Q2 2025 Barrett Business Services Inc Earnings Call
Okay.
Joining us today are B B S ice president and CEO.
Mr. Gary Kramer and the company's CFO, Mr. Anthony Harris following very 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.
The 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 to the company's recent earnings release, and 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.
I would like to remind everyone that this call will be available for replay through September 6th starting at eight P. M Eastern 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.
B B S I dotcom.
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.
Thank you good afternoon, everyone and thank you for joining the call. We continued to build on our momentum in the second quarter delivering results that exceeded our plan.
Revenue growth was fueled by new client sales expanded adoption of new products and excellent client retention.
Speaker #3: Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's financial results for the second quarter and the June 30, 2025.
Our success in adding new clients led to a record number of Worksite employees.
Speaker #3: Joining us today are BBSI's president and CEO, Mr. Gary Kramer, and the company's CFO, Mr. Anthony Harris. Following their remarks, we'll open the call for your questions.
Moving to our financial results in Worksite employees.
During the quarter, our gross billings increased 10, 1% over the prior year quarter exceeding our expectations.
Speaker #3: Before we go further, please take note of 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.
Continue to execute various strategies to increase the top of the sales funnel and we achieved a record number of ws fees from new client adds.
Our client retention continues to trend well and it has performed better than our expectations I'd like to attribute that to the work, we do with our clients and the value our teams provide.
Speaker #3: 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.
The result of all these efforts are what I refer to as controllable growth.
We added a record 10100 worksite employees year over year from net new clients.
Speaker #3: 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.
We mentioned during our last call that we began to see our clients resume hiring but below historical levels and this continued in Q2.
Quarter included a significant amount of macroeconomic uncertainty, which we believe caused our clients to pause hiring.
While our clients' workforce modestly grew in Q2, it was at a slower pace than we planned.
Speaker #3: I would like to remind everyone that this call will be available for a replay through September 6th, starting at 8:00 PM Eastern tonight. A webcast replay will also be available via the link provided in today's press release.
The net result of record WMC ads and modest customer hiring was that we grew worksite employees by 8%.
Moving to our staffing operations, our staffing business declined by 11, 5% over the prior year quarter and was below our expectations.
Speaker #3: As well as available on the company's website at www.bbsi.com. Now, I would like turn the call over to the president and chief BBSI, Mr. Gary Kramer.
January and February were in line with our expectations, while we experienced the slowdown in March and that trend continued into Q2 with.
Speaker #3: executive officer of
Speaker #3: Sir, please go ahead.
With the macroeconomic uncertainty our clients were simply reluctant to fill staffing orders.
Speaker #4: Thank you. Good afternoon, everyone, and thank you for joining the call. We continue to build on our momentum in the second quarter. Delivering results that exceeded our plan.
We continued to execute our strategy to recruit for our PEO clients and placed 91 applicants in the quarter, which is the same amount as the prior year quarter.
Speaker #4: Strong revenue growth was fueled by new client sales, expanded adoption of new products, and excellent client retention. Notably, our success in adding new clients led to a record number of worksite employees.
Moving to the field operational updates.
We're very pleased with our entrance into new markets with our asset light model.
Speaker #4: Moving to our financial results and worksite employees, during the quarter, our gross billings increased 10.1% over the prior year quarter, exceeding our expectations. We continued to execute various strategies to increase the top-of-the-sales funnel and we achieved a record number of WSEs from new client ads.
We have 21 total new market development managers in various stages of their development.
These folks have been gaining traction and consistency and have added approximately 1130, new wsu's through the first half of the year.
In July we announced the opening of our Chicago and Dallas branches in each of these locations. We have formed a business teams with local folks to support our clients and have moved into traditional physical brick and mortar BBSI branches.
Speaker #4: Our client retention continues to trend well and has performed better than our expectations. I'd like to attribute that to the work we do with our lients, and the value our teams provide.
Speaker #4: The result of all these efforts, or what refer to as controllable growth, is that we added a record 10,000,100 worksite employees year over year from net new clients.
We continue to see positive results from our investments in new markets and are actively recruiting additional new market development managers.
We anticipate opening one or two more branches by the end of the year.
Speaker #4: We mentioned during our last call that we began to see our clients resume hiring, but below historical levels. And this continued in Q2. The quarter included a significant amount of macroeconomic uncertainty, which we believe caused our clients to pause hiring.
Regarding product update.
We continue to execute on the sales and service of BBSI benefits, our new health insurance offering we.
We had a great start to the year and our momentum continued into the second quarter. We added approximately 1600 participants to our various benefits products in Q2 I.
Speaker #4: While our lients' workforce modestly grew in Q2, it was at a slower pace than we planned. The net result of record WSE ads and modest customer hiring was that we grew worksite employees by 8%.
I am pleased to report that through July we have approximately 710 clients on our various plans.
With 19000 total participants.
We are gaining traction and continue to improve the sales and service of BBSI benefits.
Speaker #4: Moving to our staffing operations, our staffing business declined by 11.5% over the prior year quarter and was below our expectations. January and February were in line with our expectations, but we experienced the slowdown in March, and that trend continued into Q2.
Our value proposition resonates, well and we are having success with small and large clients and white and blue collar industries in every state, we operate and with a diverse distribution channel.
We are pleased with the results of BBSI benefits and our teams are getting ready for the upcoming selling season.
Speaker #4: With the macroeconomic uncertainty, our clients were simply reluctant to fill staffing orders. We continued to execute our strategy to recruit for our PEO clients and placed 91 applicants in the quarter.
Next I would like to shift to our 2025 product objectives.
I previously mentioned that we had been investing in our tech stack on the product side to service and support our clients better over the last couple of years, we've made additional investments in my BBSI.
Speaker #4: Which is the same amount as the prior year quarter. Moving to the field operational updates, we're very pleased with our entrance into new markets with our asset light model.
Port our BBSI benefits offering added a learning management system and added numerous integrations with third parties.
Speaker #4: We have 21 total new market development managers in various stages of their development. These folks have been gaining traction and consistency, and have added approximately 1,130 new WSEs through the first half the year.
In March we launched BBSI applicant tracking a cutting edge tool that allows our clients to create job postings from our centralized system, which integrates with various third party job boards we.
Speaker #4: In July, we announced the opening of our Chicago and Dallas branches. In each of these locations, we have formed business teams with local folks to support our clients and have moved into traditional physical brick-and-mortar BBSI branches.
We have enrolled about 100 clients so far and are hearing positive feedback clients appreciate the investment and the time they are saving.
As we evolve and look to the remainder of 2025, we will be making additional investments to round out the employee lifecycle experience.
Speaker #4: We continue to see positive results from our investments in new markets, and are actively recruiting additional new market development managers. We anticipate opening one or two more branches by the end of the year.
We think of the employee lifecycle from the client's perspective from one and employees hired to win the employee retires and everywhere in between.
We will be replacing or bolstering attributes of the lifecycle with additional product launches throughout the year.
Speaker #4: Regarding product update, we continue to execute on the sales and service of BBSI benefits. Our new health insurance offering. We had a at start to the year, and our momentum continued into the second quarter.
Our client centric focus is on delivering more technology and more products all supported by the best local talent. We believe these enhancements will make it easier to sell to new customers and to retain existing business. Additionally.
Speaker #4: We added approximately 1,600 participants to our various benefits products in Q2. I am pleased to report that through July, we have approximately 710 clients on our various plans, with 19,000 total participants.
Additionally, we believe this offering will strongly resonate with white collar businesses and larger employers.
Next I would like to shift to our view of the remainder of the year.
Speaker #4: We are gaining traction and continue to improve the sales and service of BBSI benefits. Our value proposition resonates well, and we are having success with small and large clients, in white- and blue-collar industries, in every state we operate, and with a diverse distribution channel.
We've had consecutive quarters of great momentum, we are consistently growing our WSI stack. We ended Q2 with a record number of WSI is and we continue to be optimistic about the road ahead.
We've 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.
Speaker #4: We are pleased with the results of BBSI benefits, and our teams are getting ready for the upcoming selling season. Next, I would like shift to our 2025 IT product objectives.
Upon these strong results, we have increased our growth outlook for the remainder of the year.
Speaker #4: I've previously mentioned that we have been investing in our tech stack on the product side, to service and support our clients better. Over the last couple of years, we've made additional investments in my BBSI, to support our BBSI benefits offering, added a learning management system, and added numerous integrations with third parties.
Now I'm going to turn the call over to Anthony for his prepared remarks.
Thanks, Gary and Hello, everyone. I am pleased to report that we finished the quarter with strong results and exceeded our plan.
Gross billings increased 10, 1% to $2 3 billion in Q2 25 versus $2 <unk> 3 billion in Q2 24.
Speaker #4: In March, we launched BBSI Applicant Tracking, a cutting-edge tool that allows our lients to create job postings, from our centralized system, which integrates with various third-party job boards.
Gross billings increased 10, 3% in the quarter to $2 to $2 billion.
Staffing revenues declined 12% to $17 million in the quarter.
Speaker #4: We have enrolled about 100 clients so far, and are hearing positive feedback. Clients appreciate investment, and the time they are saving. As we evolve and look to the remainder of 2025, we will be making additional investments to round out the employee lifecycle experience.
Our PEO worksite employees or <unk> grew by 8% in the quarter, which as Gary noted was driven by a record number of <unk> added from new clients.
This was coupled with ongoing strong client retention, which continued a strong trend of controllable growth.
Speaker #4: We think of the employee lifecycle from the client's perspective. From when an employee is hired, to when the employee retires, and everywhere in between.
Client hiring was positive, but modest in the quarter and remained well below historical levels.
Speaker #4: We will be replacing or bolstering attributes of the lifecycle with additional product launches throughout the year. Our client-centric focus is on delivering more technology, and more products, all supported by the best local talent.
Average billing per WMC increased one 7% in the quarter, which was driven by continued increasing wages slightly offset by lower average hours worked per WMC in the quarter.
Speaker #4: We believe these enhancements will make it easier to sell to new customers, and to retain existing business. Additionally, we believe this offering will strongly resonate with white-collar businesses, and larger employers.
Looking at year over year, PEO billings growth by region for Q2.
Southern California grew by 12% Northern California grew by 6%.
Speaker #4: Next, I would like to shift to our view of the remainder of the year. We've had consecutive quarters of great momentum. We are consistently growing our WSE stack.
<unk> grew by 12% East.
East Coast grew by 13%.
The Pacific Northwest declined by 4%.
Speaker #4: We ended Q2 with a record number of WSEs, and we continue to be optimistic about the road ahead. We've consistently achieved strong controllable growth by focusing on the needs of our clients, and by adding new clients.
And our asset light markets grew by 100%.
Southern California represents our largest region and has maintained double digit growth driven primarily by consistent client adds and better than expected client retention.
Speaker #4: We have more products to sell, more folks selling them, and more referral partners recommending BBSI. Based upon these strong results, we have increased our growth outlook for the remainder of the year.
The strong mountain in East Coast results also continued to be driven by strong controllable growth performance.
In our Pacific Northwest was the region, most impacted by client hiring trends in the quarter.
Speaker #4: Now, I'm ing to turn the call over to Anthony for his prepared remarks.
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 #5: Thanks, Gary, and hello, yone. I'm pleased to report that we've finished the quarter with strong results and exceeded our plan. Gross billings increased 10.1% to 2.23 billion in Q2 25, versus 2.03 billion in Q2 24.
This strong performance is once again resulted in favorable adjustments for prior year claims.
In Q2, we recognized favorable prior year liability and premium adjustments of $8 8 million compared to favorable adjustments of $8 9 million in the second quarter of 2024.
Speaker #5: PEO gross billings increased 10.3% in the quarter, to 2.22 billion, while staffing revenues declined 12% to 17 million dollars in the quarter. Our PEO worksite employees, or WSEs, grew by 8% in the quarter.
This is the quarter when we renew our fully insured workers' compensation policies, which are effective as of July one 2025.
Speaker #5: Which, as Gary noted, was driven by a record number of WSEs added from new clients. This was coupled with ongoing strong client retention, which continued a strong trend of controllable growth.
As we have noted in each recent quarter, our workers' compensation program has performed well and we once again renewed with favorable terms, including cost savings.
No downside risk to BBSI for future adverse claim development.
Speaker #5: Client hiring was positive, but modest in the quarter, and remained well below historical levels. Average billing per WSE increased 1.7% in the quarter, which was driven by continued increasing wages, slightly offset by lower average hours worked per WSE in the quarter.
And the continued ability for BBSI to participate and favorable claim development via a return premium.
In addition to our workers' compensation claims being primarily fully insured I want to remind everyone that our client health benefit offerings are also 100% fully insured.
Speaker #5: Looking at year-over-year PEO billings growth by region for Q2, Southern California grew by 12%, Northern California grew by 6%, Mountain grew by 12%, East Coast grew by 13%, the Pacific Northwest declined by 4%, and our asset light markets, grew by 100%.
Our strategy of Derisking, our insurance operation continues to bring stability to our operating results.
While continuing to allow us to offer best in class high value products to our small business customers.
So we look at market conditions for both of our insurance products workers' compensation and health benefits.
We continue to see inflationary pressures that are expected to drive pricing higher in both products.
Speaker #5: Southern California represents our largest region and has maintained double-digit growth driven primarily by consistent client ads and better-than-expected client retention. The strong Mountain and East Coast results also continue to be driven by strong controllable growth performance.
In the case of Workers' compensation. This marks a shift from the lower pricing trends of recent years.
For both products, we see these pricing trends as an opportunity for future growth.
We engage with more potential clients shopping in the market.
Speaker #5: And our Pacific Northwest was the region most impacted by client hiring trends in the quarter. Turning to margin and profitability, our workers' compensation program continues to perform well and benefit from favorable claim frequency trends and favorable claim development.
Moving to our operating costs and overall profitability. Our results have continued to benefit from operating leverage with SG&A cost continuing to grow slower than our billings and gross margin.
For Q2, SG&A expense increased by approximately 6% due primarily to employee related costs, including higher profit share incentives due to the stronger quarter.
Speaker #5: This strong performance has once again resulted in favorable adjustments for prior year claims. In Q2, we recognized favorable prior year liability and premium adjustments of 8.8 million, compared to favorable adjustments of 8.9 million, in the second quarter of 2024.
Looking at investment income our investment portfolios earned $2 3 million in the second quarter down approximately 700000 from the prior year due to lower average interest rates.
Speaker #5: This is the quarter when we renew our fully insured workers' compensation policies, which are effective as of July 1, 2025. As we have noted in each recent quarter, our workers' compensation program has performed well, and we once again renewed with favorable terms.
As a reminder, there's a balloon premium payment due in June for our workers compensation program, which reduced our restricted cash and investment balance and corresponding premium payable balances in the quarter.
These investment balances will continue to build again over the current policy year.
Speaker #5: Including cost savings, no downside risk to BBSI for future adverse claim development, and the continued ability for BBSI to participate in favorable claim development, via return premium.
Until next June and investment income will continue to correlate with the investment balance.
Our investment portfolio continues to be managed conservatively with an average quality of investment at double a.
Speaker #5: In addition to our workers' compensation claims being primarily fully insured, I want to remind everyone that our client health benefit offerings are also 100% fully insured.
The combined results of these activities was net income per diluted share in the second quarter up 70 cents compared to 62 per diluted share in the year ago quarter, reflecting the strong revenue growth and operating leverage I just discussed.
Speaker #5: Our strategy of de-risking our insurance operations continues bring stability to our operating results, while continuing to allow us to offer best-in-class, high-value products to our small business customers.
Our balance sheet remains strong with $90 million of unrestricted cash investments at June 30, and no debt.
Speaker #5: When we look at market conditions for both of our insurance products, workers' compensation and health benefits, we continue to see inflationary pressures that are expected to drive pricing higher in both products.
We continue our consistent approach to capital allocation, making investments back into the company through product enhancements and geographic expansion and distributing excess capital to our shareholders through our dividend and stock repurchase plan.
Speaker #5: In the case of workers' ensation, this marks a shift from the lower pricing trends of recent years. For both products, we see these pricing trends as an opportunity for future growth, as we engage with more potential clients shopping in the market.
Under our previous buyback program <unk> repurchased $8 million of shares in the second quarter at an average price of $40 87 per share.
The company also paid $2 million in dividends in the quarter and reaffirmed its dividend for the following quarter.
Speaker #5: Moving to our operating costs and overall profitability, our results have continued to benefit from operating leverage with SG&A costs continuing to grow slower than our billings and gross margin.
Management and the board continue to be highly optimistic about the value proposition of BBSI and the growth potential ahead of us.
Speaker #5: For Q2, SG&A expense increased by approximately 6%, due primarily to employee-related costs, including higher profit share incentives, due to the stronger quarter. Looking at investment income, our investment portfolios earned 2.3 million dollars in the second quarter, down approximately 700,000 from the prior year, due to lower average interest rates.
That value is made even more compelling by the enhancements we've made in our products and operations and the consistency we're seeing in our growth from new clients.
With this perspective, the board has approved a new $100 million two year stock repurchase program effective August 4th.
The new program replaces the previous program and will allow management to continue to show our commitment to being thoughtful stewards of capital and generating long term value for shareholders.
Speaker #5: As a reminder, there's a balloon premium payment due in June, for our workers' compensation program, which reduced our restricted cash and investment balance, and corresponding premium payable balance in the quarter.
Now turning to our outlook for the full year.
We've had strong results year to date, and we're reflecting that in our updated outlook. We now expect.
Speaker #5: These investment balances will continue to build again over the current policy year, until next June, and investment income will continue to correlate with the investment balance.
<unk> gross billings to increase between 9% and 10% for the year and WCS to increase between 6% and 8% for the year.
Speaker #5: Our investment portfolio continues to be managed conservatively, with an average quality of investment at AA. The combined results of these activities was net income per diluted share in the second quarter of 70 cents, compared to 62 cents per diluted share in the year-ago quarter.
We are tightening our range for gross margin as a percentage of gross billings to be between two 9% and three 5%.
And we continue to expect an effective annual tax rate between 26 and 27%.
I will now turn the call back to the operator for questions.
Speaker #5: Reflecting the strong revenue growth and operating leverage I just discussed. Our balance sheet remains strong, with 90 million dollars of unrestricted cash investments at June 30, and no debt.
Yeah.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you will hear that Johan has been raised takeaways to decline from the polling process. Please press the star followed by December two.
Speaker #5: We continue our consistent approach to capital allocation, making investments back into the company, through product enhancements and geographic expansion, and distributing excess capital to our shareholders.
We're using a speaker phone please lift the handset before pressing Amit.
Speaker #5: Through our dividend and stock repurchase plan. Under our previous buyback program, BBSI repurchased 8 million dollars of shares in the second quarter, at an average price of 40 dollars and 80 cents per share.
One moment. Please for your first question.
Your first question comes from the line of Chris Moore from CJS Securities. Your line is now open. Please go ahead.
Speaker #5: The company also paid $2 million in dividends in the quarter and reaffirmed its dividend for the following quarter. Management and the board continue to be highly optimistic about the value proposition of BBSI and the growth potential ahead of us.
If youre talking Chris you're on mute.
Alright, Thank you very much I am on mute I appreciate it.
Speaker #5: That value is made even more compelling by the enhancements we've made in our products, and operations, and the consistency we're seeing in our growth from new clients.
Good quarter.
Maybe you can start with workers comp.
You have talked in the past about raising workers' comp rates something like 11% at the end of calendar 'twenty five I'm just trying to understand is that a done deal or is that a recommendation where does that stand.
Speaker #5: With this perspective, the board has approved a new 100 million dollar, two-year stock repurchase program, effective August 4th. The new program replaces the previous program, and will allow management to continue to show our mitment to being thoughtful stewards of capital, and generating long-term value for shareholders.
Yeah, Hey, Chris It's Kramer.
Specific to California, California has.
Tori board called the WC IRB, they recommended a rate increase of over 11%.
Speaker #5: Now, turning to our outlook for the full year. We've had strong results year to date, and we are reflecting that in our updated outlook.
Then it goes to the commissioner and the Commissioner approves a rate the rate the commissioner approved was like.
Speaker #5: We now expect gross billings to increase between 9 and 10% for the year. And WSEs to increase between 6 and 8% for the year.
9%.
No.
And that'll be reflected in <unk>.
Speaker #5: We are tightening our range for gross margin, as a percentage of gross billings to be between 2.9% and 3.05%. And we continue to expect an effective annual tax rate between 26 and 27%.
Ultimately.
Carriers will update their filed rates carriers will get their filed rates approved and ultimately we think that this is going to start to push the workers' comp pricing up in California, specifically.
Speaker #5: I will now turn the call back to the operator for questions.
Got you and that timing is more it's a bigger impact.
And 27% 26, or just trying to understand I understand that the timing there it will be.
Speaker #6: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star. Followed by the number one on your touchstone phone.
Think of it is.
When all of these insurance policies come up for renewal, which is going to be kind of rolling depending upon their effective date.
Speaker #6: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star. Followed by the number two.
It'll take you one year to get through the rate increases, but it's honestly just a good sign.
Speaker #6: If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for our first question. Your first question comes from the line of Chris Moore from CJ Securities.
Does that the market is moving that way and we think it's a good thing for two reasons right number one is right is a good thing right is your friend.
And then secondarily when folks are being charged more they tend to shop more so we think there'll be more people shopping in the marketplace.
Speaker #6: Your line is now open. Please go ahead.
Got it very helpful.
And maybe just as a follow up workers' comp.
Speaker #7: If you're talking, Chris, you're on mute.
Adjustment unusually big $8 8 million can you just talk to that a little bit more.
Speaker #8: Sorry. Thank you very much. I am on mute. Appreciate it. terrific quarter. Maybe we can start with workers' comp. you ow, you have talked in the past about raising workers' comp rates in something like 11% at the end of calendar '25.
It was within 100000 of the same.
Quarter last year. So Q2 of 24, it was give or take the same amount. So it's.
That's kind of the normal.
Gotcha Alright.
I will leave it there I appreciate it guys. Thanks.
Speaker #8: I'm trying to understand: is that a done deal, or is that a recommendation? Where does that stand?
Thanks.
Okay.
Speaker #4: Yeah. Hey, Chris. It's Kramer. That's, specific to California, California has a regulatory board called the WCIRB. They recommended a rate increase of over 11%.
Your next question comes from the line of Jeff Martin from Roth Capital Partners. Your line is now open. Please go ahead.
Thanks, Good afternoon guys.
Chris I wanted to dive in on the on the.
Speaker #4: then it goes to the commissioner, and then the commissioner approves a rate. the rate the commissioner approved was like 9%. So, that'll be reflected in, in, in, you know, ultimately, carriers will update their filed rates.
Renewal on the workers' comp agreements Ah.
It sounds like you probably have some improved <unk>.
<unk> potential from that renewal or maybe you could comment to that and then specifically wanted to circle back around on on the last question with regard to.
Speaker #4: Carriers will get their filed rates approved. Then ultimately, we think that this is going to start to push the workers' comp pricing up in California specifically.
You know what higher rate means for the business I would assume that means you you can go after a broader pool of clients essentially because you can underwrite risk a little more safely.
Speaker #8: Gotcha. And, and that timing is more, it's a bigger impact in, in '27 than '26, or just trying to stand and understand that the timing there.
And then you have clients shopping so I think it seems like.
Speaker #4: It'll be a, a, you ow, think of it as, when all of these insurance policies come up for renewal, which is going to kind of rolling depending upon their effective date.
Potential for a nice improvement in profitability as a result of this rate increase would you say that's fair.
Yes, Jonathan I can chime in Jeff on the the impact of the insurance renewal.
Speaker #4: it'll take you one year to get through the rate increases, but it's, it's honestly just a od sign, that, that the market's moving that way.
The rates have come down the way we structured this program now since we've had this fully insured program going back to 2021.
Speaker #4: And we think it's, it's a good thing for two reasons, right? Number one is, rate is a good thing. Rate is your friend. And then secondarily, when, folks are being charged more, they tend to shop more.
Is that the claims performed better than expected, we get return premium back from the carriers and in every year, we've had claims perform better.
Speaker #4: So we think they'll be more people shopping in the marketplace.
And kind of what was originally underwritten. So we've continued to see those benefits and those do come back to us and that's part of what we're seeing in these actuarial adjustments that we talked about each quarter now.
Speaker #8: Got it. Now, very helpful. and maybe just as a follow-up, workers' comp, adjustment unusually big, 8.8 million. Can you just talk to that a little bit more?
And so with that trend we do expect.
Those rates to come down in the following renewal rate to reflect that improvement and we haven't seen that so that's great news and youre not wrong, that's lower cost to us.
Speaker #4: It was within 100,000 of the same quarter last year. So Q, Q2 of '24, it give or take the same amount. So it's, it's kind of the normal.
If those claims continue to perform even better which has been the trend will continue to accrue those benefits as return premium.
Speaker #8: Gotcha. All right. I will leave it there. I appreciate it, guys.
That's exactly right and the real benefit here would be able to continue to see those lower costs.
Speaker #4: Thanks.
Speaker #6: Your next question comes from the line of Jeff Martin from Ross Capital Partners. Your line is now open. Please go head.
Paired with.
Stable or upward trending market pricing typically what we've been seeing.
Speaker #9: Thanks. Good afternoon, guys. Kramer, I wanted to dive in on the, on the, renewal on the, you know, workers' comp agreement. sounds like you probably have some improved profit potential from that renewal.
As our costs have been coming down market pricing has been coming down and essentially offset those savings and so that's really where the profit expansion opportunity comes in so we should just start to see that market shift, which we believe is happening.
Yeah.
Great and then wanted to dive in on the.
Speaker #9: Maybe you could comment to that. And then specifically, I wanted to circle back around on, on the last question with regard to, you ow, what higher rate means for the business.
The technology enhancements that you're planning coming.
Coming up here I would imagine that you know over the past couple of years that significantly helped your market positioning it sounds like you're now able to and we will with the rollout of additional technology offerings to be able to go after the white collar market and maybe even the middle market in a more aggressive fashion.
Speaker #9: I would assume that means you, you know, you can go after a broader pool of clients, potentially, because you can underwrite risk a little more, safely.
Speaker #9: and then you have clients shopping. So I, I, I ink this seems like, you know, a potential for a nice improvement in profitability, as a result of this rate increase.
Yeah, specifically to the white collar right, we've grown up as a blue collar business because of our workers' comp offering, but now that we have.
Speaker #9: Would you say that's fair?
Speaker #4: Yeah. Do you ant me to?
Speaker #9: Yeah. I can chime in, Jeff, on the, the impact of the, the insurance renewal. So yeah, the rates have come down. You know, the way we structured this program now, since we've had this fully insured program going to 2021, is that if the claims perform better than expected, we get return premium back.
The health insurance products. It opens up a lot of Tam for US right. It opens up a white collar business. It opens up employee benefits brokers it really.
It really makes our total addressable market be squared if you think of it that way.
So the health insurance offering for the white collar business after payroll as their most expensive spend.
Speaker #9: From the carriers. And in every year, we've had claims perform better than kind of what was originally underwritten. So we've continued to see those, those benefits and those do come back to us.
So with this health insurance offering we're able to go and offer to white collar businesses right. So we're bringing on things we haven't done before like like doctors and dentists and lawyers and law firms like business, we haven't been in before and it's creating good opportunities for us, but those clients expect.
Speaker #9: And that's part of what we're seeing in these actuarial justments. That we talk about each quarter now. and so with that trend, we do expect those rates to come down in following renewal, right, to reflect that improvement.
Speaker #9: And we have seen that. So that's great news. And you're not wrong. That's lower cost to us. if those claims continue to perform even better, which has been the trend, we'll continue to rue those benefits.
Little more on the it side and what we're trying to do is by the end of the year have an <unk> product that we can really go toe to toe with anybody out there on the HR iOS HCM platform side.
Speaker #9: As return premium, and that, 's exactly right. And the benefit here would be if we continue to see those lower costs, paired with, you ow, stable or upward trending market pricing.
Okay.
And then could you could you speak to the performance of the policy that you've underwritten on the healthcare side I know you don't take on the risk.
But I think it you know it's worth asking the question in terms of pharmacy costs in large claim incident rates are you seeing the performance of those plans on expectation or are you seeing similar trends that the broader industry thing.
Speaker #9: You know, ically what we've been seeing is our costs have been coming down, but market pricing has been coming down. And essentially offset those savings.
Speaker #9: And so that's really the profit expansion opportunity comes in, is if we do start to see that market shift which we believe is happening.
Speaker #8: Yep. Great. And then wanted to dive in on, you know, the, ou know, the technology enhancements that you're ning. Coming up here, I would imagine that, you know, over the past couple of years, that's significantly helped your market positioning.
Trend is real and health.
This year.
It's going to be a a higher renewal rate for the whole world right. If you look at it.
The Big insurance companies. If you look at the other PEO is it's been a it's been tough sledding. This last.
Speaker #8: Sounds like, you're now able to, and, and we'll, with the rollout of additional technology offerings, be able go after the, the white-collar market and maybe even the middle market in a more aggressive fashion.
12 months to 24 months.
We underwrite our business, we underwriting conservatively, we want to make sure that when we bring a client on we're going to be able to offer them good terms and conditions for the subsequent year.
We're viewing this honestly like we're good stewards of capital, we're prudent underwriters, but were viewing this as an opportunity as well like Anthony mentioned that in his prepared remarks that.
Speaker #4: Yeah. I, I, you know, specifically to the white-collar, right, we've, you know, we've grown up as a blue-collar business because of our workers' comp offering.
Speaker #4: But now that we have the health insurance product, it, it opens up a lot of TAM for us, right? It opens up white-collar business.
Hugh you seen in the insurance market on the health side, you've seen the articles in the Wall Street Journal, you've seen what's happening in the market you know that rates are going to be more than they were this is going to be a double digit probably rate increase market.
Speaker #4: It opens up employee benefits brokers. It really makes our total addressable market be squared, if you think of it that way. So, you know, the health insurance offering for the white-collar business, you know, after payroll, is their most expensive spend.
And we view that as a benefit because we have a small book of health, but we have big capabilities to do more and there's going to be more people shopping because of the rate increases that we that we're projecting in 2026.
Speaker #4: So with this health insurance offering, we're able to go and offer to white-collar businesses, right? So we're bringing on things we haven't done before, like, like doctors and dentists and lawyer and law firms, like business we haven't been in before.
Great and then last one for me could you talk about some of the considerations that.
Went into deciding to raise guidance for the balance of the year.
Speaker #4: And it's creating good opportunities for us. But those clients expect, you know, a little more on the IT side. And, you know, what we're trying to do is by the end of the year, have an IT product that we can, you know, really go toe for toe with anybody out there on the, HRIS, HCM platform side.
Yes, I think it's largely driven by strong year to date performance, we really have seen a consistent trend.
In controllable growth, specifically not just in adding new clients, but also retaining clients. Both ahead of our expectations internally.
Partnering that with hitting our margin and operating cost targets that were in line with expectations internally.
Speaker #8: Okay. And then could you, could you speak the performance of the policies you've underwritten on the healthcare side? I know you don't take on the risk.
Translates to.
Our consistent growth.
Great. Thanks.
Speaker #8: But I think it, you know, it's worth asking the estion. And in terms pharmacy costs and, you know, large claim, incident rates, are you seeing the performance of those plans on expectation?
As we think of our growth now just just the growth or the midpoint.
You know it's been.
80% from new business.
We're not getting much tailwind from our clients hiring.
Speaker #8: Or are you seeing similar trends that, the broader industry seeing?
It's a little bit of an unknown right now for what's going to happen on the back half of the year for the economy, but what we can control we're doing a really good job at adding new business and keeping business.
Speaker #4: You know, you know, trend is real in, in health. you ow, this year, it's going to be a, a higher renewal rate for the whole world, right?
And then if clients hiring thats clients hiring increases that's just going to be a tailwind for us.
Speaker #4: If you look at the big insurance companies, if you look at the other PEOs, it's been a, it's been tough sledding this last, you know, 12 to 24 months.
I appreciate it thank you.
Speaker #4: you know, we underwrite our business. We underwrite it conservatively. We want to make re that, you know, when we bring a client on, we're going to be able to fer them good terms and conditions for the subsequent year.
Your next question comes from the line of Vincent Colicchio from Barrington Research. Your line is now open. Please go ahead.
Speaker #4: we're reviewing this honestly. Like, we're, we're good stewards of capital. We're prudent underwriters. But we're viewing this as an portunity as well. Like Anthony mentioned that in his prepared remarks, that you, you seeing the insurance market on the health side, you've seen the articles in the Wall Street Journal, you've seen at's happening in the ACA market.
Yes.
Good afternoon, Gary nice quarter.
Very strong net new client additions.
Are you tweaking anything is there anything you could share with us in terms of what strategies are working best anything of that nature.
Speaker #4: You know that rates are going to be more than they were. this is going to a double-digit, probably rate increase market. And we view that as a benefit because we have a small book of health, but we have big capabilities to do more.
No.
Im not going to.
I'm not going to give the secret sauce, but right. If you think of all the things we've done we've got we've got great people we've got.
More products on the health side, we've got more product on the it side, we've got a bigger total addressable market by being able to bring on larger clients by being able to bring on white collar business.
Speaker #4: And there's going to be more people shopping because of the rate increases that we, that we're projecting in, in 2026.
Speaker #8: Great. And then last one for me. Could you talk about, you know, some of considerations that went into deciding to raise guidance for the balance of the year?
And then we've got a lot of process around our sales and sales cycle and a lot of focus and emphasis on it so.
It's a lot of things, but it's really everybody, knowing which way the organization's going and working together to get there.
Speaker #4: Yeah. I think it's largely driven by strong year-to-date performance. We really have seen consistent trend in controllable growth specifically, and not just in adding new clients, but also retaining clients, both ahead of our expectations internally.
Has the competitive backdrop changed at all I know in the past you've talked about you know a large number of the clients you add are new to the PEO market does that continue is that still the case.
Speaker #4: Really partnering that with hitting our margin and operating cost targets that we're in line with expectations internally. translates to, consistent growth.
That's.
Still the case for us I mean, we we.
We were having more takeaways than we ever had but the majority of our business that were bringing on is business, that's new to our PEO for the first time.
Speaker #8: Great.
Speaker #4: Yeah. I would, I would say, as we think of our growth now, just, just the growth through the midpoint, you ow, it's been 80% from new business.
Okay.
And then.
Speaker #4: we're not getting much tailwind from our clients hiring. you know, it's a little bit of an unknown right now for, for what's going to happen on the back half of the year for the economy.
Any color on what's going on in the Pacific Northwest.
Is there any particular verticals that are struggling.
Any color would be helpful.
Speaker #4: But what we can control, we're doing a really good job at adding new business and keeping business. And then if clients hiring, that's, you know, clients hiring increases, that's just going to be a tailwind for us.
It's it's our smallest region and we have four branches in Oregon, and one branch in Washington.
And Portland, as the largest and Portland has seen the most pull back.
Speaker #8: Appreciate it. Thank ou.
It's a I would say the economy in general is theres more people, leaving Portland than entering Portland.
Speaker #6: Your next question comes from the line of Vincent Colicchio from Barrington Research. Your line is now open. Please go head.
Speaker #10: Yeah. good afternoon, Gary. nice quarter. very strong net new client additions. are you tweaking anything? Is there anything you could are with us in terms of what strategies are working best?
And youre seeing a slowdown in construction and youre seeing a slowdown in a lot of the industries and the trades.
Okay.
And.
Anthony I missed what you said in terms of.
Speaker #10: Anything of that nature?
Wage inflation was.
Speaker #4: No. I, I'm not going I'm not going to give the secret sauce, but, right, if you think of all the things we've e, we've got, we've got great people.
Bit better as I get that right.
And also I missed what you said on overtime hours.
Yes wage inflation, it's been very consistent as usual right at the offset that was offset by a decrease in average hours worked in the quarter, which is consistent with some of the macroeconomic uncertainty that we saw on the client hiring side right. We're not really that really slowed down. So the net average billing per <unk> was one 7%.
Speaker #4: We've got more product. On the health side, we've got more product on the IT side. We've got a bigger total addressable market by being able to bring on larger clients, by being able to bring on white-collar business.
Speaker #4: And then we've got a lot of process around our sales and sales cycle and a lot of focus and emphasis on it. So you know it's a lot of things, but it's really everybody knowing which way the organization's going and working together to get there.
<unk>, which was the net of those two factors.
Thank you.
Thanks, guys.
Yeah.
Speaker #8: Has the, competitive backdrop changed at all? I know in the past you've talked about, you ow, a large number of the clients you add, are new to the PEO market.
Okay.
Your next question comes from the line of Marc Riddick from Sidoti. Your line is now open. Please go ahead.
Speaker #8: Does that continue, is that, you know, still the case?
Hey, good afternoon.
Speaker #4: That's, 's still the case for us. I an, we, you know, we, we we're having more PEO takeaways than we ever had, but the majority of our business that we're inging on is business that's new to a PEO for the first time.
Hey, Mark.
Wanted to touch a little bit on the.
The openings in Chicago and Dallas.
It just happened, but maybe you could share some of your thoughts on on the.
Speaker #8: Okay. And then, any color on what's going on in the Pacific Northwest, or is there a particular verticals that are struggling? any, any color would be helpful.
So my initial thoughts and sort of the preparation going into that and sort of how that plays into your expectations and I think your prepared remarks that you are looking at another branch or two before the end of the year and then how that plays into your <unk>.
Speaker #4: It's, it's our smallest region. And, you know, we have four branches in Oregon and one branch in Washington. and Portland is the largest and Portland has seen the most pullback.
Your thoughts for the potential for 2006.
Yes, it was.
And we had all of our market development managers.
And about six weeks ago, when we had a we do have a meeting with them like every nine months.
Speaker #4: you ow, it's a, I would say the economy in general is there's more people leaving Portland than entering Portland. And you're seeing a slowdown, you know, in construction.
It's kind of interesting and kind of cool to be honest with you because.
21 folks all going all trying to conquer the world build their market.
Speaker #4: You're seeing a slowdown in a lot the, the industries and the trades.
And you know.
In the beginning we had a thesis and it's kind of nice now because.
Speaker #8: Okay. And, Anthony, I, I missed what you said in terms of, the wage inflation was, was, was a bit, bit better, or did I get that right?
The thesis has been proven right.
Higher somebody hire good people train them and get out of their way. So they can sell and support them and then when they do well start to hire locally and then after they hire locally they can build out their true BBSI branch and we've proven that in multiple markets now. So it's it's more than a dream. It's a reality, which is which is fun when you.
Speaker #8: and, and also I missed what you said overtime hours.
Speaker #4: Yeah. Wage inflation has been very consistent. As usual. Right? Had the offset that was offset by a decrease in average hours worked in the quarter.
Speaker #4: Which is consistent with some of the macroeconomic uncertainty that we saw on the client hiring side, right? We're not really, that really slowed down.
That on the faces of everybody that they can they can own their geography is the harder they work the more they get paid the harder they work the more they grow the better the results. So it's Dallas and Chicago, where our first ones will have one maybe two more coming on this year, but the nice thing as we look out in latter. This we can see that this is going to be successful in that.
Speaker #4: So the net average billing per WSE was 1.7% increase, was the net of those two factors.
Speaker #8: Thank ou. Thanks, guys.
Going to continue to roll and its going to continue to generate growth and profitability for the organization.
Speaker #6: Your next question comes from the line of Mark Riddick from C-Dotti. Your line is now open. Please go head.
Okay, Great and then a lot of my questions were already answered, but I was sort of curious as to maybe how you viewed.
Speaker #11: Hey, good noon.
Client activity and pacings through the through the through the quarter and into <unk>, and particularly maybe if there was any.
Speaker #4: Hey, Mark.
Speaker #11: What is to touch a little bit on, the, the openings in, in, Chicago and Dallas. I know, obviously, it's, it, it just happened. But maybe you could share, some of your, your thoughts on, on the, some main initial thoughts and, and sort of the, the preparation going into that, and sort how that plays into your expectations, and I think your prepared remarks that you're looking at another, branch or two before the end of the year, and then how that plays into your, your, your thoughts for, for the potential for '26.
Tie in or read through vis vis headlines whether it is a big beautiful bill or.
Maybe what client impacts have been sort of the big picture stuff in and sort of.
Sort of a real time environment.
Yeah, we went through our our client hiring was lower than we expected I mean, our clients grew but but at a much slower rate than historical and lower than we forecasted.
Speaker #4: Yeah. It , and we, we had all of our market development managers, in about six weeks ago, and we had a, you know, we do a, a meeting with them like every nine months.
And if you're a business owner it was a tough time to make an investment right you had.
10 different things coming at you from from tariffs to ice to you name. It Ryan It was a tough call right, Alright, alright, and I feel like we have better stability now when you have the stability you can do more long range planning and the clients that we talked to were are now making that shift to more of a long term planning as opposed to a whole.
Speaker #4: And it's, it's kind of interesting and kind of cool, to be honest with you, ause you know it's 21 folks, all going all trying to conquer the world, build their market.
Speaker #4: And you know in beginning, we had a thesis and it's kind of nice now because the thesis has been proven, right? Hire somebody, hire good people, train them, get out of their way so they can sell them, support them.
Wade approach.
Great. Thank you very much.
Okay.
Speaker #4: And then when they do well, start to hire locally, and then after they hire locally, they can, you know, build out their true BBSI branch.
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.
Speaker #4: And we've proven that in, in multiple markets now. So it's, it's more than a dream. It's a reality which is, which is fun when you see that on the faces of everybody that they can, they can own their geography if, you know, the harder they work, the more they get paid, the harder they work, the more they grow, the better the results.
Just want to thank everybody on BBSI for all their hard work and dedication and great results and thank you to all of our shareholders.
For being onboard with us Thank you everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker #4: So you know it's Dallas and Chicago were our first ones. We'll have one to maybe two more coming on this year. But you know the nice thing is we look out and ladder this.
Speaker #4: We can see that this is, you know, going to be successful and that it's going to continue to roll and it's going to continue to generate growth and itability for the organization.
Speaker #8: Okay. Great. And then a lot of my, my questions were already answered, but I was sort of curious as to maybe how you, you viewed, client activity and, and pacings through the, through the, through the quarter and, and into 3Q.
Speaker #8: Particularly maybe if there was any, tie-in or read-through via, vis-à-vis headlines, whether it's big, beautiful bill or, or, you know, maybe what client impacts have been to sort of the, the, the big picture stuff in, in, in sort of, you know, sort of a real-time, environment.
Speaker #4: Yeah. We, we went through, you know, our, our client hiring was lower than we expected. I mean, our lients grew, but, but at a much lower rate than historical and, and lower than we forecasted.
Speaker #4: And if you're a business owner, it a tough time to make an investment, right? You had, you ow, 10 different things coming at you from, from tariffs to ICE to you name it, right?
Speaker #4: It a, a tough quarter.
Speaker #8: Right. Right. Right.
Speaker #4: And I feel like we have better stability now. When you have the stability, you can do more long-range planning. And, you know, the, the clients that we talk to are, are now making that shift to more of a long-term planning as opposed to a, a hole-in-wait approach.
Speaker #8: Great. Thank you very much.
Speaker #6: At this time, this concludes our question and answer session. I would now like turn the call back over to Mr. Kramer for closing remarks.
Speaker #4: I just want to thank everybody, on BBSI for all their hard work and dedication and great results. And thank you to all of our shareholders for, for, for being, on board with us.
Speaker #4: Thank you, ybody.