Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's Financial Results for the First Quarter ended June 30, 2024. 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 fact 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 till August 31, 2024, starting at 8:00 P.M. ET 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. Sir, please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining the call. I am pleased to report that we had a strong second quarter and our financial results are in line with our full year outlook. We continue to execute our short-term and long-term objectives and we added a record number of worksite employees for the second quarter. Moving to our financial results and worksite employees. During the quarter, our gross billings increased 6% over the prior year's quarter, which is in line with our expectations. We continue to execute on our various strategies to increase the top of the sales funnel, and we achieved a record number of WSEs from new client adds during the second quarter. Our client retention continues to trend well and is in line with our expectations. I'd like to attribute that to the work we do with our clients and the value our teams provide. The result of all these efforts, or what I refer to as controllable growth, is that we added approximately 2,500 worksite employees year-over-year from net new clients. We previously mentioned that we began to see our clients' workforce stabilize in Q4 and modestly grow in Q1. We are pleased to report that our clients' growth accelerated in Q2. In fact, they experienced the greatest net hiring in six quarters. To summarize, for the quarter, we grew our worksite employees by 4% as we sold and retained more business and benefited from our clients' net hiring. Moving to our staffing operations. Our staffing business declined by 3% over the prior year quarter and was within our expected range. We continue to execute our strategy to recruit for our PEO clients and placed 91 applicants in the quarter, but we were impacted by macroeconomic headwinds, including supply and demand imbalances, which vary by geography. We have seen our staffing business stabilize. And although we are expecting a modest decline year-over-year, we are forecasting our staffing business to grow sequentially in both Q3 and Q4. Moving to the field operational updates. We are very pleased with our entrance into new markets with our asset-light model. We have 17 total new market development managers in various stages of their development. They are doing well in largely achieving their goals of adding and servicing new clients and new referral partners. In two of the markets, we have hired additional local talent to support our clients. And we are in the process of moving into traditional brick-and-mortar BBSI branches. We continue to see positive results from our investments in new markets and are actively recruiting additional new market development managers. Regarding product updates, we continue to execute on the sales and service of BBSI benefits, our new health insurance offering. Last quarter, we announced that we entered into a strategic multiyear partnership with Kaiser Permanente for programs effective 7/1/24 and onward. Kaiser is renowned for its excellence in health care services and offers one of the most complete and competitive HMO products in the marketplace. And just like our workers' compensation and existing health insurance offerings, we take no underwriting risk. We are now offering a national PPO side by side with the Kaiser HMO and our results are positive thus far. In July and August, we sold Kaiser to 20 new clients with wins in Southern California, Northern California, and Oregon. Our new business resulted in more new subscribers in July and August than over the same prior year period. I am pleased to report that today we have approximately 380 clients on our various medical plans servicing more than 8,500 total participants. We are pleased with the results of BBSI benefits, and this product will be accretive to earnings in 2024. We are bullish on this product and will now reap the benefit of leverage through scale. As we look forward to 2025, our focus is on the one-on-one selling season. We have the people, the products, the technology, and the experience to be confident in our various offerings. Next, I'd like to shift to our view of the remainder of the year. We've had consecutive quarters of great momentum. We are consistently growing our WSE stack. We ended Q2 with a record number of WSEs, and we continue to be optimistic about the road ahead. We have consistently achieved strong controllable growth by focusing on the needs of our clients and by adding new clients. We have more products to sell, more folks selling them, and more referral partners recommending BBSI. Now I'm going to turn the call over to Anthony for his prepared remarks.

Thanks, Gary, and hello, everyone. I'm pleased to report we finished Q2 with strong results, consistent with our plan and with continued positive momentum in our sales pipeline. Gross billings increased 6% to $2 billion in Q2 '24 and versus $1.9 billion in the prior year quarter. PEO gross billings increased 6% in the quarter to $2.01 billion, while staffing revenues declined 3% to $20 million in the quarter. Our PEO worksite employees grew by 4% versus the year-ago quarter, which was the result of strong controllable growth from net new PEO clients as well as hiring within our customer base. Looking at client hiring more closely, we continue to see improved hiring rates in Q2. We are now seeing positive hiring across almost all industries, including construction. The rate of client hiring remains lower than the long-term average, but the pace of hiring is improving and slightly exceeding our expectations. Looking at wage rates and hours worked, total hours and overtime hours have continued to remain stable, while wage rates continue to increase and the average billing per WSE increased 3% in the quarter. Looking at year-over-year PEO gross billings growth by region: East Coast grew by 19%, Mountain States grew by 7%, Southern California grew by 6%, Northern California grew by 4%, and the Pacific Northwest declined by 3%. The Pacific Northwest region continues to be the most impacted by slower client growth, including being the only region with net negative client hiring and sustained lower average hours worked. The East Coast growth is driven by a combination of strong controllable growth and above-average client hiring. Turning to margin and profitability. Our workers' compensation program continues to perform well and benefit from favorable claim frequency trends and favorable claim development. This strong performance has once again resulted in favorable adjustments for prior year claims. In Q2, we recognized favorable prior year liability and premium adjustments of $8.9 million. As a reminder, our client workers' compensation exposure is now primarily covered by our fully insured program with no retained liability by BBSI. We renewed our fully insured workers' compensation policies effective July 1, 2024. The program continues to perform well and we once again renewed with favorable terms, including cost savings, a multi-year commitment, no downside risk to BBSI for any adverse claim development, and the continued ability for BBSI to participate in any favorable claim development via a return premium. Last year, we introduced more favorable payment terms for the premium on the fully insured program, and we were able to renew with similarly favorable terms that allow us to hold these premium dollars for longer. As a result of these terms, there's a balloon premium payment in June of each year, which we just paid in Q2 for the prior policy period and which in turn reduced our restricted investment balance and a corresponding premium payable balance. These investment balances will continue to build again over the policy year until next June's payment, and investment income will continue to correlate with the investment balance. Payroll taxes remained higher than the prior year as we discussed last quarter. These higher rates are being contemplated in our pricing, which will contribute to higher gross margin rates in the latter half of the year. Overall, our gross margin rate remains in line with expectations. Our overall profitability has continued to benefit from operating cost management. For Q2, SG&A expense increased by approximately 4%, growing slower than our billings growth, providing ongoing operating leverage. Moving to investment income. Our investment portfolios earned $3 million in the second quarter, up $0.9 million from the prior year. Our investment portfolio continues to be managed conservatively with an average quality of investment at AA, an average book yield of 2.9%. The combined results of these activities was net income per diluted share of $0.62 compared to $0.62 per diluted share in the year-ago quarter. Our balance sheet remains strong with $110 million of unrestricted cash investments at June 30 and no debt. We continue our approach to capital allocation, making investments back into the company through product enhancement and geographic expansion while distributing excess capital to our shareholders through our dividend and stock buyback plan. Continuing under our $75 million July 2023 repurchase program, BBSI repurchased $7 million of shares in the second quarter at an average price of $31.63 per share, with $45 million remaining available under the program at quarter end. As announced today, our Board of Directors also approved an increase in the quarterly dividend rate from a split-adjusted $0.075 per share to $0.08 per share. This equates to a 7% increase in our dividend pay rate and reflects our ongoing optimism about our strong recurring cash flows and growth plans. Looking to our outlook for the full year, our results for Q2 are in line with our plan and our expectations for 2024 remain generally consistent with prior outlook. We continue to expect gross billings to increase between 6% and 8% for the year. We continue to expect average WSEs to increase between 4% and 5%, and we are tightening our range of expected gross margin as a percent of gross billings to be between 3.9% and 3.1%. We continue to expect our effective annual tax rate to remain between 26% and 27%. I will now turn the call back to the operator for questions.

The first question comes from Chris Moore of CJS Securities.

Congrats on another good quarter and congrats on the share split. I think that was a great idea. Maybe we can start on the workers comp adjustments, one of my favorite topics, $8.9 million favorable adjustment. That's the biggest adjustment I can remember, at least over the last six or seven years. Just trying to understand kind of expectation first, how much visibility do you have, say, over the next 6 to 12 months on adjustments? And then just any additional thoughts in terms of, was there something significantly unusual in this quarter? Or any other thoughts you might have there?

Chris, we entered that one similarly, I want to say, last quarter or the quarter before. Just the way that we design our programs, we're conservative by nature. We've got a lot of focus and attention on workers comp, right? We've got best-in-class structural partners. We've got a team of risk managers. We've got a full underwriting shop. We've got our own claims folks. We've got operations that are tied to where we have our own actuaries. I say that because it's a very mature organization; we're tech adopters. We make sure that wherever we partner has great tech, we use AI. And we've got a couple of hundred 200-plus folks directly or indirectly that their focus and attention is on workers comp, right? So we've got a lot of focus and attention on it. We've got good track on it. We're conservative by nature. We set these programs up so that they're designed to have returns that come back to us. If we stay true to who we are and stay true to our discipline, then we're going to set ourselves up for this in the future, right? So if you look at trend, I want to say that this is 22 quarters in a row of favorability. And then honestly, trend is your friend, right? It doesn't turn quickly. We anticipate that this trend will continue.

The Kaiser relationship appears to be off to a positive start. I'm trying to understand how long it will take for the revenue from Kaiser to become noticeable. Are we expecting this in 12 months, 24 months? I'm just trying to get a feel for the trajectory.

Yes, that's a good question. I've been here for about eight years, and this is the first quarter I can remember where our gross billings growth matches our GAAP revenue growth. You're noticing that shift. This is partly due to the medical benefits reflected in the GAAP revenue line. We're starting to see measurable health insurance premiums and commissions on those premiums. The period beginning July 1 isn't traditionally a large selling season. We moved some business and had a solid start, but July 1 and August 1 don’t compare to the business volume we expect on January 1. We started our operations on July 1 to refine our processes before January 1 and we were successful. We have a strong plan for our branches for January 1 and, more importantly, we feel confident. The experience gained from navigating the July 1 period gives us optimism for January 1, which is the major selling season. This experience enhances our confidence in our products, processes, and underwriting. As we think about our relationships, how we perform on January 1 will be crucial in 2025, and we expect to see more meaningful contributions to gross margin from these products then.

The next question we have comes from Jeff Martin of Roth Capital Partners.

Gary, I wanted to start with how you're feeling about the referral partner network, if there's been any noticeable improvements within that, particularly with some of your newer referral partners that may relate to BBSI benefits?

Yes, we have dedicated team members focused on managing and acquiring new referral partners, and they are performing exceptionally well in both existing and new markets. Our market development managers spend about half their time on recruiting new referral partners. An exciting aspect of this is that when we enter a new market, they establish new relationships and leverage our brand along with our national connections to assist these partners. This means we can connect them with national referral partners who have a local presence. Our referral partner channels are expanding, which has been a strategic focus for the past three or four years. We currently have more active referral partners than ever before. Additionally, as we onboard new referral partners, we are also engaging with benefits brokers thanks to our benefits product. Although the progress is slower than I would like, we are starting to see programs from benefits brokers that we wouldn’t have encountered without this product. We're making strides, but we haven't fully reached our potential in collaborating with benefits brokers yet.

And then I wanted to drill down on California, since it's your largest market. Any detail you can provide on the Northern California and Southern California regions? I think Northern California going back 12 months ago, it was largely hit by construction and that seems to have turned the corner. Just curious if you have any visibility there as to whether that may accelerate from what we've seen in the last quarter or two?

Yes. If you look at the monthly trends, Jeff, this is Anthony. We continue to see steady growth in Northern California and improving growth. And we are seeing really nationally, really everywhere except for the Pacific Northwest. We are seeing positive client hiring across industries, including construction in Northern California. So we saw some early signs of growth, but that trend is continuing and honestly, it looks like it can continue to build.

Are you still noticing significant customer migration out of the state? I understand that this has been a challenge for you, particularly over the past few years.

No, we haven't really been affected by that. To build on what Anthony mentioned, Northern California was our weakest region last year in terms of client reductions, but this year it has turned into our strongest area for client hiring. We've observed a recovery in Northern California, particularly within the construction industry. We feel more optimistic about Northern California compared to a year ago. Southern California is also continuing to grow. Overall, California remains competitive, especially regarding workers' compensation, where we face some pressure. However, we have strong products, capable people, and effective processes that allow us to be selective about our initiatives. Regarding clients relocating to other states, we haven't seen significant movement in that direction. Even if some clients move to Texas, where many are heading, we have a presence in every major city in Texas now. We're reaching a point on a national scale where, if clients choose to relocate, we have options available for them.

And then last one for me on the benefit side. Are you primarily signing existing clients up on plans? Or are you seeing this and maybe too early for this, but are you seeing new clients come in the door because you've got the nationwide footprint now and you've got the health care offering now?

It's still heavy selling into our existing base. For the 7/1 season, it was about 20% new business and then the rest was selling into our installed base.

And how do you envision that over the intermediate to longer term?

If I could wave my magic wand, we would sell to all of our clients, and then we could acquire new clients afterward. It's interesting because we have coined the term "PEO takeaway." Typically, when we attracted new business, that business was adopting the outsourced model for the first time. However, we are now seeing new business arising from our health offering, which allows us to be competitive with many other PEOs in the market. This PEO takeaway is where most of our new business is coming from. The new clients are seeking local products and services, and now that we have these benefits, it presents a compelling value proposition.

The next question comes from Vincent Colicchio from Barrington Research.

Yes, Gary, could you provide some more color on the Pacific Northwest? Construction was an issue there. It seemed to be improving. It's improving nationwide. And now it's, I guess, taking a step back there. Do you think this is temporary? What are your thoughts?

Yes, we did notice this trend last quarter in the Pacific Northwest. The construction industry there has been slower to recover and has actually seen some decline recently. This appears to be a continuation of a previous trend. It's a smaller region in terms of volume, and a few larger clients can significantly impact the overall situation. This specifically pertains to Oregon and Washington. Economic factors certainly play a role in that area, but within the quarter, we see some stability. We're not observing any sequential deterioration, but we will continue to monitor the situation closely.

I would just add on that. If you think of the Northwest, our largest operation is in Portland. And Portland right now is, I'll say, from a business perspective, it's a challenge to make investments. It's a challenge to invest more capital in Portland right now with the way it's being run.

And Gary, sometimes in the past, you've compared your new client pipeline of qualified leads to historical levels. Could you do that for us versus the year-ago level?

Our pipeline continues to grow. From the initial stage to leads and then to prospects, where we meet with clients, our volume is surpassing last year's figures. This is largely due to the various strategies we are implementing to maximize opportunities for acquiring new clients. We are focused on several channels to ensure that the top of the funnel remains at a high and acceptable level.

And last one for me. Are you seeing some progress in terms of adding larger clients to your pipeline?

No, I mean we know our space and we’re comfortable in it. We serve the small business community and we’re not aiming to become a mid-market company; that’s just not our value proposition. We're happy with our niche. We understand our strengths and stick to them. We do attract larger clients because they appreciate the value of our services. With the additional benefits we offer, our value proposition becomes even more appealing. In my previous experience, I dealt with larger clients, but we’re not following that model here. We understand who we are, what we offer, and who our ideal clients are, and we focus on that.

Thank you, sir. At this time, this concludes our question-and-answer session. I would now like to turn the call back to Mr. Kramer for closing remarks. Please go ahead, sir.

Sure. Thank you. I just want to thank all the BBSI professionals for a great quarter and a great first half of the year. And thank you, everybody, for joining the call. I appreciate your time.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.