BARRETT BUSINESS SERVICES INC Q1 FY2025 earnings call

• Record start to the year with revenue exceeding expectations, new client sales, upselling, and strong client retention.
• Gross billings increased 9.5%, with a strong Q1 selling season adding 55% more WSEs from new clients than prior year quarter.
• Staffing operations declined 10% over prior year quarter due to March slowdown and macroeconomic headwinds.
• 21 new market development managers added, with 600+ new WSEs added, and expect to move into new physical locations in Chicago, Dallas, and Nashville by early third quarter.
• BBSI Benefits off to great start, with ~3,000 participants added in 1/1 selling season and ~640 clients with over 17,500 participants by April.
• IT product updates include investments in myBBSI, learning management system, integrations, and launch of BBSI Applicant Tracking System in March.

During the quarter, gross billings increased 9.5% over the prior year's quarter. PEO gross billings increased 10% to $2.07 billion, while staffing revenues declined 10% to $18 million. PEO worksite employees grew by 7.6%. The East Coast had 16th consecutive quarter of double-digit growth, Southern California had double-digit growth, and the Pacific Northwest had a modest reduction in net client hiring. PEO represents a significant revenue contribution, with staffing being a smaller segment.

• Maintained outlook for billings growth between 7% and 9% for the year.
• Maintained outlook for WSE growth between 4% and 6% for the year.
• Clouded macroeconomic uncertainty led to maintaining rather than revising the outlook.

• Macroeconomic uncertainty from trade negotiations and government initiatives, which could cause hiring and investment slowdown.
• Tariff impacts on some clients, particularly in trucking/logistics and intermodal business in Southern L.A. and Long Beach areas.
• Real estate challenges in securing commercial spaces for new physical locations in new markets.

Q: What percentage of clients have direct tariff exposure?

A: Primarily deal with service businesses, few with direct exposure; ~60% less ships from China to port affecting trucking/logistics in Southern L.A. and Long Beach, but aggregate impact is not material.

Q: Annual goal for new physical offices?

A: No set annual goal; new offices opened when business sense justifies, with three new locations expected by early third quarter.

Q: Percentage of clients with direct tariff exposure and impact?

A: Primarily service businesses, some trucking/logistics in Southern L.A. and Long Beach affected by reduced ships from China, but aggregate impact not material.

Q: How factors led to maintaining 7%-9% gross billings growth guidance?

A: Finished Q1 above billings and WSE growth ranges, but macro uncertainty and profitability puts/takes led to maintaining outlook.

Q: Benefit side impact on new client growth?

A: 1/1/25 selling season had ~50-50 split between existing and new clients for BBSI Benefits, helping new client growth.

Q: Displacing PEOs and legacy PEOs?

A: Predominantly bringing on first-time PEO clients, with some PEO takeaways, and focus on underserved markets.

Q: Marketing tools for net new client adds?

A: Details not shared to avoid competitors, but positive trends in client adds and benefit adds.

Q: Staffing exposure to tariffs and pricing trend?

A: Agriculture in Northwest and logistics/warehousing in Southern Cal; workers' comp pricing moderated, with WCIRB recommending 11.2% increase.

Q: New service offerings and priority areas?

A: Kaiser added to medical offering in California, exceeding estimates; applicant tracking system launched in March, appreciated by clients; IT product road map for employee life cycle as longer-term play.