Barrett Business Services(BBSI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2025, gross billings increased by 8.6% to $9 billion, compared to $8.3 billion in the prior year, while diluted earnings per share rose by 5% to $2.08 from $1.98 [13][14] - In Q4 2025, gross billings increased by 6.4% to $2.4 billion, compared to $2.25 billion in Q4 2024, with diluted earnings per share increasing by 2% to $0.64 from $0.60 [14][15] - Average billing per worksite employee (WSE) per day increased by 1.5% in the quarter, driven by sustained wage growth [15] Business Line Data and Key Metrics Changes - PEO gross billings increased by 6.6% in Q4 to $2.38 billion, while staffing revenues declined by 13% to $18 million [14][15] - The staffing business declined by 13% year-over-year, reflecting client reluctance to place staffing orders amid macroeconomic uncertainty [7] - The company added approximately 8,300 WSEs year-over-year from net new clients, achieving a 5.1% increase in worksite employees for the quarter [6][15] Market Data and Key Metrics Changes - Southern and Northern California both grew by 5%, while the Mountain and East Coast regions grew by 10%. The Pacific Northwest declined by 4%, and asset-light markets grew by 95% [15][16] - Client workforce reductions were noted across all geographies and nearly all industries, with the construction industry and California clients being most affected [6][15] Company Strategy and Development Direction - The company is focusing on expanding its asset-light model and has successfully converted two emerging markets to traditional branches [4] - Continued investment in technology and product development is a priority, with multiple product releases planned for 2026 [10][20] - The company aims to maintain controllable growth despite macroeconomic headwinds, with expectations for gross billings to increase between 3% and 5% in 2026 [21][22] Management's Comments on Operating Environment and Future Outlook - Management anticipates that client hiring will continue to grow at a rate below historical norms due to macroeconomic uncertainties [11][21] - The workers' compensation market is expected to experience a positive shift with recent premium rate increases, which may help improve margins [17][22] - The company remains cautious in its planning for margins in 2026, balancing top-line growth with margin protection [22] Other Important Information - The company repurchased $17 million of shares in Q4 2025, with a total of $42 million repurchased throughout the year [21] - The company paid $8.2 million in dividends for the year, returning a total of $50 million to shareholders [21] Q&A Session Summary Question: What are you hearing from your clients in terms of being able to improve growth throughout 2026? - Management noted that they anticipate a continuation of negative hiring trends into 2026, with a potential for improvement later in the year as macroeconomic conditions stabilize [24][25] Question: What are you hearing from clients regarding the ability to pay higher wages in 2026? - Wage growth is real and has moderated to a range of 2%-4%. Clients are still facing challenges in finding skilled labor [26] Question: Is there any improvement in sight for 2026 on the payroll tax side? - Management indicated that payroll tax rates are modestly higher but manageable through pricing mechanisms [31] Question: Are you expecting margins to improve as the workers' compensation pricing environment evolves? - Management expressed cautious optimism about margin improvement, particularly in California, where rates are expected to rise [32][33] Question: How does the new client pipeline of qualified leads look currently? - The pipeline remains strong, with good volume and consistency in client acquisition, particularly in the benefits sector [42][43] Question: What impact do you anticipate from artificial intelligence on the business? - Management believes AI will enhance internal efficiency but does not foresee it replacing the human element in complex business operations [51][55]