Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's Financial Results for the First Quarter Year March 31, 2025. 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 do 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 May 30, starting at 8:00 P.M. Eastern Time tonight, and 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 record start to the year. Our new client sales, coupled with our upselling of new products and great client retention, resulted in our revenue exceeding our expectations. We continue to execute our growth objectives and we added a record number of worksite employees. Moving to our financial results and our worksite employees. During the quarter, our gross billings increased by 9.5% over the prior year's quarter and were greater than our expectations. We continue to execute on our various strategies to increase the top of the sales funnel and we are seeing positive results. We had a very strong Q1 selling season, adding 55% more worksite employees from new client adds than in the prior year quarter. Our client retention continues to trend better than our historical levels. 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 7,900 worksite employees year-over-year from net new clients. We mentioned previously that we began to see our clients resume hiring, but below historical levels. January and February followed this fact pattern, but hiring slowed down in March and was less than we expected. Our clients' workforce still grew in Q1 but at a slightly slower pace than we planned for. The net result of strong customer adds and positive customer hiring was that we grew worksite employees by 7.6%. Moving to our staffing operations. Our staffing business declined by 10% over the prior year quarter and was below our expectations. January and February were in line with our expectations, but we experienced a slowdown in March. We continue to execute on our strategy to recruit for our PEO clients and we placed 105 applicants in the quarter. We also experienced macroeconomic headwinds including supply and demand imbalances which vary by geography. Moving to the field operational updates. We're very pleased with our entrance into new markets with our asset-light model. We have 21 total new market development managers in various stages of their development. These folks have been gaining traction and consistency and had a great first quarter by adding over 600 new worksite employees. In three of the markets, we've hired additional folks locally to support our clients and are in the process of moving into traditional brick-and-mortar BBSI branches. We expect to move into new physical locations in Chicago, Dallas, and Nashville by early third quarter. 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 sale and service of BBSI Benefits, our new health insurance offering. We're off to a great start for the year. For the January 1 selling season, we added approximately 3,000 participants to our various benefits products. I am pleased to report that through April we have approximately 640 clients on our various plans with more than 17,500 total participants. We're gaining traction and continue to improve the sale and servicing of BBSI Benefits. Our value proposition resonates well, and we're having success with small and large clients in white and blue-collar industries in every state that we operate and with a diverse distribution channel. We are pleased with the results of BBSI Benefits and this product will be accretive to earnings in 2025. We are bullish on this product and will now reap the benefit of leverage through scale. Next, I'd like to shift to our 2025 IT product objectives. I've previously mentioned that we have been investing in our tech stack on the product side to service and support our clients better. Over the last couple of years, we've made additional investments in myBBSI to support BBSI Benefits, added a learning management system, and numerous integrations with third parties. As we evolve and look forward to the remainder of 2025, we will be making additional investments to round out the employee life cycle experience. We think of the employee life cycle from the client's perspective from when an employee is hired to when the employee retires and everywhere in between. We will be replacing or bolstering attributes of the life cycle with additional product launches throughout the year. In March, we launched the BBSI Applicant Tracking System, a cutting-edge tool that allows our clients to create job postings from our centralized system, which integrates with various third-party job boards. Clients can manage the interview process in our system and then when an employee is hired, they integrate seamlessly with our payroll and timekeeping system. This will help our clients with organization and create multiple efficiencies. It is still early days, but we're hearing only positive feedback. Clients appreciate the investment and appreciate the time they are saving. We are excited about this launch and the future launches as we execute on our product roadmap for 2025. Next, I'd like to shift to our view of the remainder of the year. We had a fabulous start to the year and we have great momentum on billings growth. 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. But we would be remiss if we didn't acknowledge that the remainder of the year may look different than the beginning of the year. Trade negotiations and other government initiatives are creating a time of uncertainty. BBSI has minimal to no direct exposure to tariffs. However, we have indirect exposure if this causes our clients to reduce or increase their workforce. When you have a time of uncertainty, you typically see hiring slow down, company investment slow down, and the demand environment can become more restrained and price sensitive. Regarding our outlook for the remainder of the year in a traditional economy and based upon our strength in Q1, we would have raised our billings outlook for the year. But with this uncertainty, we think it prudent to err on the side of caution and maintain our outlook for billings growth and worksite employee growth. Similarly, we would have tightened the gross margin range. But we believe the current environment has clouded our ability to appropriately update our 2025 outlook. Nevertheless, we believe BBSI is well-suited to navigate these macroeconomic dynamics. In challenging times, small businesses are better off with a PEO relationship and can benefit from our scale and expertise. Our consistent execution, differentiated service model, and strong client relationships position us to continue driving sustainable growth in 2025 and long-term value beyond. 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 that we finished the quarter with strong results and exceeded our plan. Gross billings increased by 9.5% to $2.09 billion in Q1 2025 versus $1.91 billion in Q1 2024. PEO gross billings increased 10% in the quarter to $2.07 billion, while staffing revenues declined 10% to $18 million in the quarter. Our PEO worksite employees grew by 7.6% in the quarter, which, as Gary noted, was driven by a record number of worksite employees added from new clients. This was coupled with ongoing strong client retention, which continued a strong trend of controllable growth. In addition, we saw continued, but still subdued client hiring in the quarter. Total hours and overtime hours increased modestly year-over-year, continuing to show stability. Wage rates continue to increase as well and average billing per worksite employee increased by 2.6% in the quarter. Average billing per worksite employee would have been higher, but Q1 included one less business day than the prior year. Looking at the year-over-year PEO gross billings growth by region for Q1, the East Coast grew by 14%, Southern California grew by 11%, Mountain grew by 9%, Northern California grew by 6%, and the Pacific Northwest declined by 1%. Southern California represents our largest region and has improved to double-digit growth through a combination of consistent client adds and customer hiring and better-than-expected client retention. The strong East Coast performance represents the 16th consecutive quarter of double-digit growth in that region, also driven by strong controllable growth. The Pacific Northwest region is our smallest region, comprising about 5% of our gross billings, and they had a modest reduction in net 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 Q1 2025, we recognized favorable prior year liability and premium adjustments of $3.8 million compared to favorable adjustments of $3 million in the first quarter of 2024. As a reminder, our client workers' compensation exposure is now primarily covered by our fully insured program with no retained risk by BBSI. As with past quarters, the cost savings we recognize on workers' compensation expense have continued to offset pricing pressure in the workers' compensation insurance market, which continued to move overall rates lower. Looking at our payroll tax costs, payroll taxes are typically highest in Q1 as wage caps reset. This results in lower margins in the first quarter of the year. This year has seen modestly higher effective unemployment tax rates than in recent years. These rates are reflected in our billing rate over the course of the year. Our gross margin rate remains in line with our expectation for the quarter. Our overall profitability has continued to benefit from operating cost leverage. For Q1, SG&A expense increased by approximately 6% due primarily to employee-related costs, including higher profit share incentives due to the strong quarter. SG&A costs continue to grow slower than our billings growth rate. Moving to investment income, our investment portfolios earned $2.6 million in the first quarter, down approximately $600,000 from the prior year due to lower average interest rates. As a reminder, our investment portfolio continues to be managed conservatively with an average quality of investment at AA. The combined results of these activities resulted in a net loss per diluted share of $0.04 compared to a net loss of $0.01 per diluted share in the year-ago quarter. As a reminder, due to the seasonality and payroll tax expense, we typically incur a loss in the first quarter of the year. Our balance sheet remains strong with $99 million of unrestricted cash and investments at March 31 and no debt. We continued our consistent approach to capital allocation, making investments back into the company through product enhancement and geographic expansion and distributing excess capital to our shareholders through our dividend and stock buyback plan. Under our $75 million repurchase program, BBSI repurchased $9 million of shares in the first quarter at an average price of $39.85 per share, with $21 million remaining available under the program at quarter end. The company also paid $2.1 million in dividends in the quarter and reaffirmed its dividend for the following quarter. Now turning to our outlook for the full year. Our Q1 results exceeded expectations, reflecting strong execution across the company. However, as Gary mentioned, we're approaching the rest of the year with measured caution given the potential effects of economic uncertainty on our clients, and we're, therefore, maintaining our outlook from the beginning of the year. To recap, that outlook includes a gross billings increase between 7% and 9% for the year, worksite employee growth between 4% and 6% for the year, gross margin as a percent of gross billings between 2.85% and 3.1%, and an effective annual tax rate between 26% and 27%. I will now turn the call back to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Chris Moore from CJS Securities. Please go ahead.

Hey, good afternoon, guys. Congrats on a nice quarter. And thanks for taking a few. So maybe just on the tariff side I think we talked about this a little bit last quarter. But roughly what percentage of your clients would you estimate have direct tariff exposure and that could be positive or negative?

Yes. Just in general, we primarily deal with service businesses. Think of the blue and gray contractors and the trades. They are not going to have the direct, they're going to have the indirect, which is maybe some of their materials or supplies will cost more. We don't have a ton of manufacturing, which would have to deal with this. Where we do see it is in our Southern L.A. or Long Beach area. We do have some trucking and logistics business, intermodal business that we've seen start to slow down as you look at the – I think it's like 60% less ships are coming in from China to the port. And if there's fewer ships coming in, there's less freight to move. We're seeing it there. But I would say in the aggregate it's nothing that's material.

Got it. Very helpful. One of the – obviously, one of the bigger changes in the BBSI model over the last five years or so is the asset-light model allows you to cost-effectively determine if a new geography makes sense. You mentioned three new physical locations. Is there an annual goal or target for the number of new physical offices?

Good question. It really has to do with the development in that area. Some markets develop quicker than others. We expect all the markets to develop. We don't really have a plan for how many physical locations we're going to have in a year. Some of them we look at and say, when does it make business sense to put the brick-and-mortar there? And the reason we do that is just because once you get the brick-and-mortar you're going to have the expense that goes with it and you want to make sure that you can justify the expense. So when we look at the first three, it's Dallas, where we're doing well, Chicago, where we're doing well, and Nashville where we're doing well. They will come online end of Q2, early Q3 is when we're going to have the ribbon cutting for them. And then we'll probably have one more by the end of the year, with possibly two more following next year, but we don't have a cadence of say three a year. It's really when they're ready for it. And surprisingly the thing that has really surprised me is I would think it would be easier to get commercial real estate in this market. It's been a challenge in some places. We wanted to be in these locations sooner, but it's been a challenge on the real estate side, believe it or not.

Interesting. I'm just trying to understand or estimate what percentage of growth over the next say five years could come from geographic expansion? I mean, can that add a point or two of growth a year over time? Or is that too aggressive?

We really think of it as – I like to call them our 401(k), right? These are our investments for the future. We know that we're going to get revenue out of them in the short term. We know that we have a plan that they're going to get up to speed and cover their cost in the short term. But we're really not doing this for profitability until we get out until year three and beyond. And we look at it as a profitability play, not a revenue play.

Got it. And that makes sense. Maybe just last one for me. On the healthcare side, obviously, you have two key relationships: Aetna and Kaiser Permanente. Is that enough? Is there any value in a third partner at this point in time?

We have partnerships that are not as large as those. We have some Blue and some other carriers in certain states. Typically when we're in a market we try to understand how is the Aetna network? Do we need to complement the Aetna network with a regional carrier? If we do have to complement it with a regional carrier, we add them in. So in certain states where it makes sense, I think it's like three or four states, we already have additional carriers in those states.

Got it. I’ll jump back in line. Thank you.

Thank you. And your next question comes from the line of Jeff Martin from ROTH Capital Markets. Please go ahead.

Thanks. Good afternoon. I wanted to explore further how you updated or maintained guidance in relation to the Q1 performance. What factors influenced your decision to stick with the 7% to 9% growth in gross billings despite the uncertainty?

Looking at our quarterly performance, we exceeded our targets for gross billings and worksite employee growth. If we projected how the year would unfold, we would have needed to raise our guidance based on those results. On the other hand, the challenge lies in the business's profitability, which is aligned with our plans for the quarter. Reflecting on the COVID environment, we noted that new business slowed while retention improved. Companies tended to act during that uncertainty primarily for cost savings. Now, as we progress into May, we haven't finalized our April accounts yet, but early indicators are positive. We refer to it as cash versus accrual since there's a delay in payment for hours worked. Consequently, we don't have complete data for April hours yet, but we did meet our client addition and benefit addition targets. Our worksite employee numbers for April also exceeded our plan, and that momentum continues. However, we cannot predict beyond April at this moment. Given that we are ahead of plan on these metrics, with some macroeconomic uncertainties to consider, we decided to maintain our existing forecast.

Okay. And then on the benefit side, how much do you think that's driving new client growth versus existing clients adding the benefits to their packet?

We had a good question regarding our product rollout. Initially, we had more success selling to our existing clients rather than new ones. However, we are now seeing a more balanced approach as we moved past January 1. For the January 1, 2024 selling season, approximately 75% of our sales came from existing clients and 25% from new clients. By the January 1, 2025 selling season, the numbers have shifted to a more equal distribution of 50-50. Many of the new clients we acquired would not have chosen Barrett Business Services, Inc. without our benefits offering. This is giving us significant momentum, enabling us to penetrate markets and distribution channels that were previously inaccessible. We're attracting professionals like doctors and lawyers that we hadn't worked with before, and this is providing us with strong support in that area.

Great. That's good news. And then last one for me is, when you're going out there and selling to clients, are you displacing more PEOs than legacy PEOs than you had in the past? The reason I asked the question is you're posting growth that's several factors of what others in the industry are showing in their more recent results. Anything in particular you could attribute that to outside of the benefits being an incremental value driver?

We're doing a lot of small things to enhance our sales efforts. This includes improving our hiring practices, training, technology, and introducing better products to the market. We've made numerous changes within the organization, and you're beginning to see the positive outcomes from them. Many of our new clients are converting to a PEO for the first time, and we're experiencing an increase in PEO takeaways, particularly through our market development managers, who often focus on this strategy. We also achieve PEO takeaways in other markets, but we see great potential in this industry. There are still 85% of businesses not affiliated with a PEO, which provides us with ample opportunities to explore areas that others may have overlooked, and that's how we've found success.

Appreciate the time. Thank you.

Thank you. Your next question comes from Vincent Colicchio from Barrington Research. Please go ahead.

Yes, Gary, impressive net new client adds in the quarter. Is there anything that you'd want to add to what's already been mentioned in terms of how you were able to achieve that? Anything new with the marketing tools that you're using, anything of that nature?

I'm not going to give our playbook to the competitors there, Vince.

That's fine. That's fair. Regarding staffing, I thought you included some manufacturing in that. Would you respond differently concerning the overall exposure to tariffs?

We've examined the situation in the Northwest where some of our local sites are involved in agriculture. Initially, there was concern that this business would shift to China and might be impacted by tariffs. However, the business we have remains in the US, dealing with products like potatoes and onions, which are processed into various foods for the domestic market. Generally, it's the raw agricultural materials that are exported to China from the US. Therefore, regarding the agricultural sector, we are optimistic that there won't be a decline in the Northwest. In Southern California, we have some staffing operations related to logistics and warehousing, and we haven't yet noticed any negative impacts. If anything, businesses seem to have accelerated their orders in anticipation of the tariffs. We're uncertain about how the rest of the year will unfold. It's important to note that staffing represents a very small portion of our overall business.

How is pricing trending? I may have missed your comment on that. Are you experiencing any pressure from certain clients given the current economic conditions?

We've mentioned this for several quarters and years regarding workers' compensation pricing. Currently, workers' compensation pricing has moderated, with minimal fluctuations, generally around plus or minus 2%. Recently, the regulatory agency in California, the WCIRB, has proposed an advisory rate increase of approximately 11.2%. This indicates that rating agencies are suggesting that workers' compensation premium prices should rise. I have often joked that I'm not very good at predicting the lowest point, but I feel we're closer to the bottom now than we've ever been.

Okay. Nice quarter. Thanks.

Thank you. And your next question comes from the line of Marc Riddick from Sidoti. Please go ahead.

Hi. Good evening.

Hi, Marc.

A lot of my questions have already been addressed. Congratulations on a strong start to the year, especially regarding benefits. I'm curious if you could discuss any new service offerings or strategies that might be particularly effective in the current environment. I understand there were plans for the year, but can you share if there are any areas that have become more of a priority now compared to six months ago that are contributing to the addition of new clients?

Yes, I can confirm that we added Kaiser to our medical offerings on July 1. This was our first time selling the Kaiser product starting January 1. We have both the Kaiser HMO and the Aetna PPO available. We made projections with Kaiser about the number of participants we would gain within a year, and we exceeded those expectations significantly. We achieved 2.5 times our anticipated results in just about seven months. Our Kaiser offering is certainly making a positive impact in California, both in the north and south. Improved access for customers is proving beneficial. Additionally, we are optimistic about our applicant tracking system. Although it is still quite new, having launched in March with fewer than 50 clients, we are noticing positive feedback. Clients are appreciating the investment we are making as it simplifies their processes and increases efficiency. Ultimately, the more services they utilize from us, the longer they are likely to remain our clients.

That's great. Considering the comments about client retention, it appears you are making positive progress in terms of wallet share. Were there any areas that did not perform as well as you had anticipated based on the latest headlines? Is there anything we should be aware of that might take a bit longer to gain traction? Thanks.

Yes. We have our IT product roadmap focused on enhancing the employee life cycle, with releases scheduled almost every quarter to improve the process from hiring to retiring. However, just because we launch it doesn’t mean immediate adoption; it will take time to fully integrate with our clients. Some clients may embrace it while others may not. We recognize that in white-collar sectors, larger businesses, and those with higher turnover, there is a demand for these technological resources, and we are developing those capabilities. Therefore, we don’t expect this to have a significant impact on the organization in 2025. We see this as a long-term investment.

That’s very helpful. Thank you very much.

Thank you. There are no further questions at this time. I would now hand the call back to Mr. Gary Kramer for any closing remarks.

I just want to thank all the BBSI professionals for a great quarter, and thank everybody for their support. Thank you.

This concludes today's call. Thank you for participating. You may all disconnect.