Good afternoon, everyone and thank you for participating in today's conference call to discuss BBSI's Financial Results for the First Quarter Year March 31, 2025. 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 facts 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 May 30, starting at 8:00 P.M. Eastern Time tonight and 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. Good afternoon, everyone and thank you for joining the call. I am pleased to report that we had a record start to the year. Our new client sales coupled with our upselling of new products plus great client retention resulted in our revenue exceeding our expectations. We continue to execute our growth objectives and we added a record number of worksite employees. Moving to our financial results and our worksite employees. During the quarter, our gross billings increased 9.5% over the prior year's quarter and was greater than our expectations. We continue to execute on our various strategies to increase the top of the sales funnel and we are seeing positive results. We had a very strong Q1 selling season adding 55% more WSEs from new client adds than prior year quarter. Our client retention continues to trend better than our historical levels. I'd like to attribute that to the work we do with our clients and the value our teams provide. The result of all these efforts or what I refer to as controllable growth is that we added approximately 7,900 worksite employees year-over-year from net new clients. We mentioned previously that we began to see our clients resume hiring, but below historical levels. January and February followed this fact pattern, but hiring slowed down in March and was less than we expected. Our clients' workforce still grew in Q1 but at a slightly slower pace than we planned for. The net result of strong customer adds and positive customer hiring was that we grew worksite employees by 7.6%. Moving to our staffing operations. Our staffing business declined by 10% over the prior year quarter and was below our expectations. January and February were in line with our expectations, but we experienced a slowdown in March. We…

Thanks Gary and hello, everyone. I'm pleased to report that we finished the quarter with strong results and exceeded our plan. Gross billings increased 9.5% to $2.09 billion in Q1 2025 versus $1.91 billion in Q1 2024. PEO gross billings increased 10% in the quarter to $2.07 billion, while staffing revenues declined 10% to $18 million in the quarter. Our PEO worksite employees grew by 7.6% in the quarter, 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. In addition, we saw continued, but still subdued client hiring in the quarter. Total hours and overtime hours increased modestly year-over-year continuing to show stability. Wage rates continue to increase as well and average billing per WSE increased 2.6% in the quarter. Average billing per WSE would have been higher but Q1 included one less business day than the prior year. Looking at the year-over-year, PEO gross billings growth by region for Q1. The East Coast grew by 14%, Southern California grew by 11%, Mountain grew by 9%, Northern California grew by 6% and the Pacific Northwest declined by 1%. Southern California represents our largest region and has improved to double-digit growth through a combination of consistent client adds and customer hiring and better than expected client retention. The strong East Coast performance represents the 16th consecutive quarter of double-digit growth in that region also driven by strong controllable growth. The Pacific Northwest region is our smallest region, comprising about 5% of our gross billings and they had a modest reduction in net 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.…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Chris Moore from CJS Securities. Please go ahead.

Hey, good afternoon, guys. Congrats on a nice quarter. And thanks for taking a few. So maybe just on the tariff side I think we talked about this a little bit last quarter. But roughly what percentage of your clients would you estimate have direct tariff exposure and that could be positive or negative?

Yes. Just in general, we primarily deal with service businesses. Think of the blue, gray the contractors the trades. They're not going to have the direct, they're going to have the indirect, which is maybe some of their materials or supplies will cost more. We don't have a ton of manufacturing, which would have to deal with this. Where we do see it is in call it our Southern L.A. or Long Beach area. We do have some trucking and logistics business, intermodal business that we've seen start to slow down as you look at the – I think it's like 60% less ships are coming in from China to the port. And if there's less ships coming in there's less freight to move. We're seeing it there. But I would say in the aggregate it's nothing that's material.

Got it. Very helpful. One of the – obviously, one of the bigger changes in the BBSI model over the last five years or so is the asset-light model allows you to cost effectively determine if a new geography makes sense. You mentioned three new physical locations. Is there an annual goal or target for the number of new physical offices?

Good question. It really has to do with the development in that area. Some markets develop quicker than others. We expect all the markets to develop. We don't really have a plan for how many physical locations we're going to have in a year. Some of them we look at it and say, when does it make business sense to put the brick-and-mortar there? And the reason we do that is just because once you get the brick-and-mortar you're going to have the expense that goes with it and you want to make sure that you can justify the expense. So when we look at the first three. It's Dallas, where we're doing well, Chicago, where we're doing well, Nashville where we're doing well. They will come online end of Q2. early Q3 is when we're going to have the ribbon cutting for them. And then we'll probably have one more by the end of the year with possibly two more followed next year but we don't have a cadence of say three a year. It's really when they're ready for it. And surprisingly the thing that has really surprised me is I would think it would be easier to get commercial real estate in this market. It's been a challenge in some places. We wanted to be in these locations sooner but it's been a challenge on the real estate side believe it or not.

Interesting. I'm just trying to understand or kind of estimate what percentage of growth over the next say five years could come from geographic expansion? I mean can that add a point or two of growth a year over time? Or is that too aggressive?

We really think of it as – I like to call them our 401(k) right? These are our investments for the future. we know that we're going to get revenue out of them in the short term. We know that we have a plan that they're going to get up to speed and cover their cost in the short term. But we're really not doing this for profitability until we get out until year three and beyond. And we look at it as a profitability play not a revenue play.

Got it. And that makes sense. Maybe just last one for me. On the healthcare side obviously, you have two key relationships Aetna Kaiser Permanente. Is that enough? Is there any value in a third partner at this point in time?

We have partnerships that we – that are not as large as those. We have some Blues. We have some other carriers in certain states. Typically when we're in a market we try to understand how is the Aetna network? Do we need to complement the Aetna network with a regional carrier? If we do have to complement it with a regional carrier we add them in. So in certain states where it makes sense, I think it's like three or four states, we already have additional carriers in those states.

Got it. I’ll jump back in line. Thank you.

Thank you. And your next question comes from the line of Jeff Martin from ROTH Capital Markets. Please go ahead.

Thanks. Good afternoon. I wanted to dig in a little bit more on kind of how you – when you updated guidance or maintained guidance relative to the Q1 beat -- what were some of the factors that you've considered in coming to your conclusion that 7% to 9% gross billings growth is a good number to stick with given the uncertainty?

I mean, if you just kind of look at where we finished for the quarter, right? So, we finished above our range on gross billings. We finished above our range on WSE growth. And if you just kind of look at that and said, "If the year was going to play out, we would have had to increase our guide for that." So, there are the puts. And then the takes would really be how the profitability of the business, going is and the profitability of the business is on plan for the quarter. So, as we look out to the future, the thing that we've learned in the COVID environment is, when there are these macro shifts during COVID we saw new business slowdown and we saw and we experienced our retention going up. And then the only time businesses were moving in that time of uncertainty was if it was a cost savings or a cost play. So, we're looking at the future, and we say, "All right, well, we're into April already well, we're May already." But for us, our April account hasn't closed yet. For April, we saw positive trends as well. On -- think of the -- we call it cash versus accrual. So, you work this week, but you don't get paid for two weeks. So, we don't actually know all of the April hours yet. But from what we know, we know for April we've met our client add numbers. We met our benefit add number that we had for the plan. Our WSEs for April are higher than the plan. That trend continues. And just that's what we can see, right? And unfortunately, we don't have line of sight further out past April and then based upon that we looked at it and said, "Well, you know what, we're ahead of plan on these metrics. The macro may pull it back. There's puts and takes. So, let's keep the plan where it's at -- or let's keep the forecast or outlook where it's at."

Okay. And then on the benefit side, how much do you think that's driving new client growth versus existing clients adding the benefits to their packet?

Yeah, we -- good question, we're now getting through the cycle of—when we rolled this product out, we had better success selling it into our existing clients than new clients. Now we're getting more of a balance as we got through 1/1. If you looked at the 1/1/24 selling season, it was about 75% existing, 25% new. When we looked at the selling season for 1/1/25, it shifted to about parity of 50–50. So, a lot of these clients that we brought on would not have joined Barrett Business Services, Inc. if we didn't have this benefits offering. So, that's where we really have the wind at our backs -- we're able to get into markets where we weren't before, and the distribution houses where we weren't before into -- we're bringing on doctors and lawyers and businesses that we wouldn't have brought on before, and we're getting a real tailwind in that space for it.

Great. That's good news. And then last one for me is, when you're going out there and selling to clients, are you displacing more PEOs than legacy PEOs than you had in the past? The reason I asked the question is you're posting growth that's several factors of what others in the industry are showing in their more recent results. Anything in particular you could attribute that to outside of the benefits being an incremental value driver?

We're -- I can just tell you that it's a lot of little things that we've been doing to get the sales machine going. The people we hire, the training we have, the technology we're using, better products we're bringing to market. There's a lot of things that we've changed in the organization. And you're seeing the benefit of all of those now. Predominantly, the clients that we bring on are converting to a PEO for the first time. We are seeing more PEO takeaways now, especially in our market development managers. They typically have a strategy to do PEO takeaways. In our other markets, we do PEO takeaways too. But it's not -- we look at the -- one of the reasons we love this industry, right? There's 85% of the businesses out there that are not with a PEO, right? So there's plenty of ocean to go fish in, and we view it as go fish in a spot where nobody else is at, and that's the way we've been successful.

Appreciate the time. Thank you.

Thank you. [Operator Instructions] And your next question comes from the line of Vincent Colicchio from Barrington Research. Please go ahead.

Yes, Gary, impressive net new client adds in the quarter. Is there anything that you'd want to add to what's already been mentioned in terms of how you were able to achieve that? Anything new with the marketing tools that you're using anything of that nature?

I'm not going to give our playbook to the competitors there, Vince.

That's fine. That's fair. On the staffing side, I thought that you had some manufacturing in there. Is that -- would you answer that question differently than the overall as far as exposure to tariffs?

We've looked -- in the Northwest, we have some of our on-sites are in agriculture. Part of the concern was that was business that was ultimately going to go to China and was going to be rejected now with the tariffs. The business that we have there stays US, like think of potatoes, things of that nature or onions. A lot of that gets processed different foods that get sold into the US. It typically the raw materials of agriculture that go to China for us from the US. So when we looked at the agriculture side, we feel pretty good that, that's not going to pull back in the Northwest. And when we looked at down South, Southern Cal, we do have some staffing business that deals with logistics and warehousing. We haven't seen the effect there as of yet. If anything, it pulled it forward as folks tried to stock up before these tariffs went into effect. We don't know how that's going to play out in the rest of the year. Just a reminder that staffing is a very, very small piece of our business.

And how is pricing trending? I think I may have missed your comment on that. Is -- are you seeing any pressure from any pockets of clients given the economic backdrop?

There's -- we've said this for quarters and years now about the workers' comp pricing. Workers' comp pricing has what I would say now moderated. It's not going up much. It's not going down much, call it plus 2%, minus 2%, the range we're seeing. The promise we've seen is the regulatory agency of California, the WCIRB has recommended an advisory rate increase of I think it was 11.2%. So you're having the rating agencies say workers' comp premium prices should go up. And we view that as -- been the joke of the organization that I am not good at calling the bottom but I feel like we're closer to the bottom now than we've ever been.

Okay. Nice quarter. Thanks.

Thank you. And your next question comes from the line of Marc Riddick from Sidoti. Please go ahead.

Hi. Good evening.

Hi, Marc.

So a lot of my questions were already covered. I was sort of wondering, though and congratulations on a great start for the year, particularly with benefits. I was wondering, if you could talk a little bit about some of the -- were there any particular new service offerings or sort of new paths that you think would resonate particularly well given the current environment? I mean, I can imagine there are certain things that you had planned for the year, but can you sort of share with us, are there any sort of things that might be maybe more of a priority now than vis-a-vis what it might have been six months ago or so that's helping with the new client adds or along those lines?

Yes. I would definitely say, we added Kaiser into our medical offering on 7/1. This was our first 1/1 with selling the Kaiser product, right? So we have the Kaiser HMO side-by-side, the Aetna PPO. And we had estimates with Kaiser and to add, think about how many participants are we going to add in a year. We had estimates with Kaiser in our agreement and we blew the doors off of that. We like 2.5x to what we thought we would do in a year. We did it in about seven months. So our Kaiser offering is definitely helping us in California in both North and South. So, I think just having better access for folks is really working for us. So that's one and that's going to continue throughout the year. We're excited about our applicant tracking. We've got -- it's still very new, right? We just launched it in March. We've got less than 50 clients on there now, but we're seeing the positive on that. And we're seeing that the clients appreciate the investment we're making, because it makes their life easier, because it makes their life more efficient. And then ultimately the more they have with us, the longer they'll stay with us. Q – Marc Riddick: That's great. And then between the commentary around client retention and things like this, it seems as though you're certainly moving in the right direction, as far as wallet share. Are there -- were there any sort of areas that have not sort of performed as you would have hoped or expected given the headlines? Or was there anything that we should be thinking about that could maybe take a little longer to gain traction? Thanks.

Yes. Just as we have our IT product road map that we're filling out the employee life cycle for -- we're going to have releases pretty much every quarter, to get to a good employee life cycle from hire to retire. That's one, that just because you turn it on doesn't mean they're going to jump into it. It's going to take some time to get that thing fully integrated with our clients. Some clients may want it, some clients won't want it, right? So, that's one that we look at it and say we know in the white collar verticals, we know in the larger businesses, we know for the businesses that have higher turnover that they need these tech resources, and we're building out those tech resources. So we look at that and say, that's not really going to have a material effect on the organization in 2025. We view this as a longer-term play, as we make these investments. Q – Marc Riddick: That’s very helpful. Thank you very much.

Thank you. There are no further questions at this time. I would now hand the call back to Mr. Gary Kramer for any closing remarks.

I just want to thank all the BBSI professionals for a great quarter, and thank everybody for their support. Thank you.

This concludes today's call. Thank you for participating. You may all disconnect.