Good afternoon, everyone, and thank you for participating in today's Conference Call to discuss BBSI's Financial Results for the First Quarter ended March 31, 2022. Joining us today are BBSI's President and CEO, Mr. Gary Kramer; and the Company's CFO, Mr. Anthony Harris. Following their remarks, we'll open the call for your questions. Before we go further, please take note of the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statement provides important cautions regarding forward-looking statements. The company's remarks during today's conference call will include forward-looking statements. These statements, along with other information presented that does not reflect historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements. Please refer to the company's recent earnings release and to the company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ from those expressed or implied by the forward-looking statements. I would like to remind everyone that this call will be available for replay through June 4, 2022, starting at 8:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as available on the Company's website at www.bbsi.com. Now I would like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Thank you, sir. Please go ahead.

Thank you, John. Good afternoon, everyone, and thank you for joining the call. Our positive momentum continued into 2022 as we had a fantastic start to the year. Our financial and operational results exceeded most of our internal and external metrics. We exceeded our internal estimates for client retention, net client adds, and worksite employee growth, all of which resulted in better-than-expected financial results. Regarding our client and WSE stack. Over the past 18 months, we have been executing a strategy to increase the top of the sales funnel, and I'm pleased to say that our sales leads exceeded our expectations in Q1. This is the result of our three-pronged strategy: first, to mature and deepen relationships with our existing referral partners; second, to utilize technology and digital campaigns to target and nurture new referral partners; and third, to utilize technology and digital campaigns to target potential clients directly. Our leads, prospects, and client adds in the quarter were greater than the previous quarter and our best quarter post-pandemic. I mentioned during our last call that the January selling season was our best January for net new business in the past five years. The next trend that we previously discussed is that we've been able to sell and support larger clients with our upgraded technology stack and national PEO licenses. This continues to progress favorably, and the average size of the clients that we're adding are larger than the average size of the clients that are running off. Regarding client runoff, our retention continues to be stronger than pre-pandemic levels. I'd like to attribute that work to what we're doing in the field to support our clients and the value our teams bring in this ever-changing and complex economic environment. The results of all these efforts are what I refer to as our controllable growth: we added 3,500 worksite employees year-over-year from net new clients. This was ahead of our plan and our best quarter in over five years. We bill as a percentage of payroll, and we grow as our clients grow by adding worksite employees with wage inflation and as hours worked increase. Our client base is resilient and exceeded our internal forecast for worksite employee growth in the quarter. Regarding our financial results, during the quarter, our gross billings increased 16% over the prior year quarter and exceeded our expectations. For our PEO business, our average worksite employees were up 9% over the prior year quarter and is the culmination of the controllable growth as well as our clients' hiring. We exceeded our internal forecast for our worksite employee stack. Our staffing business increased 18% over the prior year quarter, and we continue to experience favorable year-over-year growth trends. We are seeing more applicants, we're placing more applicants, and companies are increasing wages to attract employees. It is still a thin recruiting market, and we are unable to fill all orders, but our fill ratio is improving. We could have grown more, but we continue to have challenges filling orders with the tightness of the labor market. We've made investments in staffing and recruiting, and we're seeing positive results in recruiting for our PEO clients. Moving to the field operational updates. Over the past two years, we've evolved our branch and business unit model as we adapted to COVID, but also to the shape of my vision as CEO. Regarding our business unit model, we are able to revise the structure and migrate into a six-person team from a four-person team, which allows us to service more clients with fewer management employees and increases our return on management payroll. Regarding our branch network, over the past two years, we have consolidated branches with the intention of continuing to grow revenue while servicing our clients. Consolidations in these various branches allowed us to leverage mature teams and leadership to achieve better profitability. We never abandoned the market, but rather are servicing and selling into a market in a more cost-efficient manner. We also evolved how we enter new markets with our asset-light model, where we will hire and train a professional in a new market, assist them with our digital sales initiatives, and then have them sell into the market. We will service the clients out of corporate with a virtual business unit and invest behind them in infrastructure as they build up their client base. All of these strategic evolutions start to complicate our historical reporting regarding the quantity of branches and business unit stratification. As such, we are updating our reporting to better reflect how we think of the business. We structure our operations in the context of how many local markets we can sell into and service locally. At the end of Q1, we operated in 13 states and 68 markets, which is consistent with Q4 of 2021. Some markets will be more profitable than others due to their maturity, but with our evolution, every market is expected to be profitable. Regarding macroeconomic updates, the growth in worksite employees for our installed base during the first quarter was strong, and our April numbers were equally strong. Payroll data is a lagging indicator by a couple of weeks due to timing of pay cycles, but we don't see any indication in our data that would give us pause or concern about the future. As the payroll and HR company for over 8,000 clients across various states and industries, there is nothing in the data that would reflect a slowdown at this time. However, we would be remiss if we didn't acknowledge that times are growing more challenging for business owners, given tight labor markets, record inflation, supply chain challenges, and a rising interest rate environment. As we look ahead to the balance of the year, our confidence in raising guidance starts with our higher-than-expected Q2 starting point for our installed base of clients and WSE stack, plus optimism about our revamped and disciplined sales and service teams executing on controllable growth and a slower increase in client hiring toward the backend of the year. Anthony will provide more color to our full-year outlook in his prepared remarks. As I think of the future, I've never been more optimistic about BBSI's trajectory. We have consecutive quarters of great momentum, and I don't see it slowing. Our client retention is the best it's ever been, and we are seeing and closing on more prospects. Our prospects continue to be larger because of our tech stack, coupled with our nationwide offering, and we will continue to invest in technology and initiatives. Simply put, we are executing to our plan. Now I'm going to turn the call over to Anthony for his prepared remarks.

Thanks Gary, and hello, everyone. I am pleased to report that we had strong results for the quarter in all areas of our operations. PEO gross billings increased 16% over the prior year quarter to $1.68 billion, while staffing revenues increased 18% over the prior year to $28.9 million. As Gary noted, our increase in PEO gross billings was driven by stronger-than-expected growth from net new clients in the quarter, stronger-than-expected hiring within our client base, and higher average billings per WSE. Overall, WSEs increased 9% over Q1 2021, and average billing per WSE increased 6%, driven primarily by higher wages. PEO gross billings growth by region versus the prior year first quarter were as follows: Mountain States grew 38%, East Coast grew 25%, the Pacific Northwest grew 19%, Southern California grew 13%, and Northern California grew by 11%. As expected, we are now seeing Southern California return to growth levels more consistent with other regions as clients there have expanded hiring and increased wages, and this trend has continued through April. In addition, every region is on or ahead of plan for controllable growth (that is, growth from clients added, less clients lost in the period). Our gross margin rate remains on target for the year and benefited in the quarter from favorable payroll tax rates, which included a combination of favorable statutory rates and wage caps not increasing at the same pace as average wages. This benefit is primarily realized in Q1 as most employees reach their payroll tax wage caps in the first quarter. The workers' compensation market remains competitive, but we are seeing stabilization in pricing and competitor behavior. There have not been significant changes in market pricing in recent periods. Workers' compensation expense continues to trend positively with continued favorable claims frequency and favorable development on historical claims reserves. This quarter included an actuarially determined reduction of prior year estimated liabilities of $2.9 million compared to $1.2 million in the year-ago quarter. As a reminder, with our new fully insured workers' compensation model, the company has significantly derisked its workers' compensation program for current year claims. Looking at operating expenses, SG&A in the quarter is on plan, and we continue to invest thoughtfully in the business while navigating market increases in employee-related expenses. We continue to expect earnings leverage to be on target for the year. Our investment portfolios earned $1.6 million in the first quarter compared to $1.8 million in the prior year. With the increase in interest rates in the quarter, our fixed income portfolio has moved to an unrealized loss position, but we intend to hold these securities and our portfolio continues to be managed conservatively with an average duration of 4.1 years, average quality of investment at AA, and an average book yield of 1.8%. The net of these overall strong results is that we generated positive net income in Q1 for the first time in over 10 years. As a reminder, BBSI typically shows a loss in Q1 due to the timing of the payroll taxes incurred in the year. Turning to the balance sheet. We had $127 million of unrestricted cash investments at March 31 compared to $166 million at December 31. The decrease from year-end is primarily due to the timing of payroll tax payments as well as stock repurchases and the paydown of our mortgage and certain leases in the quarter. As a reminder, BBSI is now debt free. Looking holistically at the business, we remain committed to driving shareholder value through our strategy of generating consistent profitable growth in earnings leverage, derisking our workers' compensation program, investing in growth initiatives including IT, sales strategies, and expanding into new markets, and returning capital to shareholders through our dividend and stock buyback. We announced last quarter that the Board approved a new $75 million stock repurchase plan, and we commenced acquiring shares under that plan in March. Through May 3, we have purchased 241,000 shares at an aggregate purchase price of $18 million or an average of $74.80 per share. Of that, 115,000 shares were acquired in Q1. The company also paid $2.2 million in dividends in the quarter and reaffirmed its dividend for the following quarter. We are also on track for strong billings growth and earnings leverage in the year. Given the strong results for the quarter and more favorable expectations going forward, we are increasing our full-year outlook. We now expect gross billings for the year to increase between 10% and 12%, up from 7% to 9% previously. We expect average WSEs to increase between 4% and 6%, up from 3% to 4% previously. We expect gross margin as a percent of gross billings to remain between 3.0% and 3.1%, and we expect our effective annual tax rate to be between 25% and 27%, up from 24% to 25%. I will now turn the call back to Gary for closing remarks.

Thanks, Anthony. We continue to always think of the client first and to advocate for the success of the business owner. I want to thank all of our professionals who work tirelessly to help our clients thrive. We've been working on the right things and I think we are in a great position.

Thank you, sir. We will now begin the question-and-answer session. Our first question comes from Vincent Colicchio with Barrington Research.

Yes, nice quarter, gentlemen. I don't know if this one is for Gary or Anthony. Can you talk about the distribution of revenue and earnings in the final three quarters of 2022?

Yes, I can take that. So we're still expecting sequential growth each quarter. In terms of year-over-year growth, we noted in Q4 that Q1 would be our longest expected year-over-year growth because of a softer compare to last year. So we saw that obviously, we did even better than we expected with 16% billings growth. Q2 and Q3, we think will be strong. Q4 will also be strong, but we noted that there'll be one less business day in Q4. So with that, there will be a little bit lower percentage year-over-year from that missing business day. Profitability, similar trends in the past, Q3 typically our highest, Q2, then Q4 will be impacted a little bit, payroll taxes coming back at the end of the day at the latter part of that quarter.

Thanks for that, Gary. Given the economic risks out there and your strong financial position, will you be more cautious regarding acquisitions? Also, has there been any improvement in pricing on that front?

I would say pricing has improved for sellers, not buyers still. Just in general, it is a competitive market out there in the acquisition space. We are still looking at acquisitions. We are good stewards of capital. We'll continue to be thoughtful. We're not going to chase valuations or chase undesirable structures, but we are active and looking in the market. We just haven't found one that's just our profile yet.

How are you managing pricing? Are you increasing prices selectively? Overall, I'm interested in how pricing is trending and whether there is any pushback from clients due to wage pressures.

As our clients expand, we maintain the same margin but generate higher margin dollars. This growth in our clients contributes to increased margin dollars from both WSE growth and wage inflation. Currently, workers' compensation pricing appears to be more rational. Although we occasionally observe competition where a company tries to acquire an industry or business, overall pricing practices in the workers' compensation market have become more professional. The WCIRB, California's rating agency, has proposed a 7.4% rate increase, indicating that carriers will charge based on their assessment of risk. The acknowledgment from the state that rates need to rise is a positive development. Generally, we aim to price accounts to ensure a return on management payroll dollars, and this approach remains unchanged.

And now, Anthony, what was the year-over-year same customer WSE growth in the quarter?

So we added, as Gary noted in his remarks, about 3,400 worksite employees from net new customers and about 6,500 worksite employees from customer hiring year-over-year.

Good. Thank you. I'll get back in the queue.

And our next question comes from Chris Moore with CJS Securities. Please proceed.

Hey, good afternoon guys. Thanks for taking the question. My phone kind of broke up, Anthony, when you were talking about the cadence of profitability on a quarterly basis?

Yes, no worries, it's a pretty typical cadence to our standard pattern. Obviously, Q1 profit is affected by payroll taxes. We had great top-line billings growth in Q1 partly because the compare of last year was a little weaker. The rest of the year, we're expecting strong sequential growth. As Gary said, we're well-positioned for the year. We're talking about the fundamentals. I did note, again, to remind you that Q4 has one less business day than last Q4, so the year-over-year did a little bit. Overall, though, we're seeing strong momentum for the year.

Got it. In terms of the Q1 profitability, I mean, you had a bigger than normal workers' compensation adjustment. I think you would have had a loss of around $0.25 without that. But is this kind of timing of payroll taxes, is this a new trend for, say, Q1 next year, or is it likely we'll be back to the normal loss in Q1 moving forward?

That's a great question, Chris. It's interesting with the pandemic; obviously, there were significant unemployment claims for a period of time. States have generally held back pushing those costs down to business owners, right? They either have not pushed those costs at all, or they've entered into programs to space in those increases over time. So we really have not seen increases and, in fact, have seen statutory rate decreases, which you would not typically expect with the funding levels of those unemployment trust accounts. So it's a little bit to be determined what happens next year and the year after. But in theory, unemployment tax rates will need to go up to replenish those.

Got it. And in terms of investment income in this rising interest rate environment. Can you talk about that again? It sounded like it was $1.6 million investment income in Q1 versus $1.8 million, just in terms of your thoughts for the balance of the year? Is that $1.6 million going up or is there also some unrealized loss in there? So maybe you can just talk through that a little bit?

Yes, it's certainly fairly stable. It's a fixed income portfolio. So these are bonds, and we intend to hold them. There are some variable rate holdings, so that will put some of the upward pressure, which is fantastic. That will be offset by our general guidance in the past that with our new fully assured program, our collateral requirements will continue to come down. So some of our investment balances will come down over time. We've talked about how rate increases might have offset that. I think that's more true now. So overall I would expect fairly steady investment returns.

Got it. Appreciate it. I'll jump back in the line. Thanks, guys.

And our next question comes from Jeff Martin with ROTH Capital Partners. Please proceed.

Thanks. Good afternoon guys. I wanted to dive into the asset-light model a little bit more in detail. You mentioned eight clients were either added or contracted through February. If you could give us an update there and maybe just talk qualitatively as well about progress with the initial four geographic locations that you started last year?

Yes, Jeff. In the four markets where we are operating with this asset-light model, we are very satisfied with the results so far. We've invested significant time in training and development, particularly focusing on immersion training for low-performing areas. We believe we have established an effective approach that allows individuals to achieve success more quickly, and we are witnessing that success trend. The markets are performing at or above our expectations. Additionally, the virtual servicing has been well-received in these markets. We are successfully selling and servicing in the specific markets, utilizing our digital technologies to reach referral partners and direct clients. Overall, everything we are working on is progressing as planned, and we are pleased with our current standing.

Sounds like things are going well and exceeding expectations, which is encouraging. You also mentioned that the pipeline is 50% higher in Q4 and that it continues to strengthen. Do you want to provide any additional details about that?

Yes. We're witnessing the economy reopening over the latter half of the year, and we experienced strong momentum heading into Q1, which has been our best selling season in over five years. We now have a disciplined approach to our activities. Our main focus has been on making new connections and referral partners. This quarter, we received 120 leads from new referral partners that we established relationships with, and through our digital strategy, we successfully integrated most of them into the BBSI ecosystem. We're seeing very positive results, and it feels like this approach has become part of our core operations and foundational to how we conduct our business.

Okay, great. I was wondering if you could provide some insight on the WSE average growth guidance of 4% to 6%. When I compare that to the last three quarters where you've achieved growth of 8% to 9% year-over-year, is this a conservative estimate considering the current uncertainties, or are you anticipating factors that might lower that growth rate in the latter half of the year?

Yes, I think maybe a little conservatism. But I think more broadly, it is looking at the trend in the year-over-year compare that the shape of that build. I think as we look at our forecasts, including kind of external forecasts and other metrics that we use in our modeling, we have tempered that growth in our model in the latter part of the year. And we knew that we were going to have stronger growth, including on that metric at the beginning of the year. So it's the explanation of those sectors.

Yes, I would say, Jeff, we had strong growth in WSEs in the first quarter. We consider two factors: what we can control, which includes the clients we add and keep, and their WSEs, and then how our clients grow. I can confirm that we exceeded expectations on both metrics concerning our controllable WSE growth and client hiring. Given the current unemployment situation, it seems likely that hiring will slow down, and we have accounted for that in our yearly projections. However, in the first quarter, our client hiring surpassed our expectations, and now we are assessing whether we can achieve WSE growth in our installed base despite the tight labor market.

Okay. That's helpful. Thanks. And congrats on a good start to the year.

Thanks, Jeff.

And our next question is a follow-up from Vincent Colicchio with Barrington Research. Please proceed with your question.

Yes, Gary. I'm curious if the economy slows, say, in the second half, you've got some macro headwinds out there obviously. Is there more branch consolidation that you can do or what other actions you may take?

The Federal Reserve has 400 economists, yet accurate predictions seem elusive. Currently, our data remains strong, and I aimed to communicate that in my prepared remarks. We do not see any indicators in our data suggesting an imminent slowdown, although we acknowledge existing headwinds. This situation feels different; we are experiencing record-low unemployment rates, the lowest we've seen in perhaps our lifetime. This does not resemble a typical recession, and it is uncertain how it might compare to future downturns. In the industries where we operate, such as construction, transportation, and logistics, I do not foresee any slowdown this year. Looking ahead, we will have to wait and see, but I am optimistic about the economy's state and BBSI's position within it. The pandemic shocked the world, yet we navigated it well as a company. In 2020, our revenue remained flat, and we achieved an EPS of 4.39. We managed through that period, and I believe our teams on the ground and our overall financial position equip us to handle whatever challenges may arise.

And one clarification. Did I hear that the pipeline was up 50% from Q4? Is that the right number?

Jeff mentioned that our leads are up. He provided a statistic related to the pipeline. I believe it referred to Q4, not Q1.

Your leads were up 50% from Q4 to Q1?

He was quoting from Q1 or Q4. I don't have that number in front of me, Vince.

Okay, thanks. That's it for me. Thanks.

At this time, this concludes our question-and-answer session. And I would now like to turn the call back over to Mr. Kramer for any closing remarks.

So thank you, everybody, for joining the call. Thank you to everybody at BBSI, who does what they do. We had a really good quarter. We have a really good momentum churning, and we're positive about the outlook of the company. So thank you, everybody.