Industry Overview - The Zacks Outsourcing industry is facing challenges such as data privacy regulations, communication barriers, geopolitical risks, quality control issues, and loss of control [1] - Despite these headwinds, the industry is driven by the need to cut costs, the rise of remote work, increased focus on cybersecurity, and trends in AI and ML [1] Future Trends - Business process outsourcing (BPO) services are experiencing consistent growth due to flexibility, lower costs, and improved service quality [4] - The IT outsourcing market is robust, with companies increasingly outsourcing entire IT departments to reduce costs and focus on core operations, driven by a shortage of in-house engineering talent [4] Cybersecurity Demand - There is a rising demand for data encryption and cybersecurity measures due to increased public awareness and evolving cyber threats [5] - Companies are focusing on employee security training and breach detection systems, with many turning to outsourced cybersecurity services to mitigate risks [5] Technological Innovations - Trends such as IoT, cloud computing, AI, and ML are transforming the outsourcing sector, enhancing efficiency and competitiveness [6] - Innovations allow for real-time decision-making and predictive maintenance, while AI and ML integration in customer support optimizes operational costs [6] Industry Performance - The Zacks Outsourcing industry currently holds a Zacks Industry Rank of 196, placing it in the bottom 20% of 246 Zacks industries, indicating underperformance [7][8] - Over the past year, the industry has declined by 6.9%, underperforming the broader Zacks Business Services sector and the S&P 500, which grew by 16.6% and 13.8% respectively [9][10] Current Valuation - The industry is trading at a forward 12-month price-to-earnings (P/E) ratio of 15.96X, compared to the S&P 500's 22.75X and the sector's 22.38X [12] Investment Opportunities - **Barrett Business Services, Inc. (BBSI)**: Focuses on payroll administration and staffing, with growth driven by new client sales and technology investments [15][16] - **The Brink's Company, Inc. (BCO)**: A global provider of cash management services, experiencing growth across segments, particularly in digital retail solutions [18][19] - **Capgemini SE (CGEMY)**: An IT services and consulting company benefiting from strong growth in financial services and public sector, with a focus on AI [20][21]

Core Points - Barrett Business Services, Inc. (BBSI) has appointed Joseph S. Clabby as the new Chairman of the Board of Directors, succeeding Tony Meeker, who will remain on the board [2][3] - Clabby has been with BBSI since September 2022 and was previously Vice Chairman of the Board, bringing over two decades of experience from ACE Limited and Chubb [3] - The Vice Chairman position will remain unfilled for the time being [4] Company Overview - BBSI is a leading provider of business management solutions, specializing in human resource outsourcing and professional management consulting [5] - The company serves over 8,100 PEO clients across all 50 states, focusing on payroll processing, employee benefits, workers' compensation, risk management, and workplace safety programs [5]

Core Insights - Barrett Business Services (BBSI) reported revenue of $2.09 billion for the quarter ended March 2025, reflecting a year-over-year increase of 9.5% [1] - The earnings per share (EPS) for the same period was -$0.04, compared to -$0.01 a year ago, indicating a decline [1] - The reported revenue exceeded the Zacks Consensus Estimate of $2.06 billion, resulting in a surprise of +1.31% [1] - The company delivered an EPS surprise of +69.23%, with the consensus EPS estimate being -$0.13 [1] Financial Performance Metrics - Gross billings were reported at $2.09 billion, surpassing the two-analyst average estimate of $2.06 billion [4] - Revenues from professional employer services amounted to $274.93 million, exceeding the average estimate of $264.74 million by two analysts, representing an increase of +11.7% year-over-year [4] - Revenues from staffing services were reported at $17.64 million, which fell short of the two-analyst average estimate of $19.94 million, reflecting a year-over-year decline of -10% [4] Stock Performance - Shares of Barrett have returned +8.8% over the past month, compared to the Zacks S&P 500 composite's +10.6% change [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance against the broader market in the near term [3]

Financial Data and Key Metrics Changes - Gross billings increased by 9.5% year-over-year to $2.09 billion in Q1 2025 compared to $1.91 billion in Q1 2024 [17] - PEO gross billings rose by 10% to $2.07 billion, while staffing revenues declined by 10% to $18 million [17] - Average billing per worksite employee (WSE) increased by 2.6% in the quarter [18] - The net loss per diluted share was $0.04 compared to a net loss of $0.01 per diluted share in the same quarter last year [23] Business Line Data and Key Metrics Changes - Worksite employees grew by 7.6% in the quarter, driven by a record number of new client additions [18] - Staffing operations experienced a decline of 10% year-over-year, attributed to macroeconomic headwinds [6][17] - The company added approximately 7,900 worksite employees year-over-year from net new clients [5] Market Data and Key Metrics Changes - The East Coast region saw a growth of 14%, Southern California grew by 11%, Mountain region by 9%, Northern California by 6%, while the Pacific Northwest declined by 1% [19] - Southern California represents the largest region for the company, achieving double-digit growth due to consistent client additions and hiring [19] Company Strategy and Development Direction - The company is focusing on geographic expansion with plans to open new physical locations in Chicago, Dallas, and Nashville by early Q3 [8][31] - Investments in new markets and product offerings, including a new health insurance product, are expected to drive future growth [9][10] - The company aims to enhance the employee life cycle experience through technology investments and product launches throughout the year [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic environment, noting potential impacts on client hiring and investment [14][15] - Despite a strong start to the year, the company is maintaining its outlook for billings growth and worksite employee growth due to economic uncertainties [24] - The company believes that small businesses benefit from PEO relationships during challenging times, positioning itself for sustainable growth [15] Other Important Information - The company repurchased $9 million of shares in Q1 under its $75 million repurchase program [24] - The company paid $2.1 million in dividends during the quarter and reaffirmed its dividend for the following quarter [24] Q&A Session Summary Question: What percentage of clients have direct tariff exposure? - Management indicated that most clients are in service industries with minimal direct exposure, primarily facing indirect impacts from increased material costs [28] Question: Is there an annual goal for new physical offices? - Management stated that the number of new physical locations depends on market development rather than a fixed annual target [30] Question: How much growth could come from geographic expansion over the next five years? - Management views geographic expansion as a long-term investment, expecting profitability to materialize in year three and beyond [34] Question: Are existing clients or new clients driving growth in benefits? - The company has seen a shift towards a more balanced contribution from both existing and new clients in the benefits segment [42] Question: Is the company displacing more legacy PEOs than before? - Management noted that while many new clients are first-time PEO users, there is an increase in PEO takeaways in certain markets [46] Question: How is pricing trending in the current economic backdrop? - Management reported that workers' compensation pricing has moderated, with minimal fluctuations expected [54]

Financial Data and Key Metrics Changes - Gross billings increased by 9.5% year-over-year to $2.09 billion in Q1 2025 compared to $1.91 billion in Q1 2024 [17] - PEO gross billings rose by 10% to $2.07 billion, while staffing revenues declined by 10% to $18 million [17] - Average billing per worksite employee (WSE) increased by 2.6% in the quarter [18] - The company reported a net loss per diluted share of $0.04 compared to a net loss of $0.01 per diluted share in the same quarter last year [23] Business Line Data and Key Metrics Changes - The number of PEO worksite employees grew by 7.6% in the quarter, driven by a record number of new client additions [18] - Staffing operations experienced a decline of 10% year-over-year, attributed to macroeconomic headwinds [6][17] - The company added approximately 7,900 worksite employees year-over-year from net new clients [5] Market Data and Key Metrics Changes - The East Coast region saw a 14% growth in PEO gross billings, while Southern California grew by 11% [19] - The Pacific Northwest region, however, experienced a decline of 1% in gross billings [19] - Total hours and overtime hours increased modestly year-over-year, indicating stability in client operations [18] Company Strategy and Development Direction - The company is focusing on geographic expansion with plans to open new physical locations in Chicago, Dallas, and Nashville by early Q3 [8][31] - Investments in technology and product enhancements are ongoing, including the launch of a new applicant tracking system [11][63] - The company aims to enhance the employee life cycle experience through additional product launches throughout the year [11] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic environment, noting potential impacts on client hiring and investment [14][24] - Despite a strong start to the year, the company is maintaining its outlook for gross billings growth between 7% to 9% for the year [24] - The company believes that small businesses benefit from PEO relationships during challenging economic times, positioning itself for sustainable growth [15] Other Important Information - The company repurchased $9 million of shares in Q1 under its $75 million repurchase program [24] - The balance sheet remains strong with $99 million in unrestricted cash and investments and no debt [23] Q&A Session Summary Question: What percentage of clients have direct tariff exposure? - Management indicated that most clients are service businesses with indirect exposure to tariffs, primarily affecting materials and supplies [28] Question: Is there an annual goal for new physical offices? - Management stated that the number of new physical locations depends on market development rather than a fixed annual target [30] Question: How much is the benefits side driving new client growth? - The benefits offering has shifted to a more balanced contribution between existing and new clients, with significant success in attracting new clients [41][42] Question: Are there any areas that have not performed as expected? - Management acknowledged that while there are ongoing investments in technology, some products may take longer to gain traction [65]

Financial Data and Key Metrics Changes - Gross billings increased by 9.5% year-over-year to $2.09 billion in Q1 2025 compared to $1.91 billion in Q1 2024 [17] - PEO gross billings rose by 10% to $2.07 billion, while staffing revenues declined by 10% to $18 million [17] - Average billing per worksite employee (WSE) increased by 2.6% in the quarter [19] - The company reported a net loss per diluted share of $0.04, compared to a net loss of $0.01 per diluted share in the same quarter last year [24] Business Line Data and Key Metrics Changes - The number of worksite employees grew by 7.6% year-over-year, driven by a record number of new client additions [18] - Staffing operations experienced a decline of 10% compared to the prior year quarter [6] - The company added approximately 7,900 worksite employees from net new clients [5] Market Data and Key Metrics Changes - PEO gross billings growth by region showed varied performance: East Coast grew by 14%, Southern California by 11%, Mountain region by 9%, Northern California by 6%, and Pacific Northwest declined by 1% [20] - Southern California remains the largest region, achieving double-digit growth due to consistent client additions and hiring [20] Company Strategy and Development Direction - The company is focusing on geographic expansion with plans to open new physical locations in Chicago, Dallas, and Nashville by early Q3 2025 [8][32] - Investments in technology and product offerings are being prioritized, including the launch of a new applicant tracking system [12][63] - The company aims to enhance the employee life cycle experience through ongoing product launches throughout 2025 [12] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the economic environment, noting potential impacts from trade negotiations and government initiatives [14] - Despite a strong start to the year, the company is maintaining its outlook for billings growth and WSE growth due to economic uncertainty [25] - The company believes it is well-positioned to navigate macroeconomic dynamics, emphasizing the benefits of PEO relationships for small businesses [16] Other Important Information - The company repurchased $9 million of shares in Q1 2025 under its $75 million repurchase program [25] - The company paid $2.1 million in dividends during the quarter and reaffirmed its dividend for the following quarter [25] Q&A Session Summary Question: What percentage of clients have direct tariff exposure? - Management indicated that most clients are service businesses with indirect exposure to tariffs, primarily affecting material costs [29] Question: Is there an annual goal for new physical offices? - Management stated that the number of new physical locations depends on market development rather than a fixed annual target [32] Question: How much growth could come from geographic expansion over the next five years? - Management views geographic expansion as a long-term investment, expecting profitability to materialize in year three and beyond [34] Question: Are current healthcare partnerships sufficient? - Management confirmed that while Aetna and Kaiser Permanente are key partners, they also work with regional carriers in certain states [37] Question: What factors influenced the decision to maintain guidance despite Q1 performance? - Management considered both the strong Q1 results and potential macroeconomic headwinds when deciding to maintain guidance [40] Question: How is pricing trending in the current economic backdrop? - Management noted that workers' compensation pricing has moderated, with minimal fluctuations expected [56]

Financial Performance - Revenue for Q1 2025 totaled $292.6 million, an increase of $26.8 million or 10.1% compared to Q1 2024, driven by an 11.7% increase in PEO services revenue [102] - Gross margin for Q1 2025 was $42.6 million or 14.6% of revenue, compared to $39.6 million or 14.9% in Q1 2024 [103] - Net loss for Q1 2025 was $1.0 million, compared to a net loss of $0.1 million in Q1 2024, with diluted net loss per share of $0.04 [101] Employee Metrics - Average worksite employees (WSEs) grew by 7.6% year-over-year to 132,459 in Q1 2025, while ending WSEs increased by 7.1% to 133,699 [100] Expenses - Payroll taxes and benefits for Q1 2025 amounted to $187.0 million or 63.9% of revenue, up from 60.9% in Q1 2024, primarily due to higher average payroll tax rates [105] - Direct payroll costs decreased to $13.3 million or 4.5% of revenue in Q1 2025, down from 5.5% in Q1 2024 [104] - Workers' compensation expense for Q1 2025 was $49.6 million or 17.0% of revenue, a decrease from 18.7% in Q1 2024 [106] - Selling, general and administrative expenses for Q1 2025 totaled $44.8 million or 15.3% of revenue, compared to 16.0% in Q1 2024 [107] Cash Flow and Balance Sheet - Net cash provided by operating activities for Q1 2025 was $5.2 million, down from $9.0 million in Q1 2024 [112] - Cash balance decreased to $43.0 million as of March 31, 2025, a decrease of $39.6 million compared to the same period in 2024 [111] - Net cash used in financing activities for Q1 2025 was $12.8 million, up from $10.1 million in Q1 2024 [114] - The trust account balance increased to $211.6 million as of March 31, 2025, compared to $197.1 million at December 31, 2024 [115] Market and Economic Conditions - Future economic conditions, particularly in California, may impact revenue levels and client retention [117] - A 50 basis point increase in market interest rates would result in a $4.1 million decrease in the fair value of the investment portfolio [119] Risk Factors - The Company faces risks related to the integration of new clients and changes in governmental policies affecting its operations [118] - The adequacy of workers' compensation reserves is a key concern, influenced by future claims liabilities and regulatory changes [118] - The effectiveness of management information systems and relationships with primary bank lenders are critical for financing availability [118] Investment Strategy - The Company aims to mitigate market risk through low investment turnover and diversification strategies [119] - The Company is focused on maintaining minimum collateral levels for certain policies, which are held in a trust account [115] - The Company had no outstanding borrowings on its line of credit as of March 31, 2025 [119]

Financial Performance - Revenues increased by 10% to $292.6 million compared to $265.8 million in Q1 2024[4] - Total gross billings rose by 9% to $2.09 billion from $1.91 billion in the same quarter last year[5] - Total revenues for Q1 2025 reached $292,566,000, a 10.1% increase from $265,782,000 in Q1 2024[26] - Professional employer services revenue increased to $274,926,000, up from $246,189,000, representing an increase of 11.7%[26] - Staffing services revenue decreased to $17,640,000, down 10.0% from $19,593,000[26] - Total cost of revenues was $249,942,000, an increase of 10.5% compared to $226,215,000 in the previous year[26] - Gross margin improved to $42,624,000, compared to $39,567,000, reflecting a positive trend[26] - Net loss for Q1 2025 was $1,021,000, compared to a net loss of $136,000 in Q1 2024[26] - Basic loss per common share was $0.04, compared to $0.01 in the prior year[26] - The company reported a loss from operations of $4,172,000, slightly improved from a loss of $4,699,000 in Q1 2024[26] Employee Metrics - Average worksite employees (WSEs) grew by 8% year-over-year[8] - The company expects average WSE growth of 4% to 6% for 2025[14] Cash and Investments - As of March 31, 2025, unrestricted cash and investments totaled $99.1 million, down from $121.9 million at the end of 2024[9] - BBSI repurchased $9.1 million of stock in Q1 2025, with approximately $20.7 million remaining under the repurchase program[10] Expenses and Tax - Workers' compensation expense as a percentage of gross billings improved to 2.4% from 2.6% in the prior year[6] - The effective annual tax rate is projected to remain between 26% to 27%[14] Dividends - BBSI's board confirmed a quarterly cash dividend of $0.08 per share, to be paid on June 6, 2025[11] Investment Income - Investment income, net, was $2,620,000, down from $3,274,000 in the previous year[26]

Core Viewpoint - Barrett Business Services, Inc. (BBSI) reported a strong financial performance for the first quarter of 2025, with revenues increasing by 10% and gross billings rising by 9%, despite a net loss attributed to seasonal payroll tax expenses [3][4][11]. Financial Performance - Revenues for Q1 2025 reached $292.6 million, up from $265.8 million in Q1 2024 [4][11]. - Total gross billings increased to $2.09 billion, compared to $1.91 billion in the same quarter last year [5][11]. - The average number of worksite employees (WSEs) grew by 8% year-over-year [11]. Cost and Expenses - Workers' compensation expense as a percentage of gross billings was 2.4% in Q1 2025, down from 2.6% in Q1 2024, benefiting from lower costs and favorable prior year adjustments [6][11]. - The net loss for the first quarter was $1.0 million, or $(0.04) per diluted share, compared to a net loss of $0.1 million, or $(0.01) per diluted share, in the previous year [7][11]. Liquidity and Capital Allocation - As of March 31, 2025, unrestricted cash and investments totaled $99.1 million, down from $121.9 million at the end of 2024, with the company remaining debt-free [8]. - BBSI repurchased $9.1 million of stock in Q1 2025, with approximately $20.7 million remaining under the stock repurchase program [9][10]. Dividends - The company paid $2.1 million in dividends during the quarter and confirmed a quarterly cash dividend of $0.08 per share, to be paid on June 6, 2025 [10]. Outlook - BBSI anticipates continued growth in 2025, supported by strong client retention and a differentiated service model [3].

Core Viewpoint - Investors are evaluating Barrett Business Services (BBSI) and ExlService Holdings (EXLS) as potential undervalued stocks in the Outsourcing sector, with BBSI appearing to be the superior value option based on various valuation metrics [1][6]. Valuation Metrics - BBSI has a forward P/E ratio of 19.05, while EXLS has a forward P/E of 23.61, indicating that BBSI may be more attractively priced relative to its earnings [5]. - The PEG ratio for BBSI is 1.36, compared to EXLS's PEG ratio of 1.45, suggesting that BBSI offers better value when considering expected earnings growth [5]. - BBSI's P/B ratio is 4.78, whereas EXLS has a P/B ratio of 7.69, further supporting the argument that BBSI is undervalued relative to its book value [6]. Earnings Outlook - Both BBSI and EXLS currently hold a Zacks Rank of 2 (Buy), indicating a positive earnings outlook due to favorable analyst estimate revisions [3]. - The Zacks Rank system emphasizes companies with improving earnings estimates, which applies to both BBSI and EXLS [2][3]. Value Grades - BBSI has received a Value grade of A, while EXLS has a Value grade of C, highlighting BBSI's stronger position as a value investment based on the analyzed metrics [6].