Q2 2024 Earnings Summary
- BBSI's new client pipeline continues to grow, with volume outpacing the prior year due to multiple strategies and channels to increase the top of the sales funnel.
- The company is experiencing a strong rebound in Northern California, particularly in the construction industry, resulting in the strongest client hiring in that region compared to the prior year. This positive trend is expected to continue to build.
- BBSI's health benefits offering, including the strategic partnership with Kaiser Permanente, is gaining traction, leading to new business from PEO takeaways. The company expects meaningful contribution to gross margin from these products in 2025.
- Challenges in the Pacific Northwest region: The Pacific Northwest experienced a decline of 3% in PEO gross billings, making it the only region with net negative client hiring and sustained lower average hours worked. The region is impacted by economic factors, and investments in Portland are particularly challenging.
- Limited growth from benefits with external clients: The company's benefits growth is predominantly from selling to existing clients, with only 20% of new business coming from new clients. Progress in signing new clients through benefits brokers has been slower than expected, which may limit future growth in this segment.
- Delayed financial impact from Kaiser partnership: The new partnership with Kaiser Permanente is expected to contribute meaningful gross margin benefits not until 2025, indicating a delay in realizing significant financial gains from this initiative.
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Workers' Comp Adjustments
Q: What's the outlook for workers' comp adjustments?
A: We have had 22 consecutive quarters of favorable adjustments due to our conservative program design and strong focus on workers' comp management. We anticipate that this positive trend will continue. -
Kaiser Relationship Revenue Impact
Q: When will the Kaiser relationship be incrementally noticeable?
A: We expect meaningful contribution to gross margin from our medical benefits products, including Kaiser, to begin in 2025, following the major selling season on 1/1. Launching on 7/1 allowed us to gain confidence and prepare for larger opportunities ahead. -
Northern California Growth
Q: Is Northern California's growth accelerating?
A: Yes, we continue to see steady and improving growth in Northern California, especially in the construction industry, which has rebounded and is now our strongest region in terms of client hiring. We expect this positive trend to continue building. -
Pacific Northwest Challenges
Q: What's happening in the Pacific Northwest market?
A: The Pacific Northwest, particularly Portland, faces challenges with slower rebound in the construction industry and some deterioration. While there is stability intra-quarter, it's a smaller region affected by a few larger clients, and economic factors make it challenging to invest more capital there at this time. -
Client Pipeline Growth
Q: How does the current client pipeline compare to last year?
A: Our pipeline continues to grow, with volumes outpacing prior year levels due to multiple strategies and focused efforts on maintaining a high volume of prospects at the top of the funnel. -
Referral Partner Network
Q: Any improvements in the referral partner network?
A: Yes, our referral partner channels are growing, with more active partners than ever. While traction with benefits brokers is slower than hoped, we're starting to see new programs from them thanks to our benefits products. -
Benefits Sales to Clients
Q: Are benefits plans being sold to new or existing clients?
A: The focus remains on selling to our existing client base, with about 20% of sales being new business during the 7/1 and 8/1 season. In the longer term, we aim to sell to all clients and attract new ones with our competitive health offering. -
Adding Larger Clients
Q: Progress on adding larger clients to the pipeline?
A: We focus on serving the small business community and are comfortable in our space. While we do attract larger clients who value our services, we're not aiming to become a mid-market company and prefer to stay in our sweet spot.