Q1 2024 Earnings Summary
- Strong controllable growth: BBSI added approximately 3,100 worksite employees year-over-year from net new clients, resulting in a 3.1% increase in worksite employees. This growth is due to adding and retaining more business and experiencing moderate net hiring from clients. The company expects higher gross billings growth in 2024 than in 2023, driven by controllable growth from net new PEO clients. , ,
- Successful expansion into new markets: The asset-light model is showing positive results, with 15 new market development managers in various stages, and two markets moving into traditional BBSI branches. This expansion strategy is contributing to growth as the company continues to recruit additional managers and enters new markets. ,
- Launch of new health insurance offering with Kaiser Permanente: BBSI entered into a strategic multiyear partnership with Kaiser Permanente, offering an HMO product alongside a national PPO. This offering is receiving positive feedback and is expected to give a lift starting 7/1, but more importantly, be an accelerant to growth as the company looks out to 2025 and beyond. , ,
- BBSI's expansion into new markets using the asset-light model is encountering difficulties, with the CEO acknowledging that some hires "haven't been" successful and describing progress as "3 steps forward, one step back," indicating potential challenges in scaling this initiative.
- The company's new health care product may not be gaining traction as quickly as anticipated, with only 280 clients on the plans through March despite the recent enrollment period, and management deferring detailed expectations to the next quarter, suggesting uncertainty in its adoption and impact on growth.
- BBSI's growth projections for 2024 heavily depend on "controllable growth" from adding and retaining clients, as the company anticipates only modest client hiring and low wage inflation, implying that any economic downturn could negatively impact their growth plans.
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Gross Billings Growth & Economic Outlook
Q: Can you elaborate on gross billings growth and hiring expectations?
A: Management anticipates modest growth in net hiring this year, following a net negative decline last year. The lion's share of revenue growth is expected to come from controllable growth factors like adding and retaining business. Any upside in economic activity, particularly in the construction sector, would be a beneficial tailwind not currently baked into their forecast. -
Payroll Taxes Impact on Margins
Q: How are higher payroll taxes affecting margins?
A: Higher payroll taxes across all regions have led to a 25 basis point year-over-year decrease in gross margin this quarter. These increased rates are factored into pricing, and management expects a margin rebound over the next three quarters, creating a trampoline effect as the year progresses. -
Health Care Plan Enrollment & Kaiser Partnership
Q: What are the expectations for the Kaiser health care offering?
A: The company began marketing the Kaiser plans in April, having quoted over 60 deals and closed about 10 for July 1st enrollment. Focused on California and Oregon, where Kaiser is popular, they aim to refine the offering for a successful larger enrollment on January 1st, 2025. Clients can choose between Kaiser's HMO and a competitive PPO through a national partner, providing flexible options. -
Asset-Light Model Expansion
Q: Can you update us on the asset-light model and branch expansions?
A: Two markets, Dallas and Chicago, are transitioning from the asset-light model to traditional branches, with local hires and investments in brick-and-mortar locations. The company expects all asset-light programs to eventually graduate to full branches, depending on profitability and sales progress. -
Cadence of Earnings & Seasonality
Q: What should we expect regarding earnings cadence this year?
A: A similar seasonal pattern is anticipated, with operations peaking in Q3, when the company sees its highest profits. Q1 margins are lower due to payroll taxes, while Q2 and Q4 profits are usually similar, with a slight weighting towards the back half of the year. -
Adding Large Clients with Health Care Product
Q: Is the new health care product helping in adding large clients?
A: It's too early to assess the impact definitively, as many clients make buying decisions for July 1st enrollments in May. The company has presented to potential clients and is optimistic but expects to have clearer results by next quarter.