BARRETT BUSINESS SERVICES INC Q2 FY2025 earnings call

• Strong revenue growth fueled by new client sales, expanded product adoption, and excellent retention; record number of WSEs from new clients.
• Staffing business declined 11.5% due to macroeconomic uncertainty causing clients to pause hiring.
• Field operations: Entered new markets with asset-light model, 21 new market development managers added ~1,130 WSEs H1; opened Chicago and Dallas branches, anticipate 1-2 more by year-end.
• BBSI Benefits: Added ~1,600 participants in Q2, ~710 clients with 19,000 total participants through July; resonates with small and large clients across industries.
• IT product objectives: Invested in tech stack, launched BBSI Applicant Tracking, will continue enhancing employee life cycle experience to target white-collar businesses.

During the second quarter ended June 30, 2025, gross billings increased 10.1% to $2.23 billion compared to $2.03 billion in the prior year quarter. PEO gross billings rose 10.3% to $2.22 billion, while Staffing revenues declined 12% to $17 million. PEO worksite employees (WSEs) grew by 8%, driven by a record number of WSEs added from new clients. PEO represents the main revenue segment, with strong growth in various regions, including Southern California, Mountain, and East Coast, while the Pacific Northwest was impacted by client hiring trends.

• Full-year gross billings expected to increase 9%-10%, WSEs 6%-8%.
• Gross margin as % of gross billings tightened to 2.9%-3.05%.
• Effective annual tax rate expected 26%-27%.
• Approved new $100 million 2-year stock repurchase program effective August 4.

• Macroeconomic uncertainty causing clients to pause hiring, impacting staffing operations.
• Workers' comp rate approval process with regulatory board, timing and impact on pricing uncertain.
• Inflationary pressures in health insurance market could affect pricing and market dynamics.

Q: Chris Moore from CJS Securities asked about workers' comp rate increase timing and impact.

A: Gary Kramer explained rate increase recommendation by WCIRB in California, going to commissioner for approval, with timing rolling based on policy renewal dates.

Q: Jeff Martin from ROTH Capital Partners inquired about workers' comp renewal profit potential and tech enhancements.

A: Anthony Harris discussed workers' comp renewal benefits from better claims performance and return premium; Gary Kramer talked about tech enhancements to target white-collar market with IT products.

Q: Vincent Colicchio from Barrington Research asked about strategies for net new client additions and Pacific Northwest performance.

A: Gary Kramer mentioned multiple factors contributing to client additions, and Pacific Northwest was impacted by economic slowdown in construction and other industries.

Q: Marc Riddick from Sidoti asked about Chicago/Dallas openings and client activity.

A: Gary Kramer discussed successful market development manager approach leading to branch openings and clients shifting to long-term planning due to stability.