Barrett Business Services, Inc. (BBSI) Earnings Call Transcript & Summary

Hello, and welcome to the 2023 Barrett Business Services, Inc. Virtual Shareholder Meeting. Please note that this meeting is being recorded. [Operator Instructions] The meeting is about to begin.

Good afternoon. Anyone present who wishes to vote his or her shares at today's meeting should do so by using the proxy voting site link on the left-hand panel of your screen and the 11-digit voter control number that was issued by AST along with your proxy materials. Only persons who were stockholders of record on April 10, 2023, are entitled to vote at this meeting. If you have already voted your shares and do not wish to change your vote, no action is required at this time. [Operator Instructions] Only stockholders of record, proxy holders or beneficial holders may ask a question during the question-and-answer period. Please note that in the interest of all stockholders, we will only address those questions that are pertinent to the business of the meeting.

Good afternoon. I'm Tony Meeker, Chairman of the Board of Directors of BBSI, and I now call the 2023 Annual Meeting of Stockholders to order. James Potts, Executive Vice President, General Counsel and Secretary, will act as Secretary of the meeting. AST has been appointed inspector of elections for the meeting. David Cary from AST is present today. James, please advise us as to the mailing of notice of the Annual Meeting and the number of shares represented at this meeting in person and by proxy.

On or before April 24, 2023, a printed notice of the annual meeting was mailed to each stockholder of record as of April 10, 2023. An appropriate affidavit of the mailing of the notice is on file in the records of the company. There are more than 5,841,000 shares or 85.89% represented at this meeting in person or by proxy out of the 6,800,669 shares outstanding on the record date.

As more than 50% of the outstanding shares of the company are represented at this meeting, I declare a quorum present. Copies of the minutes of the 2022 Annual Meeting of Stockholders as well as copies of the company's 2022 annual report and the proxy statement for this meeting are available through the documents icon, located at the top of the left side of your screen. In addition to serving as Chairman of the Board of BBSI, I am the retired Managing Director of Victory Capital Management, Inc., an investment management firm and also former Treasurer of the State of Oregon. I will now introduce the other directors of BBSI, who, in addition to me and Gary Kramer, our President and CEO, are standing for election at this meeting. Tom Carley, Chief Operating Officer and Director of Urth Organic Corporation and Co-Founder of Portal Capital, an investment management firm in Portland, Oregon; Joe Clabby, retired senior executive of Chubb Limited, and before that, ACE Limited; Tom Cusick, Executive Advisor of Columbia Sportswear Company, in addition was COO and CFO of Columbia, headquartered in Portland, Oregon; Carla Moradi, Senior Vice President, Global Partner and Alliances Organization at Anaplan, Inc., a Software as a Service provider to global enterprises; Alexandra Morehouse, Chief Marketing Officer of Banner Health; Vincent Price, Executive Vice President and Chief Financial Officer at Cambia Health Solutions, a nonprofit health insurance corporation headquartered in Portland,, Oregon; and Jon Justesen, CEO of Justesen Ranches, who will be leaving the Board effective immediately following today's meeting. Next, I would like to introduce the officers of the company: Gary Kramer, President and CEO; Anthony Harris, Executive Vice President, Chief Financial Officer and Treasurer; Gerald Blotz, Executive Vice President and Chief Operating Officer; James Potts, Executive Vice President, General Counsel and Secretary. In addition, several of the company's professional advisers are present today: Meghann Hartley and Charles Mello with Deloitte Touche LLP, our independent accounts. As indicated in the proxy statement, the representatives of Deloitte Touche are available to answer appropriate questions you may have for them during the stockholder question-and-answer session. The proxy material you received describe the items of business to be considered at this meeting. If you have already submitted a proxy, your shares will be voted as you instructed. The polls are now open to act on the business to be presented to the meeting, and any stockholder who hasn't yet voted or wishes to change their vote may do so at any time until the polls are closed by using the proxy voting site link. I will now briefly introduce each of the proposals to be considered at this meeting, and then I will invite comment and discussion concerning the proposals. The first proposal is to elect 8 directors to serve until the 2024 Annual Meeting. The Board has recommended the following nominees for election as directors to serve until the 2024 Annual Meeting of Stockholders: Thomas J. Carley, Joseph S. Clabby, Thomas B. Cusick, Gary E. Kramer, Anthony Meeker, Carla A. Moradi, Alexandra Morehouse and Vincent Price. The company's proxy statement named 8 individuals to be nominated at this annual meeting for election as directors. BBSI did not receive notice from any stockholder of his or her intention to nominate one of our individuals for election as directors of BBSI prior to the deadline or submission of such notice, which is January 25, 2023. Under the company's bylaws, no additional nominations for elections as directors may be made at this time. The Board has previously approved a reduction in the number of positions on the board from 9 to 8, effective immediately following the annual meeting. The approval by stockholders of the BBSI amended and restated stock incentive plan is the second proposal. The proposal to amend the plan is in order to increase the maximum number of shares of common stock authorized for issuance pursuant to all types of awards made under the plan, from 375,000 to 725,000. The nonbinding advisory vote by stockholders on the company's compensation program for its executive officers is the third proposal on the agenda. The Board's Compensation Committee has recommended the adoption of the following resolution. Resolved that the compensation plan to our named executive officers, as disclosed in the 2023 proxy statement pursuant to Item 402 of Regulation S-K adopted by the SEC, including the compensation discussion and analysis, executive compensation tables and accompanying footnotes and narrative discussion, is hereby approved. The nonbinding advisory vote by stockholders on how frequently stockholders would like the company to hold an advisory vote on the compensation of executive officers is the fourth proposal on the agenda. The Board has recommended that the advisory vote on the company's executive officers compensation program be held annually. The final proposal is the ratification of the selection of BBSI's independent registered public accounting firm for 2023. The Board's Audit and Compliance Committee has selected Deloitte & Touche LLP as the company's independent auditors for the coming year. Deloitte has served as BBSI's auditor since 2016. Is there any comments or other discussions of any of the proposals that have been put to a stockholders vote at this meeting? Hearing none, the secretary will announce the results of the voting before the end of the meeting. It has been my privilege and honor to be the Chairman of the BBSI Board of Directors since 2011. BBSI has seen significant growth both in top line growth and in stockholder equity during that time. 2024 and beyond looks to be the same. This annual meeting is the last of 19 for Jon Justesen. Jon, we appreciate your many years of dedication to BBSI. Thank you for your service.

Thanks.

We welcome Joe Clabby to his first meeting with the BBSI stockholders. Joe joined the Board last summer, and we look forward to working with you, Joe. Your Board of Directors and the BBSI team are focused on the execution of our long-range plan. Our objectives of top line sustainable growth, improved margin, investment in new products and building a top-flight management team are providing excellent results. Gary Kramer will provide the details of a good year in 2022 and the beginning of 2023 in his comments. As we look forward to 2024 and beyond, we know that continued challenges face us and our clients. The best defense to meet prevailing headwinds is a well-planned strategy, a strong cash position, a best-in-class management team and a nimble approach to inevitable challenges. Over the last several years, BBSI has significantly reduced risk on our insurance liabilities, we have made investments in IT, new products for our clients, and most importantly, investment in the people that deliver success. BBSI has planned for sustainable growth, and at the same time, developed strategies to meet the challenges of an ever-changing environment. The BBSI Board of Directors and the management team are committed to driving continued improvement through good practices, progressive solutions and mindful action to make positive impact on our clients and investors. BBSI has developed a time-tested and relevant business model that delivers needed services to businesses in multiple markets. We are prepared to deliver this model nationwide. The long-range plan and the commitment of the Board and management is to execute that plan, and it will bring success to our clients, our employees and our investors. It's now my pleasure to introduce our CEO, Gary Kramer. Gary?

Thanks, Tony, and hello, everyone, and thank you for your support and confidence in BBSI. As Tony mentioned in his prepared remarks, in 2022, we executed on our strategic plan and exceeded operational and financial expectations. First and foremost, I am very proud of the work and support that we deliver to our clients, and this is evident in our record client retention. Secondarily, I am very happy with the advancements we made regarding our strategic initiatives. We continue to build out our corporate sales effort and increase the top of the funnel by focusing on lead generation via an omnichannel digital campaign, which brought on new clients and new referral partners. We continue to invest in new geographies, and we are now operational in 14 asset-light markets. We have refined our expansion model where we attract and hire great people, train them well, apply the lessons we learned in a COVID environment for how to operate remotely and package with our digital initiatives to help grow their market penetration. We successfully renewed our workers' compensation facility and received better pricing and better terms and now have no downside and only share in the upside of our disciplined underwriting operations. We further advanced our Employer of Choice initiative and earned The Great Places to Work designation for the second year in a row. We also invested in product development and are excited regarding the launch of 3 new products. The first is BBSI Benefits. We now offer health insurance plus ancillary benefits in every market. This is a fully insured program where we take no underwriting risk. This offering is made available and delivered seamlessly through our myBBSI portal. The second is BBSI U, a learning management portal that our clients can purchase, which contains various catalogs consisting of HR and compliance, risk and safety, leadership and professional skills. This offering is also delivered through our myBBSI portal. The third is BBSI recruiting. We have built out recruiting hubs in every region that support our branch network and now provide recruiting services for our PEO clients. We delivered superior services while executing to our long-term strategic plan. And I would just like to thank everyone in the BBSI family for their hard work and efforts throughout the year. Our hard work was rewarded, and I'm proud of the financial results we earned in 2022. Our gross billings were up 13%. Our earnings per share was up 31% to $6.54 per share. We paid a dividend of $8.5 million. We bought back 8% of our outstanding shares and our stock appreciated by 37%. As we look to the remainder of 2023 and beyond, BBSI is poised for success. Our balance sheet has been derisked, and our capital position is strong. Our financials are predictable, and we are generating strong positive cash flow. We will continue to execute on our strategic plan to grow and to expand, whether this is in our current markets or new markets, with existing clients or new clients, with existing products or new products or with our existing distribution channels or new distribution channels. We will continue to bring the best of BBSI and deliver the expertise and solutions that enable our clients to prosper on our journey of becoming a truly national PEO. So this is the shareholder meeting and what does this all mean to shareholders. We believe we can continue to make investments in the business while executing to our strategic plan, targeting annual average double-digit gross billings growth with leverage in the model that results in 1.5x earnings growth over a market cycle. As we look to allocate excess capital, we first look at investments in the company, followed by acquisitions, stock repurchases and supporting the dividend. We believe that executing on these strategies will continue to provide growth in total shareholder return. And with that, I'll open it up to questions.

We have a question from shareholder Wayne King. Do you consider artificial intelligence an opportunity or a threat to our product offering?

Wayne, thanks for the question. I think everybody has to be aware of AI now. Specifically for us in BBSI, we view it as an opportunity, an opportunity to become more efficient, which will be -- which will result in us being more effective in our operations. We use AI now. A lot of our AI to be used, we partner with other folks. But we use AI as it regards to claims management on the workers' comp side. We use it regarding underwriting and risk selection on the health and on the workers' comp side. We've developed and are exploring things internally and are using AI for our marketing and in our digital efforts. So we are using AI. We will continue to explore other opportunities to advance our usage of AI as well.

And there are no other questions.

As there are no other questions, the polls are now closed. James Potts, will you please give us the results of the voting?

The preliminary results are that each of the nominees for election as directors has been elected; the company's amended and restated stock incentive plan has been approved; the company's executive compensation program has been approved on an advisory basis; the stockholders on an advisory basis have selected annual votes on the company's executive compensation program; and the selection of Deloitte & Touche as the company's independent auditors has been ratified by the stockholders. The exact voting on proposals considered at this meeting will be publicly reported through the filing of a current report on Form 8-K with the SEC by June 9, 2023.

We wish to thank all of you for attending the Annual Meeting of BBSI. The meeting is now adjourned.