change: All of these programs come in from benefits brokers that we honestly never would have solved if we didn't have this product. So I would say we're out of the gate there, but we have not hit our stride on the benefits broker side.
Jeffrey Michael Martin: And then wanted to drill down on California since it's your largest market, any detail you can provide on the northern California and southern California regions. I think northern California, going back 12 months ago, was, you know, largely hit by construction. And that seems to have turned the corner. Just curious if you have any visibility there as to whether that may accelerate from what we've seen in the last quarter or two?
Speaker Change: Okay.
Speaker Change: And then wanted to drill down on California, since it's your largest market, any detail you can provide on, you know, the Northern California and Southern California regions, I think Northern California.
Speaker Change: Going back 12 months ago was, you know, largely hit by construction, and that seems to have turned the corner. Just curious if you have any visibility there as to whether that may accelerate from what we've seen in the last quarter or two.
Anthony J. Harris: Yeah, if you look at the monthly trends, Jeff, this is Anthony. We continue to see steady growth in Northern California and improving growth, and, similar to really everywhere except the Pacific Northwest, we are seeing positive client hiring across industries, including construction in Northern California. You know, we saw some early signs of growth, but that trend is continuing and, honestly, looks like it can continue to build.
Speaker Change: Yeah, if you look at the monthly trends, Jeff, this is Anthony. We continue to see steady growth in Northern California and improving growth and we are seeing
Anthony J. Harris: Similar to really nationally, really everywhere except for the Pacific Northwest, we are seeing positive client hiring across industries including construction in Northern California, so
Anthony J. Harris: You know, we saw some early signs of growth, but that trend is continuing, and it honestly looks like it can continue to build.
Jeffrey Michael Martin: Okay, and then I mean We still think a lot about customer migration out of the state. I mean, I know that's been a headwind for you. Maybe not.
Jeffrey Michael Martin: Yeah, okay. And then I...
Speaker Change: We're still seeing much, you know, customer migration out of the state. I mean, I know that's been a headwind for you, maybe not so much.
Speaker Change: Going back more than a couple of years, but it has to have been the trend the last three or four years.
Gary Edward Kramer: No, we haven't we haven't seen that really affect us. I mean, to kind of piggyback on what Anthony said, like Northern Cal last year was our worst as far as clients reducing force. This year, it's been our strongest region as far as our clients are hiring. So we've seen a rebound in Northern Cal, specifically in the construction industry. So we feel better, better than we did a year ago when we're talking about Northern Cal.
Speaker Change: No, we haven't we haven't seen that really affect us. I mean if just to kind of piggyback on what Anthony said like Northern Cal last year was our worst as far as clients reducing force.
Anthony J. Harris: This year, it's been our strongest region as far as our clients hiring.
Speaker Change: We've seen the rebound in Northern Cal, specifically in the construction industry. So we feel better, better than we did a year ago when we were talking about Northern Cal. Southern Cal continues to grow too. California in general can, you know, it's still competitive, especially on workers' comp, right? We hit workers' comp pressure, but we...
Gary Edward Kramer: Southern California continues to grow too. California in general can, you know, it's still competitive, especially on workers comp, right? We get workers comp pressure. We've got a good product. We've got good people. We've got a good process so we can pick our spots for what we want to do. But as far as clients leaving to go to other states, we haven't really experienced that. Part of our market development managers, if they do leave and go to Texas, per se, where most are going, we've got a flag in every large metropolis in Texas now. So we're getting to the point on a national scale that if they're going to leave somewhere, we've got a place for them to go.
Speaker Change: We've got good product, we've got good people, we've got good process that we can pick our spots for what we want to do.
Anthony J. Harris: As far as clients leaving to go to other states, we haven't really experienced that.
Anthony J. Harris: You know, part of our market development managers is, you know, if they do leave and go to Texas per se, where most are going, we've got, we've got a flag in every large metropolis in Texas now. So, you know, we're getting to that point on a national scale that if they're going to leave somewhere, we've got a place for them to go.
Jeffrey Michael Martin: And then last one for me on the benefits side, are you primarily signing existing clients up for plans, or are you seeing this, it may be too early for this, but are you seeing new clients come in the door because you've got the nationwide footprint now and you've got the healthcare offering now?
Speaker Change: Okay, and then last one for me on the benefits side.
Speaker Change: Are you primarily signing existing clients up on plans or are you seeing this, it may be too early for this, but are you seeing new clients come in the door because you've got the nationwide footprint now and you've got the healthcare offering now?
Gary Edward Kramer: It's still heavy settling into our existing days. For the 7181 season, it was about 20% new business, and then the rest was selling into our installed base.
Speaker Change: It's still heavy selling into our existing base.
Speaker Change: for the 7181 season. It was about 20% new business and then the rest was selling into our install base.
Jeffrey Michael Martin: And how do you envision that over the intermediate to longer term?
Speaker Change: And how do you envision that over the intermediate to longer term?
Gary Edward Kramer: You know, if I could wave my magic wand, we would sell to all of our clients, right? And then after we get that, we could get new clients, but we're now at the balance of. It's interesting because, you know, we never had this term, and we have now coined the phrase of a PEO takeaway. Typically, when we brought on new business, that business was adopting the outsource model for the first time.
Speaker Change: you know
Speaker Change: If I could wave my magic wand, we would sell to all of our clients, right? And then after we get that, we could get new clients. But we're now at the balance of, you know, it's interesting because, you know, we never had this term, and we now have coined the phrase of a PEO takeaway.
Speaker Change: Typically, when we brought on new business, that business was adopting the outsourced model for the first time. What we're seeing now is because of our health offering where we can be competitive with a lot of the other PEOs in the marketplace.
Gary Edward Kramer: What we're seeing now is because of our health offering, where we can be competitive with a lot of the other PEOs in the marketplace. We've coined the PEO takeaway, and that's where we're seeing most of our new business come from. It's coming from the, you know, I'll say new-new. It's coming from PEO takeaways because they want the local product, they want the local service, and now that we have the benefits, it's a compelling value proposition.
Speaker Change: We've coined the PEO takeaway, and that's where we're seeing most of our new business come from. It's coming from the, you know, I'll say new, new. That's coming from PEO takeaways because...
Speaker Change: They want the local product, they want the local service, and now that we have the benefits, you know, it's a compelling value profit.
Jeffrey Michael Martin: Great. That's very helpful. Thank you.
Speaker Change: That's helpful, thank you.
Vincent Alexander Colicchio: Thank you, sir. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then 1 now. The next question we have comes from Vincent Colicchio from Barrington Research. Please go ahead.
Speaker Change: Thank you, sir. Ladies and gentlemen, just a final reminder, if you would like to ask a question, please press star and then 1 now.
Speaker Change: The next question we have comes from Vincent Colicchio from Barrington Research. Please go ahead.
Vincent Alexander Colicchio: Yeah, Gary, could you provide some more color on the Pacific Northwest construction issue there? It seemed to be improving. It's improving nationwide. And now it's, I guess, taking a step back there. Do you think this is temporary? What are your thoughts?
Vincent Alexander Colicchio: Yeah Gary, could you provide some more color on the Pacific Northwest? Construction was an issue there. It seemed to be improving. It's improving nationwide and now it's, I guess, taking a step back there. Do you think this is temporary? What are your thoughts?
Anthony J. Harris: Yeah, hey, Vince, this is Anthony. Yeah, really, we saw this last quarter as well in the Pacific Northwest. You know, it had the construction industry has been slower to rebound and honestly, you know, had some deterioration that we saw last quarter as well. So it's really a continuation of a trend there.
Vincent Alexander Colicchio: Yeah, hey Vince, this is Anthony. Yeah, really we saw this last quarter as well in the Pacific Northwest, you know, it had, it's the construction industry has been slower to rebound and honestly, you know, had some deterioration that we saw last quarter as well, so it's really the continuation of a trend.
Anthony J. Harris: And it's, you know, a smaller region by volume, and so there are a few larger clients. Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: there. And it's, you know, a smaller region by volume. And so there's a few larger clients that can
Gary Edward Kramer: It is, you know, represents Oregon and Washington is with that region. So there is some economic factors at play for sure in that region, but, In terms of intra-corridor, there's some stability there, so we're not seeing deterioration sequentially, but we'll keep watching that for sure. I would just add on that if you think of the Northwest, our largest operation is in Portland. Portland right now is, I'll say from a business perspective, it's a challenge to make investments. It's a challenge to invest more capital in Portland right now with the way the
Speaker Change: can sometimes have an effect on that. And that's really what we're seeing. So
Speaker Change: It is, you know, represents Oregon and Washington is with that region.
Speaker Change: So there is some economic factors at play for sure in that region, but In terms of an intra quarter there's some stability there, so we're not seeing you know deterioration sequentially But we'll keep watching that for sure
Speaker Change: I would just add on that, if you think of the Northwest, our largest operation is in Portland.
Speaker Change: Portland right now is, I'll say from a business perspective, it's a challenge to make investments. It's a challenge to invest more capital in Portland right now with the way the...
Vincent Alexander Colicchio: And Gary, sometimes in the past, you've compared your new client pipeline of qualified leads to historical levels. Could you do that for us versus the year-ago level?
Speaker Change: with the way it's being run.
Speaker Change: And Gary, sometimes in the past you've compared your new client pipeline of qualified leads to historical levels. Could you do that for us versus the year-ago level?
Gary Edward Kramer: Yeah, I mean, our pipeline continues to grow. You know, we from the top of the funnel to the lead until we get to the prospects, which is when we meet with clients are Our volume continues to outpace the prior year volume, and that's got, you know, a lot to do with, you know, our multiple strategies that we are executing on to make sure that, you know, the more chances you have, the more clients you're going to add, and we've got a ton of focus and attention on, you know, it's really like four or five different channels that we work to make sure that that top of the funnel stays at a real high acceptable place.
Gary Edward Kramer: Yeah, I mean, our pipeline continues to grow, you know, we, from the top of the funnel to the lead until we get to the prospects, which is when we meet with clients, our, our...
Speaker Change: Our volume continues to outpace the prior year volume.
Speaker Change: That's got, you know, a lot to do with, you know, our multiple strategies that we are executing on to make sure that you know the more
Speaker Change: The more chances you have, the more clients you're going to add, and we've got a ton of focus and attention on, you know, it's really like four or five different channels that we work to make sure that that top of the funnel stays at a real high acceptable place.
Vincent Alexander Colicchio: And last one for me, are you seeing some progress in terms of adding larger clients to your pipeline? No, I mean, we're
Speaker Change: And last one for me, are you seeing some progress in terms of adding larger clients to your pipeline?
Gary Edward Kramer: No, I mean, we're never going to, you know, we know our space, and we're comfortable in our space, right? We know that we serve the small business community; we're never going to be a mid-market company and just offer our value profit. So we're comfortable with our sweet spot. We know our lane, we stay in our lane, and we get large clients that join us as well because they like the value proposition, they want the services.
Speaker Change: No. I mean, we're never, you know, we know our space and we're comfortable in our space, right? We know that we serve the small business community. We're never going to be the...
Speaker Change: [inaudible]
Speaker Change: And now with the benefits, it's a more compelling value prop as well. But just in general, we...
Gary Edward Kramer: You know, and you know, now with the benefits, it's a more compelling value prop as well. But just in general, we, you know, we, in my prior life, I used to be a whale hunter, and it was feast or famine. And we're not operating on that business model; we know who we are, what our value profit is, who our ideal client is, and we stay in that lane.
Speaker Change: In my prior life, I used to be a whale hunter and it was feast or famine and we're not operating on that business model. We know who we are, what our value prop is, who our ideal client is, and we stay in that lane.
Speaker Change: Okay, thank you.
Vincent Alexander Colicchio: Thank you, sir. 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. Please go ahead, sir.
Speaker Change: Thank you, sir. 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. Please go ahead, sir.
Gary Edward Kramer: I just want to thank all the BBSI professionals for a great quarter and a great first half of the year, and thank you everybody for joining the call. I appreciate your time.
Gary Edward Kramer: I just want to thank all the BBSI professionals for a great quarter and a great first half of the year. Thank you everybody for joining the call, appreciate your time.
Operator: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Speaker Change: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.