Good afternoon everyone and thank you for participating today's conference call to discuss BBSI's Financial Results for the Fourth Quarter and Full Year Ended December 31st, 2024. 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. 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 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. 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. I would like to remind everyone that this call will be available for replay through March 26, 2024, starting at 8:00 P.M. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.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.

Thank you and good afternoon everyone and thank you for joining the call. I am pleased to report that we had a strong fourth quarter, capping up an equally strong year. Our financial results exceeded our expectations and we are optimistic for the future. We continue to execute our short and long-term objectives and we added a record number of worksite employees from new clients. Before I speak about our financial performance, I would like to recap some of the key operational and strategic accomplishments for the year. We are successfully selling and servicing BBSI Benefits in every one of our markets. We entered into an additional strategic multiyear partnership with a new carrier that set us up for a great 1/1/2025 selling season. Of the new clients, we are seeing success in white collar verticals that we previously had a difficult time penetrating. Our strategic sales initiatives have been operationalized and are resulting in a greater velocity at the top of the sales funnel, resulting in record WSEs. We have more referral partners that understand and appreciate our value proposition and are referring more business to BBSI. We continue to invest in our asset-light model and have successfully expanded into new geographies and continue to gain momentum. We continue to invest in myBBSI and in our tech stack, which resulted in multiple product releases in 2024 and we are executing on exciting new product releases in 2025. We also made further advancements on our Employer Choice initiative and earned the Great Place to Work designation for a fourth year in a row. Every year, we conduct a survey of our clients to evaluate customer needs and satisfaction and I am pleased to report that our Net Promoter Score increased 5 points to 69. This gives us great confidence in…

Thanks Gary and hello everyone. I'm pleased to report that we finished the year with strong results and are off to a strong start in 2025. For the quarter, our gross billings increased 10% to $2.25 billion versus $2.05 billion in Q4 2023, while diluted earnings per share increased 17% to $0.63 compared to $0.54 in the prior year quarter. For the full year, gross billings increased 7.9% to $8.3 billion in 2024 versus $7.7 billion in the prior year, while diluted earnings per share increased 7% to $1.98 compared to $1.85 in the prior year. Looking at the quarterly results more closely, PEO growth billings increased 10% in the quarter, while staffing revenues declined 9% to $20 million. Our PEO worksite employees grew by 5.2% in the quarter, which as Gary noted, was driven by a record number of WSEs added from new clients in the fourth quarter. This continued a strong trend of controllable growth during the year and was once again combined with positive and improved client hiring in Q4. The pace of client hiring exceeded our expectations in the quarter, but still remains below our long-term historical averages. We continue to see consistency in client hiring across most regions and across the industry. Looking at wage rates and hours worked, total hours remained stable in the quarter, while overtime hours increased modestly year-over-year. Wage rates continue to increase and average billing per WSE increased 3.3% in the quarter. Looking at year-over-year PEO gross billings growth by region for Q4, East Coast grew by 21%, Southern California grew by 11%, Mountain grew by 10%, Northern California grew by 5%, and the Pacific Northwest declined by 4%. Southern California represents our largest region and has improved to double-digit growth through a combination of consistent client adds and stable…

Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] And our first question comes from Chris Moore with CJS Securities. Please go ahead.

Hey, good evening guys. Thanks for taking a couple of questions and congrats on another good year and on the NPS score. Maybe we'll talk about obviously higher wages in a vacuum positive for you guys. What are you hearing from clients in terms of being able to continue to grow in the current environment? It sounds like hiring is picking up a little bit, but just any further thoughts there?

Yes. Thanks, Chris. This is Anthony. We're really seeing stability and recovery in those metrics. So, first of all, you mentioned wage inflation. We've continued to see consistent wage inflation every year and that's a baseline driver of growth for us and we're seeing that rate remain stable. We continue to see on a year-over-year and sequential basis wage inflation remain consistent. In terms of hiring, we've seen that trend improve during the year. And notably in Q3 and Q4, we also saw overtime hours improve in the year, also indicating kind of increased activity in our clients. So, as I mentioned in my remarks in our outlook, we're cautiously optimistic. We're expecting only modest improvement for the purposes of our outlook, but we see the trends that are favorable.

Got it. I appreciate that. Average WSE growth is targeting around 5% this year. Just wondering the majority of those are come from new clients, correct?

Yes, that's going to be the lion's share of our growth is going to come from our controllable growth, which is the clients we add and the WSEs they have and the clients we retain.

Got it. And maybe one more on the healthcare side. Can you just maybe talk a little bit about the mechanics of how you get paid on healthcare, like reseller fees versus admin fee expansion and where that looks to go over time in terms of that split?

Yes, we had a very I mean, when we were -- last quarter when we were given our earnings call and we kind of talked about how we saw 2025 shaping up and it was going to be similar to 2024, that was before we had a really good close of the year and a really good start of the year. So, we closed out the year really strong and we had a great January selling season, the best January selling season we've ever had by far, like 20% more new business than we did in any other January. So, we really finished strong and started strong and because of that, we moved up our gross billings estimate by like 200 basis points from what we originally thought if you would ask me a quarter ago. So, a portion of that was allocated to the strength in how we closed with our Benefits product. So, we doubled the number that we wanted for 1/1 business. So, we crushed our plan for 1/1 and we crushed our plan for the back half of the year. So, if you just think of getting that -- finishing strong and starting strong, you get the compounding effect of having that earned through your financials for the full year. So, for the earned through the financials for the full year, on the healthcare, number one, we don't take any health insurance risk, right? We don't take any risk on the workers' comp. We're marginal small risk on the workers' comp and no risk on the health insurance. For the health insurance, we get a think of it as a seller's fee. So, we get like a commission for the market for selling the product, number one. And then number two, because we handle the administration, the compliance, the enrollment, the IT, and we're able to provide good value with that product, we're able to charge a little more for our PEO admin. So, we get a little bit from the market and we're able to charge the clients a little more because of the value is there.

Got it. And I'm sorry, last one. On the healthcare revenue side, is that something that you would eventually break out on the financials to give investors a look a couple of years down the line of what's being generated there?

Yes. It's something we've talked about and we want to make sure we're disclosing the right metrics for understanding the business. One of the nuances of disclosing a revenue number for benefits is just from the question you asked is really our kind of income generated from that program is twofold, right? It's kind of the reseller fees, but it really is packaged together with our overall admin fee that represents the value that we're providing to our clients, right? And a big part of that now is health benefits. So, kind of that -- as we think about the profitability of that program, the income is more than just the reseller fee, it's also that admin fee expansion. So, we're being thoughtful about how we present that and disclose that, but absolutely we'll continue to expand those disclosures.

I appreciate it. I'll jump back in line.

Thank you. Our next question comes from Jeff Martin with ROTH Capital Partners LLC. Please go ahead.

Thanks. Hi Kramer, hi Anthony, how are you doing?

Good.

So, Kramer, I wanted to drill down on the tech investments. It sounds like this is in part, I mean, I'm sure this is part of a roadmap that had been planned for quite a while, but just curious if you've enhanced your technology initiatives or your technology product initiatives as a result of starting to attract non-traditional clients in the white collar space and larger clients?

Yes. So, when you're running a company, the biggest decisions you have to make is strategy and allocating capital. And if you think of how we've shifted over the years, right, we've repositioned the product to sell health insurance to have a learning management system for all these different things. And those all have an IT component to them, right? So, we have been really investing and bolstering up our IT tech stack for the last three years to support the business. And that was really designed for the products that we were trying to launch. Now, we're really thinking of using software as a -- I don't want to say Software-as-a-Service, but using software to help support our business and to help support the business. The first one we've launched is the applicant tracking, right? And it's pretty cool because if you're a client and you hire a lot, and it could be anything from a franchise to you name it, right? It doesn't need to be just like an office worker. It could be anything in that space and has a lot of volume in the hiring. But the basic idea is you can come into our system. We have a bunch of job descriptions that are curated. You can take the job descriptions. You can then modify it to better fit your company. You can post it. It posts out the different job boards. People go in and apply. When they apply, they come into our system. When they come into our system, depending upon how the client has it set up, they can ask them questions, do screening, do the interviews in there, push out emails and calendars and all those things. Okay. Now, we want to hire the person, hire the person, boom, we push out the I-9s, the background checks, the different forms through our system, okay. Now, they passed all that, boom, we want to hire them and then they go right into payroll, into our payroll platform and into our timekeeping systems if they buy our timekeeping systems. So, that's the front end and that's what we talk about on the employee life cycle, right? So, it's how do you attract clients, how do you bring them in, how do you hire them. That's the first step I would say that we're building out in 2025 and we launched it this week and we're going to start selling it in March. But the idea is that's the front end and then throughout the year, we're going to have additional products that come out that support that employee -- that client employee life cycle. So, you'll see more of this coming out in the back half of the year. We've got a roadmap that's going to be a couple of years until we get to what I would call best-in-class.

Great. And on the payroll tax side, I think you were I think rates were due for a catch up. Did the rate come in, in line with your expectations? Did it surprise you to the extent that it cost you a little bit of margin relative to your initial budget for the year? And is there an ability to recapture some of that if that's the case with pricing?

Yes, Jeff. This is Anthony. You're correct that rates were due for a catch up to some extent, right? They have been coming down for multiple years in a row. Last year, they went up. This year, they went up as well, but I would say very much in line with expectations. We saw that trend coming. We see the unemployment activity and that was in line with our expectations. That said, every client in our client reporting states like California has their own rate, and so we need to wait till those rates come in to effectively reprice most of them. So we have processes to do that. But as I mentioned, there is some lag in that. At the end of the day, that will be captured, but there may be some change in the shape of our earnings, a little bit more of a loss in Q1. We saw that trend last year as well. But overall, especially over a rolling 12 months, we are not expecting margin degradation.

Okay, great. And then one more if I could, two-part question. One, any signs of a turnaround in the pricing side of the workers' comp market? And then secondly, what is your exposure to businesses that have been affected by the California wildfires?

Kind of the joke at the new organization is I've been trying to call the bottom for workers' comp for six years and I've been calling it wrong. You're seeing a deceleration in rate decreases now. It hasn't flattened. It's still trending downward, but at a much smaller rate. So, I would think workers' comp is going to decelerate slower from here and we're seeing that in the market, but it's still there's still pressure. If it's a good account, it attracts a lot of buyers. And when there's a lot of buyers, it drives down the price, if that makes sense. So, we don't see the bottom yet. We're hopeful that we're going to see the bottom soon, but ultimately, it's the market doing what the market does. And I think it's going to turn sooner than later, but I don't I can't pinpoint when it's going to turn. For the California wildfires, directly for us, I'd say for our employees, there was minimal employees that were affected. There was minimal branches that were affected. We did have to evacuate a couple of times, but no there was no loss of property on our branch side. When we think of our clients, the Palisades, the Malibu per se are not big grounds for our clients. So, we had minimal client effects. I think we had one client who had his facility burned down, but out of call it 8,500 clients having one that was affected by it. We call it almost nothing. The real question that we think is unfortunately when there's a tragedy the way it was, it's got to get rebuilt. And when it gets rebuilt, we think of our clients being prone in position to capitalize on the especially in our blue-gray collar, to capitalize on the rebuild. So, we think a lot of our clients will get business from the rebuild. We've seen it with our restoration companies already. Think of the restoration types of companies that go in and do the rehab for the water damages and the fire damages, we've seen them boom already. What we haven't seen yet is the construction uptick, but ultimately that will follow. I don't know if that's going to be a 2025 event or if that's going to be 2026 by the time all the permitting and everything shakes out. But we definitely think that that business specifically is going to have a tailwind in California for us.

Great. Appreciate the thoughts.

Thank you. Our next question comes from the line of Marc Riddick with Sidoti & Company LLC. Please go ahead.

Hey, good evening.

Hey Marc. Hello.

I wanted to follow-up on your comment on the strong finish to the year and strong beginning to the year. I was wondering if you could talk a little bit about maybe if you're seeing any particular client industry verticals that are kind of leading the way that you touched a little bit on construction, but are there any sort of call outs that you're seeing that might be leading away in that activity?

Marc, I would say it's not so much related to any one geography or any one industry. I would say broad based, the company just did well in Q4 and the company did well in January. The one call out I did give in my script was our asset-light, our Market Development Managers. They added over 500 WSEs in January, which is a really good accomplishment for them. We're starting to see consistency out of that group and I'm looking forward to watching that grow.

Great. And then I was wondering if you could maybe sort of discuss with benefits. The -- I know it's sort of early into a new year or what have you, but maybe can you sort of talk about where you are currently from a competitive positioning standpoint, maybe some of the call outs that give you confidence in the strength of the ads that you've seen to-date, which -- and I appreciate the detail and update on that data, but maybe some of the things that you think sort of are helping you sort of stand out in that area, particularly with the pickup on the white collar side that you alluded to earlier in your prepared remarks?

Yes, if you just kind of take a step back and look at our value prop, right? We're going to we've got more products now with Benefits and with other things in IT. We're going to have more IT products coming out. But they will never replace our core product, which is our people, right? So, people are our product. They will always be our product. That's our differentiator in the local market. So, if I can have a local team that is second to none and then I've got all of these additional products and if those products are even if say we're equal to the different marketplace, if you can be equal to the marketplace plus have that killer team there, it's going to be hard to beat us, right? If the price is the same and you get our teams, it's going to be hard to not go BBSI. And that's why we're seeing the uptick in sales.

Great. And then congratulations again on the Net Promoter progress that you made there as well. That's certainly a positive as well. Thanks.

Thank you.

Thank you. 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.

Just want to thank everybody for dialing in. Thanks everybody, all of our BBSI professionals for a great Q4 and really for a great start of the year. I'm looking forward to 2025. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.