Barrett Business Services(US:BBSI)2021-08-08 06:20Financial Data and Key Metrics Changes - The company reported a 17% increase in gross billings compared to the prior year's quarter, exceeding expectations [4][14] - Average worksite employees (WSEs) increased by 10% year-over-year and 6% sequentially from Q1 [4] - Gross margin as a percentage of gross billings improved, benefiting from favorable developments in workers' compensation [6][22] Business Line Data and Key Metrics Changes - Staffing business revenues increased by 20% over the prior year to $24.7 million [14] - The staffing business faced challenges in filling orders due to a tight labor market, with 1,300 open job positions nationally [5] - PEO gross billings increased by 17% year-over-year, with regional growth varying significantly [14][15] Market Data and Key Metrics Changes - The Mountain states saw a 36% growth in PEO gross billings, while Southern California only grew by 8% [14][15] - Southern California remains the only region with negative year-to-date WSE growth through Q2 compared to the prior year [15] - The average client wage in Southern California is historically lower than in Northern California, impacting growth [15] Company Strategy and Development Direction - The company is focused on operational efficiencies, consolidating branches to reduce costs while maintaining service quality [8] - A strategic milestone was achieved with two material workers' compensation insurance transactions that derisk the business model [6][7] - The company plans to open three new branches in Q3 2021, indicating ongoing expansion efforts [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, citing strong client retention and positive trends in business performance [12][13] - The company is cautious about the recovery in Southern California but sees potential upside as government stimulus ends [42][43] - The outlook for gross billings has been raised to an expected increase of 6% to 8% for the year [24] Other Important Information - The company remains debt-free except for a $4 million mortgage on its headquarters and returned $2.3 million in dividends and $3 million in stock repurchases [24] - Workers' compensation expenses are trending favorably, with a reduction of estimated liabilities of $5.5 million in Q2 [16][19] - The company has $110 million of unrestricted cash and investments as of June 30, down from $143 million at the end of Q1 [23] Q&A Session Summary Question: Can you explain the new workers' comp structure and its implications? - Management confirmed that the new structure reduces risk but may lead to a decrease in investment income as funds are no longer held prior to claims [27][28] Question: How will premium adjustments work under the new model? - Premium adjustments will be assessed at set milestones, with the first milestone occurring several years later [29][30] Question: Why is 18% still self-insured? - The self-insured model has less frictional cost, and the economics of an insured program may not be beneficial in certain states [32][33] Question: What are the specifics around firming workers' comp rates? - The company experienced slightly positive rate increases during Q2, a significant improvement compared to previous years [34][35] Question: Can you break down the 17% gross billings growth in PEO? - The growth was driven by a 10% increase in WSEs and a 6% increase in billing per WSE [44][45] Question: What is the outlook for worksite employee growth? - The guidance remains conservative due to slow recovery in Southern California, but there is potential for upside as stimulus ends [41][42] Question: How is the digital campaign performing? - The company is testing multiple strategies across different markets and will scale successful initiatives [58] Question: Will staffing revenues continue to grow? - Growth is constrained by the ability to find candidates, but management is optimistic about future hiring as stimulus subsides [60][61]