Barrett Business Services, Inc. (NASDAQ:BBSI) Q1 2024 Earnings Report Call Transcript May 4, 2024
Valet Business Services wasn't among the 30 most popular stocks among hedge funds at the end of the third quarter (see the details).
operator: Hello everyone. Thank you for joining us today on a conference call to discuss BBSI's financial results for the first quarter ended March 31, 2024. Joining us today is Gary Kramer, president and CEO of BBSI. and Anthony Harris, the company's CFO. After your remarks, we will begin the question-and-answer session. Before proceeding further, please note our safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. This statement addresses important questions regarding forward-looking statements. Statements made by the Company on today's conference call include forward-looking statements. These statements, along with other information that may not reflect historical facts, are subject to numerous risks and uncertainties.
Actual results may differ materially from those suggested by these forward-looking statements. For more information on the risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward-looking statements, please refer to the Company's recent financial statements and the Company's quarterly financial statements filed with the Securities and Exchange Commission. See Reports and Annual Reports. We would like to remind everyone that this call will be available for replay starting tonight at 8pm ET until June 1, 2024. A replay of the webcast will be available at the link provided in today's press release, as well as on our website at www.bbsi.com. I would now like to turn the call over to Gary Kramer, President and CEO of BBSI.
Please do.
Gary Kramer: thank you. Hello everyone. Thank you for joining the call. We are pleased to report that we are off to a strong start this year and our financial results are in line with our full-year expectations. We continue to meet our short- and long-term goals and added a record number of field employees in the first quarter. Looking at our financial results and field workforce, our total billings during the quarter increased 7% year-over-year, consistent with our expectations. We continue to implement various strategies to increase the top of the sales funnel and are seeing positive results. WSE due to new client additions increased by 11% compared to the same period last year. Our customer retention rates continue to trend better than pre-pandemic levels.
We attribute that to the work we do with our clients and the value our team provides. The result of all these efforts, or what I call controllable growth, is approximately 3,100 additional field employees per year from net new customers. We mentioned earlier that our client workforce started to stabilize in the third and fourth quarters. We are pleased to report that client hiring began modestly in the first quarter, in line with our expectations. In summary, during the quarter we increased our field workforce by 3.1% as we sold and retained more business and experienced the benefit of modest net employment for our clients. Looking at our staffing business, our staffing business was down 12% year over year, which was within our expectations.
We continue to execute on our strategy of recruiting PEO clients, placing 79 applicants in the quarter. We also experience macroeconomic factors such as demand and supply imbalances that vary by region. Looking ahead to the rest of the year, we expect our staffing business to stabilize as we begin to see softer comparables starting in the second quarter. Moving on to our field operations updates, we are very happy with our entry into new markets with our asset-light model. We have a total of 15 new market development managers at various stages of development. They are doing well and have almost reached their goal of adding and serving new customers and new referral partners. Over time he has hired additional personnel to support clients in two markets and is in the process of transitioning his BBSI branches to traditional brick-and-mortar stores.
We continue to see positive results from our investments in new markets and are actively recruiting new market development managers. Regarding product updates, we will continue to sell and service our new health insurance product, BBSI Benefits. We are happy to say that we successfully completed the year-end sales season and that by March, approximately 280 customers had joined our various plans, and the total number of participants exceeded 7,000. We will continue to invest and evolve our business product offering. Earlier this month, we announced a multi-year strategic partnership with Kaiser Permanente for programs beginning July 1, 2024. Kaiser is known for superior healthcare services and offers one of the most complete and competitive HMO products on the market.
This service falls under our workers' compensation and health insurance framework and we assume no underwriting risk. The addition of Kaiser further strengthens our product offering for blue-collar and gray-collar customers. The company plans to offer his PPO nationally alongside Kaiser HMO and has received positive feedback from clients and referral partners. We believe this will help him grow beyond July 1st, but more importantly, accelerate his growth looking beyond 2025. We are pleased with the results of his BBSI Benefits and this product will increase his earnings in 2024. We are bullish on this product and will benefit from leverage through scale. Next, I would like to move on to our outlook for the remainder of this fiscal year.
Great momentum continues for consecutive quarters. We met the expectations of our on-site employees. We remain optimistic about the future. We have consistently achieved strong, controllable growth by focusing on our clients' needs and adding new clients. We have more products to sell, more people to sell to, and more referral partners to recommend BBSI. Overall, there are important elements to our view of the economy. [Technical Difficulty] economic turmoil. [Technical Difficulty]
operator: Your phone is blocking us.
Anthony Harris: Thank you, Gary. Can you hear me now?
operator: yes.
Gary Kramer: Understood. Should I continue?
operator: here you are
Anthony Harris: Understood. thank you.
Gary Kramer: I was just in that transition period.
Anthony Harris: know. It might be a good time. A little relaxing break. Thank you and hello everyone. We ended the first quarter with strong results in line with our plans and are pleased to report continued strength in our sales pipeline. Total billings for the first quarter of 2019 increased 7% to $1.9 billion compared to $1.8 billion in the same period last year. His total PEO billings for the quarter rose 7% to $1.89 billion, while staffing revenue fell 12% to $20 million in the quarter. . Our PEO workplace employees increased by 3.1% compared to the same period last year. This is the result of large, controllable growth in net new PEO customers and modest hiring within our existing customer base. Looking more closely at client adoption trends, we saw moderately active adoption in all regions except the North West.
While the North West remains the most affected by the decline in the construction sector, all other regions are now seeing slight year-on-year increases in construction employment. The pace of hiring remains generally slower than historical trends across all regions, but is consistent with our expectations. By working hours, overtime hours per employee remained stable, and total overtime hours exceeded the same period last year for two consecutive quarters. Pay rates continued to rise, with his average bill per WSE for the quarter increasing by 3.5%. Looking at the growth in total PEO billings by region compared to the first quarter of last year, the East Coast increased by 17%, the Southern California Mountain States increased by 7%, Northern California increased by 4%, and the Pacific Northwest increased by 7%. decreased by 6%.
Turning to margins and profitability, our workers' compensation program continues to perform well, benefiting from favorable claims frequency trends and favorable claims performance. This strong performance resulted in another favorable adjustment to the prior year's claims. In the first quarter of 2024, we recognized a prior year favorable liability and premium adjustment of $3 million. In comparison, the favorable adjustment for the first quarter of 2023 was $1.1 million. As a reminder, our customers' workers' compensation is currently covered primarily by our fully insured program and no liability is retained by BBSI. Payroll taxes are typically highest in the first quarter when the wage cap is reset, and the effective unemployment rate for customers is slightly higher this year than in recent years.
These higher rates are reflected in our billing rates throughout the year, and our gross margins are consistent with expectations on both a quarterly and annual basis. Our overall profitability continues to benefit from operating cost management. SG&A expenses increased approximately 3% in the first quarter, but at a slower rate than the rate of increase in billings, resulting in continued operating leverage. Let's move on to investment income. Our investment portfolio generated $3.2 million in revenue in the first quarter, an increase of $900,000 year-over-year. Our investments continue to be conservatively managed with average AA quality and average book yield of 2.9%. First quarter net loss was $0.10 million, or $0.02 per diluted share. In comparison, net income for the prior year period was $0.80 million, or $0.12 per diluted share.
This decrease was primarily due to an increase in payroll taxes, partially offset by lower workers' compensation expenses and higher investment income. Our balance sheet remains strong with $124 million in unrestricted cash investments and no debt as of March 31. We continued our approach to capital allocation, investing back into the company through product enhancements and geographic expansion, and distributing excess capital to shareholders through dividends and a share repurchase program. Under the Board of Directors' July 2023 Repurchase Program, BBSI repurchased $7 million of stock in the first quarter at an average price of $120 per share, reducing the $52 million available under the program at quarter-end. Remaining. The company also paid a $2 million dividend in the quarter and reaffirmed its dividend for next quarter.
The Board of Directors also announced its intention to implement a 4-for-1 stock split, pending shareholder approval of the related increase in the number of authorized shares. The execution of this stock split is intended to increase our liquidity, improve stockholder liquidity and trading efficiency, and speaks to our optimism about our long-term value and our trajectory. Masu. The effective date of the split is expected to be June, pending the results of a shareholder vote. Turning to our full-year outlook, our first quarter results are in line with our plans, and our 2024 expectations are consistent with our prior outlook. We continue to expect total billings to increase 6% to 8% for the year. Average WSE is expected to increase by 4% to 5%.
We expect gross margins on total payments to be between 2.95% and 3.15%. We also expect our annual effective tax rate to be between 26% and 27%. We will get back to you with your question.
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