Q4 2019 Earnings Call
Good day, everyone and thank you for participating in todays conference call to discuss BB size financial results for the fourth quarter and full year ended December 31st 2019.
Joining me today, our baby size, President and CEO Mr., Michael Ilitch, and the company's CFO Mr., Gary Kramer following their remarks, well open the call for your question.
Before we go further please take note of the company Safe Harbor statement within the meaning of their private Securities Litigation Reform Act 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 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.
I would like to remind everyone that this call will be available for replay through March 26, 2020, starting at three PM Eastern this afternoon.
A webcast replay will also be a bearable available via the link provided in todays press release as well is available on the company's website at Www dot.
And why BB aside dot com now I'd like to turn the call over to the Chief Financial Officer of Bbs, Sorry, Mr., Gary Kramer, Sir. Please go ahead.
Thank you Robert depending upon where your dialing in from good morning, or good afternoon, everyone.
We had a very strong year that resulted in record earnings in the fourth quarter, we reported diluted income per share of $1.51 compared to $2.21 in Q4 of 18.
Gross billings of 1.59 billion grew 5% over the same period.
You know gross billings increased 6% to 1.56 billion compared to the fourth quarter last year.
Gross billings for the year were about 3% less than we expected and was primarily related to same customer sales.
And our plan, we estimated that same customer sales would be about 6% for the year versus an actual of about 4%.
This decrease is primarily related to our clients slower growth in adding additional employees due to what tight labor market.
Gross billings grew by 3% in California burst, 14% and all other combined geographies.
Same customer sales were 5.4% compared to 6.3% in Q4 of 18.
In comparing December of 2019 burst December of 2018, we saw that our clients hours worked decreased which we attribute to have a holiday season itself.
We continue to increase our client base with the gross addition of 373 clients were 134 net of run off in the quarter 373 gross additions are a record number in any fourth quarter in our history.
Net revenue of 245.2 million increased 3% compared to 237.8 million in Q4 of 18 and reflected the continue build of our PEO clients, which was slightly offset by weaker staffing revenue, which decreased 10% to 33.1 million.
Compared to Q4 of 18.
The decrease in staffing revenue was a direct result of the continued tight labor market and we anticipate that staffing will remain a slight headwind to near term revenue growth.
Workers' compensation expense as a percentage of gross billings was 4.2% this quarter, which is below our expected range, a 4.3% to 4.5%.
This compares to 4.8% in the fourth quarter 2018.
The improvement was due to the independent actuarial evaluation, resulting in a reduction of prior year estimated liabilities of $3.1 million also as previously discussed we restructured our arrangement with chubb to reduce frictional costs and our entire portfolio of policies is now on the more efficient stroke.
Sure.
Our workers compensation claims frequency continues to trend favorably in the quarter. We saw trailing 12 month relative frequency of claims as a percentage of payroll decreased 15% compared to the fourth quarter 2018.
All in we're very pleased with the way our workers compensation portfolio is performing we've taken many steps and actions, which are yielding positive results, we're conservative and deliberate and this strict focus and attention has resulted in redundancy in the portfolio nine quarters in a row and his wife.
<unk> expense continues to come in lower than our range.
Payroll as a percentage of gross billings is increasing as other components of gross margin decrease this is related to an increase in PEO business mix and continued expansion outside of California, where many states have lower payroll tax and workers compensation ratios.
[laughter] SGN entering the fourth quarter was 40.4 million, which is 8% lower than the prior year quarter.
We experienced some onetime expenses in Q4 of 18 that did not repeat which makes this quarter seem artificially better.
For the full year, our Sta was inline with our plan and grew at 6%.
We continue to be mindful and diligent about balancing spend against growth while investing in the business for the future.
The provision for income taxes in the fourth quarter was 3.7 million.
As mentioned in prior quarters, we increased our effective tax rate estimate from 18% to 22% this year.
Moving to the balance sheet, our unrestricted cash and investments were 127 million at 12, 31, 19, which is 90 million in greater than 12 31 18.
The restricted cash and investments, which is primarily comprised of the Chubb Trust was 444 million at 12 31 19.
The 571 million combined unrestricted and restricted cash and investments will continue to be invested in a balance of cash and investment grade fixed income.
12, 31 19, the average quality of the invested portfolios was double A. and no investment was greater than 4% of the portfolio.
In the quarter, we earned $3 million of investment income.
We continue to invest in our IP organization, and our client facing technology and as a result, our fixed assets grew by $6.9 million over the prior year to 31.7 million.
On the liability side of the balance sheet, we have no material updates we had no borrowings under our credit line as up 12, 31, 19, and we continue to be debt free except for the 4 million dollar mortgage on our corporate headquarters in Vancouver, Washington.
In summary for the year, we face slight headwinds to revenue growth for both staffing in PEO due to challenging hiring conditions.
However, we continue to focus on the things in our control like widening our client base in return we added over 800 net new clients for the year.
Our workers compensation portfolio developed favorably and is a direct result of the various steps and actions we have taken.
This resulted in record EPS in 2019 of $6.27, which exceeded our initial guidance by 16% and was 26% better than the prior year.
We also return dividends to shareholders in the amount of $8.2 million.
Our balance sheet has made the term and we have built the financial note to support the company.
We invested in the business and future growth, while being mindful of expenses and looking for savings and efficiencies in everything we do.
As we mentioned last quarter, we invested in introduced a new website Mytv OSI dotcom.
This was the first move to more accurately represent our value proposition to the market.
The next step of the rollout is our new customer portal, which we expect to come online during the second quarter of 2020.
Speaking of 2020, our pipeline remains strong and we continue to build our base of net new clients, our referral relationships and distribution channels continue to widen.
For the full year 2020, we expect diluted earnings per share to be $5.05.
We expect gross billings to increase approximately 7% for the next rolling 12 month period.
This contemplates continuing deceleration in staffing revenue of about 10% and same customer sales growth for PEO to be similar to what we've experienced in 2019 or about 5%.
We now expect arrange for workers compensation expense as a percentage of gross billings to be 4.2% to 4.4%.
This estimate does not include any change in estimate for prior years workers compensation liability.
But as we've highlighted in the past it has trended favorably over the past nine quarters.
This includes an increase in s. DNA of $5.5 million or 56 cents per share for the launch of our new and improved customer portal.
It is important to note that we've estimated a minimal amount of revenue increase in 2020 as it relates to the portal due mostly to conservatism around the migration of our customers onto the new platform, but we expect increased revenue growth and expense synergies in 2021 as it relates to the system being perfected.
And online for full year.
We also expect the effective tax rate to be approximately 20%.
Now I'd like to turn the call over to the President and CEO PV OSI, Mikey Ilitch, who will comment further on the recently completed fourth quarter as well as our operational outlook for 2020, Mike.
Hello, and thank you for taking time to be on the call.
Before I move onto a discussion about quarter I'd like to start off by thanking the Bbs site teams and partners that allow us to support our clients betterment of our shareholders. We had a solid year well topline remains softer than historical levels, we feel good about record earnings and our ability to create shareholder value.
Fundamentals of the business remains strong and we're seeing continued support of our value proposition in the market looking back to 2019. It was a year, where we introduced my BB aside dotcom, our new web site. The first in a series of moves to tell our story more consistently and to set the foundation for a more meaningful systems.
Engagement with our clients.
We also undertook a technology initiative investing in our system with a focus on removing friction and further integrating with our client companies.
Investment, we made in technology and systems in 2019 will reshape how we apply technology to our offering overtime.
Also on the year, we added three branches in Lehigh Valley, Pennsylvania Grand Junction, Colorado, and Rosedale, California. We also added eight business teams to our existing footprint. We added more than 800 net new clients and we continue to spend time in the field with referral partners and business owners.
Working to understand what they may be seeing in their markets.
In the quarter, we added 373, new PEO clients, we experienced attrition of 239 clients six due to accounts receivable to for lack of tier progression nine do or due to risk profile 17 businesses closed 51 businesses.
Excuse me 17 businesses sold 51 businesses close and 134 left to pricing competition or companies that have moved away from the outsourced model. This represents an approximate build in the quarter of 134 net new clients, we generally see an uptick in run off in the fourth quarter.
It is a cleaner time for companies to move away from a complement relationship.
Also on the quarter, we took time to pull 856 of our existing clients to better understand what they may be seen.
And speaking with these clients the majority are profitable and continue to see relevance in their offering.
Despite runway and opportunity lack of skilled labor continues to be the limitation to growth.
And there can and there continue to be uncertainty related to a variety of macro issues in general the business owners. We spoke to express expressed optimism, but are not able to find the talent they need to grow which is why we believe we're seeing softness and same customer sales.
Given the sample of 2000 clients interviewed in 2019, we have seen very little shift in business owner sentiment or confidence.
Related to pipeline.
We continue to see strong client adds in the quarter and we believe this is the result of our referral partners understanding and recommending Bbs side, we continue to view of all our ability to scale from a model based on individual market contributors to a systemic approach for developing referral channels on a national basis today, we are seeing device.
Segment of new referral channels in all markets, which supports strong pipeline growth as evidenced by continued new client adds.
Related to organizational structure.
We continue to build the field organization dispute support future growth scale into new markets and invest in support of our product offering in the quarter. We opened a new branch in the Lehigh Valley of Pennsylvania.
Also in the quarter, we added four business teams, bringing us to 118 business teams across 64 branch locations.
Related to branch stratification.
We have 18 mature branches with run rates in excess of 100 million.
This is the measure we used to indicate a branches ability to increase leverage we have 20 emerging branches running between 30 and 100 million we regularly reinvest back into these teams to support capacity as they grow.
Finally, we have 26 branches, we consider developing with run rates of up to 30 million and these branches, we invest to support consistency of pipeline, while maintaining integrity of product as they scale. We continue to evaluate the build a new branch locations and business teams in line with predictability of our.
Highpoint.
Related to systems in 2019, we undertook a meaningful technology initiative, a client facing portal my Bbs side. We chose this name to and to extend the personal relationship we have with our clients to our digital interactions. This effort has four goals to.
On our destiny.
To deliver a user experience that complements our teams high touch interface to enhance our clients experience and remove friction from our teams and our clients and to set a foundation for future innovation.
Most notable about the development of our client facing portal is architecture that supports consistency consistent user experience will providing seamless access to a variety of backend tools the portal might be OSI delivers enhance.
Fun functionality use usability and flexibility for the user it reduces friction and puts control in the hands of the business owner. Additionally, the systems architecture affords us the ability to think more broadly about the way in which we can use technology to support the needs of our business owner.
Overtime.
By late second quarter, all new clients will be Onboarded to my VBS side, we expect that by the end of 2020, all clients will be converted to the system.
Looking forward.
The fundamentals of the business are strong we remain focused on bringing predictability and value to the business over the long term feedback I received from our clients and referral partners supports relevance of our product as we look at the next five years, having spent a great deal of time in the field my confidence in our ability.
Execute comes from the strength of the organizations leadership the maturity of our teams and the structured allows us to stay nimble we.
We continue to invest in infrastructure that supports both product evolution and our ability to scale into new markets with predictable outcomes. We built in enterprise platform, where we own the code we own our user experience we own the interface and it allows us to the flexibility to innovate into the fuel.
Sure.
Our foundation is very strong we know where we need focused our energy and we are executing to our plan.
With that I'll open it up to questions.
Thank you Sir.
At this time will be conducting a question and answer session. If you like to ask a question. Please press star one on your telephone keypad confirmation tell indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q.
Participants use and speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please what we pull for questions.
My first question comes from Chris Moore with CJS Securities. Please proceed with your question Hey, Good morning, guys.
Hi, good morning, Christa good morning.
Just in terms of the goal maybe I missed it for.
Net client edge in 2020 could you talk about that.
Sure we don't.
We don't give numbers for client counts for what's baked into our plant.
But if you look at the year that we've had so far this year, we've had a record year that list every quarter, we expect that trend to continue.
Into 2020.
Our expectation is we'll probably.
Good to a net client counts of over 1000.
In 2020.
And then when we think about kind of the puts and takes and the things that we have happening as we I will talk more about technology I'm, assuming in acuity apart, but we really think that have in this new technology is really going to help us retained business and make business stickier.
Ken Yeah, Chris I would also add to that into that and the environment. We're in one of the things that we know is that we can't control how larger clients are.
We are working on retention of some of our larger clients, but at the same time, we can't control how many we do business with so our focus has been and always will be that we just continue to build with and and the size will normalize to the mean at some point and then that's where.
We see that uptick and and.
Go from there.
Is it your expectation that they the new portal will help and specifically in terms of retention of larger clients.
That's what our belief as yes.
Got it.
Just in terms of.
Kind of looking at that at the 2019 versus 2020 in terms of.
The cadence.
Obviously third quarter is typically where where its strongest any reason to think from where you're sitting today that that 2020 will look much different than 2019 from from that pace.
Do you mean is regarding distribution of revenue and earnings exactly.
It's 2020 is going to have the same distribution pattern as 2019.
Got it today, the only a let me just kind of job and talk about technology. If we can right. So because it's going to have an effect on the financials too so.
We're we're building out an enterprise platform, where where we own the code, where we own the interface, where we own the client experience, where we really own our our technology Destiny and this becomes a platform that we can then use.
To add onto additional innovation in the future right. So this is going to be much more than just the payroll site. This is going to be an enterprise that we get to use and communicate and work with all of our different clients and you know this technology is going to help us with larger accounts, it's going to help us with tech savvy accounts, it's going to help.
This open new markets, where we currently are so when we think about where this is going to take us it's going to.
It's going to open up a lot of doors for us and it's going to help us retain a lot of business. So in 2019.
We track when accounts run off.
And in 2019, we had $74 million of revenue leave us because of technology and we're thinking that this is going to make that business stickier, it's going to make that business day, and it's going to help with our renewal retention is going to help with our renewal dollars. So if I. We gave the guide for whats the the cost is going.
To be for the year for 2020, if if you just kind of think about the way. This rolls were going to have expenses in Q1 in Q2 that associated with it right. So it's going to be cloud base, we got to pay for this or the server space, we got to pay for all those things and that's an expense that's going to be in every quarter.
Inc. Q3, we will start to depreciate the asset.
And as the system comes online so our expense will go up our ESG enable go up in Q3 in Q4.
So when I think about 2020, it's more of a conversion year and then 2021. The only additional expense were going to have if you just think of it simply is you're going to have that depreciation expense in Q1 Q2 2021.
So it's not going to be incremental expense is probably going to be a million dollars in 21 over 20.
But we really think that.
This is going to accelerate our net revenue and gross our gross billings growth, yes, and I would say Chris to that is that if you were looking at 19 over 20, you could use 19 as good baseline and then.
From there.
We expect a lot of it a lot of the initiatives outside of even technology that we're working on right now.
To be additive, but we're still you know it's.
We're still just working forward so.
Got it very helpful I'll jump back in line. Thanks, guys.
Our next question comes from Josh Vogel with Sidoti and company. Please proceed.
Thanks, Good morning, guys.
Thank you.
I guess my first question.
When we think about the technology investments are system upgrades are you completed in 2019.
What was the incremental expenses tied to that.
In in 19, it was since a lot of incremental expense because if you think about as were building. It we're putting it up on the balance sheet.
So really the expense comes once you deploy the asset and start depreciating asset.
Okay understood and then.
Gary you did touch on it but when we think about the the 5.6 and incremental Sinead. This year. The bulk of that is count is going to hit up in Q1 and two.
The bulk is going to be in Q3, and four but we're going to have some increase in SG inane Q, but theres certain things that you can capitalize and they're going to have expenses for those in Q1 in Q2 and Q3 in Q4 as well, but really the I'll say, we'll get to a normalized run rate as far as our SGN a.
Q3 and Q4.
Because that's when the systems online and that's where we're going to have the full expense in the us Gina.
Got you, Okay, and then when we think about your comments around that and the incremental shannay uptick.
Did you build in any.
Any buffer when we think about you know as there is there any concern or risk at the portal can seamlessly be implemented or you have issues with client migration that could lead to some short term hiccups or and ultimately higher expenses on your end.
So we.
Yeah we're.
We're we're very confident and where we are now which was why we're kind of putting a line in the sand so.
We have I'll say the for our is out of the garage and being driven now and our clients are testing at our clients are excited.
Our teams are Super excited.
Where by the end of March were going to have our client testing done and then when we get into April is when we start to get into how we deploy so we feel like we're far enough along that we have a real good clarity of the plan and a plan and I can say that the obstacle.
So that could be there we thought through and we feel good with with given that the date now yeah, I'd say two Josh on that as that we have.
If we looked at just the project itself. It it it has brought to us a rigor and discipline about how we.
Go and bill and build and run projects one of the things that I think as to our advantages even culturally who we are as an organization on how we run and lead the organization through our mentor prep platform. So we've got very strong communication channels that allow us to deploy ideas effectively.
Into the organization I would say that when I look at.
What I have heard only what I've seen as a product it takes us along it's a big leap forward for us and.
And looking at that it it's it's intuitive enough that it should be adopted fairly well.
The feedback that we've had both internally and externally so far has been extremely positive and.
Even as far as just the the testing that we've done we've we've actually Brent a pretty good rigorous testing and we're in the middle of our pre Alpha right now which is a set of.
Sprint's that will really take roughly 100 clients through this process and then and doing that we're testing both internally and externally for bugs and things that might become a headwind or could be something that we wouldn't have otherwise discovered as we try to launch but.
Again, you have you have plans in place you have.
You're executing to a plan there's always the unknown, but right now we feel pretty good about where we're positioned.
Okay great.
[music].
Obviously undergoing a lot of these technology initiatives. So when we think about beyond 2020.
Are there any other pilots you're working on and anything you are potentially looking to rollout in 2021.
This is phase one of what we view to be a.
Several step process I think one of the real things that we buy in this whole process as a foundation that allows us to build on it the portal itself allows us to have call. It our front door and then now we can build inside the house and be more effective at bringing a similar look to our client base with while at the same.
Time, we can innovate behind behind the screen, a little bit and that is a big step forward. Yes, we have a pipeline of ideas and of of what they are of which we're going to kind of keep to ourselves relative being proprietary at this point, but there are phased.
Phased builds and in ways that we're looking at how to evolve the product and how to evolve our offering one of the things that I get excited about is that we've spent many years and building an organization that can apply a high touch model to a local market interface and with clients and having real conversations what we're doing with.
Technology, now is being able to mirror or match up the the the quality of conversations with detect the quality of technology that allows us now to take that relationship and make it more sticky and evolve it and time and the challenge would have always been if you had technology first to be able to teach and.
Innovation and help us to really go out and how those conversations by being in reverse I think it's a real niche for us overtime and that it will be tough to compete with us when used when you take a technology platform that is that as I will say catching up and then will eventually become state of the art and then eventually to when you look at your teams then we.
Remove friction for where they're living I think it puts us in a real good spot to one capture more market share.
Well to work in more verticals than we can today and continue to elevate the trajectory that we've been on over the last several years.
Yeah, Josh and just to.
Kind of get go to where you were getting that as the I'll say the phase one to try to quantify it is going to be the more expensive of any of the phases and then as you get into phase 23456, they're going to be more bolt ons and less expensive, but that's where it allows us the opportunity to to innovate.
Alright Thats helpful. Thanks, just shifting gears.
Obviously, the balance sheet is very healthy and we know that you've been taking excess capital to reinvest in the business and the branches business teams technology initiatives, but.
At this point.
What could investors expect you you aren't acquisitive you do pay a dividend.
I know you have a share buyback plan in place, but what a dividend increase or even a special dividend beyond the table at this point.
So when we look at good question right. So we always are going to look to invest in the company first and foremost because that's where we're going to get a greater return, but after we've gone through those different analysis, you know the idea of extra capital.
We are an opportunistic buyer of our stock as part of our stock buyback plan.
And.
Candidly the stocks on sale, so I feel like we will be an active buyer in this quarter.
And when are you a free to to buy.
We're in the blackout now so once the blackout lifts.
Okay.
All right I'll hop back in the queue. Thanks, guys.
Our next question comes from Jeff Martin with Roth Capital Partners. Please proceed with your question.
Thanks, Good morning, guys.
Hello, Jeff.
Pretty much just wanted to verify yeah. The way I'm looking at this is if you back out the.
The benefit from prior year claims for 2019, you cannot get a pro forma number $4.90 bps.
And then your guidance of five or five.
In 2020 has 56 cents of a restaurants gionee tied to the technology investment, saying I look at it as kind of a 15% Dps growth in a and then all things equal comparison is that the way you look at it.
Yeah, that's that's the way I look at it so for 90, and then you by the five roll the five.
50, 561, and gets you to 15% return and that's right. That's typically the targets we seek for over a cycle is a 15% return.
Okay, and then just to clarify you don't have anything embedded in your guidance for additional adjustments to prior year workers comp claims.
Correct. There is in our our guide of five of five that does not contemplate any change in estimate for prior workers comp if that were to happen.
That would obviously be above and beyond the five of five.
And then if you just you know where we set ourselves up to in a conservative position right, we don't ever want to be in a position where it goes the other way. So if you just look at the trend over the last 910 quarters you can see the trend is.
It's been going at a favorable direction.
Right right, Okay and couple of questions on the technology portal, what does the capex budget for that.
For 2020, our Capex budget is going to be around.
Around $5 million.
Okay, and then how much of that is the bulk of that tied to the portal.
The the lions share of that is going to be tied to the to the portal.
Okay.
And then once that's up and running into migrating clients over I know the hope is to improve retention, but does that open up.
A larger addressable market traditionally been Lou <unk> grey collar small business does it open up the middle market more does it open up white color and help us to understand how you're thinking about how that might change that market opportunity.
Yeah, Jeff I would say, yes that is we anticipate that one of the things that we've run into over years is that our interface has not been as strong as maybe others in the market and we feel like that we caught up with what the portal there.
I think that what it does it puts us on par with others that might compete in call. It more of a white collar space. It also gives us the more ease of use for user interface. Both at the the client level the employee level.
Where we can we can actually bring and create more of a.
Clear interface.
For those audiences to self manage things that really shouldn't require us to have handholding. So that's a that's a big turn and typically when you get into white color I'll call. It you are working with more highly compensated people when they expect that and so this is a little bit of a catch up for us and I think once we've got it online.
Line, we we it opens up two things for us probably a broader network on the referral channel base and then also.
It allows us to be competitive in Oh.
Marketing Paramount that.
Requires stronger technology.
Okay.
And then I was wondering if you could speak to the cadence of quarterly.
Gross billings growth.
With the step down in Q4.
The run off of 134th Lefty that pricing competition I'm curious if.
The average size of those clients is larger than the average of the book and if you're if you expect to see gross billings growth slower in the first part of the year and accelerate throughout the years, just any any guidance there would be helpful.
Sure so the.
Yeah, I would say that the runoff we had in Q4, when we look at it for the total portfolio is healthy.
It's a number that doesn't you know if you're if you don't have any clients, leaving that means you're not charging enough right. So we're kind of comfortable with having clients leave due to price.
And then if you look at how thats going to affect the the year.
Q.
Just to kind of get your head around Q1.
Q1 is going to be our biggest growth quarter.
So Q1 is going against the very soft comp of Q1 of the of 19.
Which is one piece and then the second piece is.
There was an extra day due to leap year.
So you're going to have an extra day in the quarter and you're going to have going up the softer comps so thats going to be a that's going to be the higher of all of the quarters as far as gross billings growth.
Over quarter over quarter over the prior year so.
Q1 will be the highest and then a kind I will get down to a more normalized as far as quarterly growth in Q2, three or four.
Okay.
And then in terms of not modeling contributions or or incremental.
Business tied to the portal this year I mean is it.
The other reasonable to you know to hope that you might say some billing gross bags acceleration.
And the back half a year.
Yeah, and Jeff It's one of those environments, we've been in for probably the last couple of years and it's hard to.
Model anything that would be different or a shift from where we've been call at the last year, especially as it relates to same customer billings.
Right now there's enough going on in the overall.
Acro environment that you always watching for your headwinds I would say for us.
As we look at.
Opportunity, it's one to maintain a consistent pipeline and maintain built around that it's about retaining maybe some of the larger clients that maybe we've lost in the past.
And bring in more of a parity between clients that are coming on and clients that are leaving a that's the real work and then over time your own you're building a wider base and a stronger base.
It was you look even later in the year, we're going to continue to be consistent around our bill we're going to continue to mature our offering and make sure that we're getting in front of any kind of run off that is working against us that we shouldn't be losing and then from there you've got to let the modeling kind of take its place but for the most part and looking at the.
For modeling, it's it's a we use the basis of 19 related to same customer sales.
We know that our stack.
Needs to perform at a level that allows us to build over and above that and so that's how we get to where we're up.
Yes.
Oh, I just want to put won't we need.
Yes, it's going to it's gonna take some time to convert all of the clients over to the new portal, but you know the point I really just want to make is that will come end of Q2 every new client we bring on his view on the new technology.
Great. Thanks, so much.
Thank you.
Our next question comes from Vincent Coluccio with Harrington Research. Please proceed.
Yes, Gary could you break down the same store sales by headcount hours worked et cetera wage inflation.
So I'll break it down for.
Quarter, and then kind of do a comparison for the whole only going to find my sheet, though.
For.
For the quarter its.
It's about wanting a half percent for head count.
And then the difference is for wage inflation, which gets you up to that five four.
The one difference we solve comparing 19 to 18 is the hours worked really went down in 19 versus 18 [noise].
And the reason is if you look at the way Christmas New year's fell.
We had a lot of.
Hourly holiday hours and vacation hours being taken which meant that people weren't working overtime and things of that nature. There were getting their straight eight as opposed to more hours. So our hours worked in the quarter compared to the prior quarter was down by about a 100 basis points.
And do you have the prior years workers comp claims.
Adjustment for 2018 in 2019, so I could just those EPS numbers.
Sure for Fourq, you 18 was.
I'll say unique quarter because.
Our SGN, a we had some non repeatable expenses, our payroll tax we had a payroll tax benefit for change in estimate and then the workers comp in fourth quarter of 18. The change in estimate was 1.5 million.
No I'm asking for the change the total change for 2018 full year and then what it was for 19 full year.
All right can you.
One second.
Fruit for 18 for the full year it was about $4 million.
And for 19 for 19 for the full year it was a little over 13 million.
Okay.
And the the portal project. One did you guys start working on that has that been in the works for a few months a year wasn't locally.
We we've been working towards it for probably the last 18 months a bulk of the work happened in 2019.
Yes.
Require has its.
Sorry.
I worked well requirements and planning and things that were happening we're at the beginning and thats not a lot of bodies in resources when you get into the bodies in the resources in the spend.
Our spend has really been the last two quarters.
And it was there an acceleration of how.
No. The prior approach was.
Hurting you.
Recent years, how does that look.
I mentioned earlier for 2019 that for clients that leave us we always capture why they leave right I mean, we look at them as a future client.
I want to understand why they left and what we need to do better that's part of our disciplined.
In 2019, we had 74 minutes $74 million of revenue leave because the technology.
Yeah, and Vince I would say too is that we would go back probably the last two or three years, you know as you grow up as a company you keep layering in the system that system, that's system and they all have to talk to each other and so the big dig is we had to step back and build a unified platform that allowed us to be able to go to.
Market, eventually and and have a have a similar a single phase where we could be more nimble on a go forward basis in how we were using our technology to support our clients and and and and support our our look towards the market through our user interface and so.
We we had to.
Take a.
Take that step to actually stepped back to step forward and that was the nature of of the project to to position us now for to bring ourselves to Mount market parity, there and and then ultimately to give us the ability to.
Innovate and build into.
The the back end of the portal of ideas and that around supporting the client lifecycle and and the customer at a different level.
Thanks for that color that's all have thanks.
Thank you.
Our next question comes from Bill Dezellem with Titan Capital Management. Please proceed thank.
Thank you I have a group of question.
Could we.
Start with the system all of them over the same route everyone else has here.
Two questions do you believe that you.
Well, maybe just discussed the business that you think you have not one in the past because your technology was not what was expected.
I would say that is we we we run perfect payroll, we do a great job, making sure that we get what we need to get done for our clients. The probably the gap for US was is that if.
If we were potentially using a flip phone to get that done today, we're using an iPhone with the new platform. So that was the jump. So when you consider going to a market where you know it's a it's more of a blue collar environment that doesn't matter as much to you, but when you start to walk into a company that builds.
Technology I'll call it.
And they're not a tech company or there are a doctor's office or whatever.
That becomes more important to them they want to get the iPhone and so for us the transition.
Has been that we've been able to be good enough in the field for our people to show up in and capture a lot of that business, but we've done it really in spite of of the technology that we had what I see in this transition is that two things will happen. One is that we bring ourselves to a level of pair.
I'd with market and and have have have a better interface for the client and a better view to what we can bring to them.
Just a better user interface.
Beyond that I think we believe that it will open up markets overtime, and give referral partners and referral channels more confidence in bringing us a different type of business that I think that we get pigeonholed, a little bit because of the deficiency and I think when we open that up it will widen our referral channel.
Hi, Thank you and.
Not not having seen the technology.
Honestly I don't I understand it very well it yet so will this allow you to win business and geography as you don't even have a branch today are likely for smaller customers, but where are your almost.
Hey rollout of box and would you even want to do that.
I don't think we really want to go there I mean, we can we can sell payroll. That's that's really not the the the essence of the model itself I think it's we want to be able to work with our clients to support their interest in and helping them navigate growth and and mature their organization. So.
So there they are running a better company and so that will always be our premise and so.
I do think that as we go into new markets. If we're able to take some of the friction away from how we look how we feel through <unk> through our interface user interface I think we'll be accepted into new markets more more readily.
Compared to where we Ben you know today, we just have real strong people that can go in and and bust on the daughters. Today, hopefully, we're going to give them a little bit of help because they think that we've been working from a little bit of a deficit position there.
Just a this to be clear that consultative that component that you're talking about is that's done on a on a human level not with technology.
Correct no. We we've we build teams to support the interface with our client we use technology to enable those great teams.
Excellent. Thank you and then.
Gary couple a for you how much of this safety incentive still remains I believe it was a 5 million or so at the end of Q3.
Good question I don't have that answer our with me.
No worries.
And then.
Thinking about what what you all have said that you're looking for the Q1 two has the highest gross billings have a year and that to your goal is for a 7% gross billings.
Through through the full year. The next the rolling 12 months that would be a.
Calendar 20.
And and that you're more than halfway through the first quarter.
Would it be correct for a for us on the outside to infer that the first quarter you have pretty good confidence will be an excess of 7%.
Yes.
And when was the last time gross billings were in excess of 7%.
Gross billing growth I should say.
Q1 of 18.
Great.
Bill what I'll add to that not to not to tear down the answer at all but it's we're up against smaller comps there in the quarter and and the extra day is helping so I don't want us to but Directionally, yes, we we feel like that was we're moving in the right direction.
Thank you both.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. One moment. Please why we pull for questions.
Our next question comes from Richard Glass with Glass capital. Please proceed.
Hey, guys just a couple of quick ones. After a people have used up most of the good ones.
The first one.
What should this look like on the my B B S. I spend in 2021 is that 46 cents hit.
And ongoing expense does it grow as you transition people do get leverage is that what are you spending out is there some leverage that you would take place there does it go in half because most of the people our transition how should we think about that running forward.
Sure so the.
If you think of the costs that were going to have this year's say its 5.5 million.
What's going to happen is in 2021, it'll be a full year.
And it's only going to be an incremental growth of call. It another million on top of that.
So it's not an additional 5 million on 5 million it'll be 1 million on 1 million on five and a half million is where we would land for 2021.
But what this is gives US is the system not only is a benefit to our clients. It also benefits our teams.
So it allows our teams to be more efficient at what they do which ultimately we think can lead to some efficiencies on our side.
Haven't we haven't gone through were made any quantification of what we think that would be.
Okay. So Pete.
People could come out as functions get redefined when everyone gets towards more being fully online is what.
You seem to be saying, we're making me I'll update I'll say the other way I think will be our people will be able to do more which will be to service the client better rather than just you know doing some some payroll functions.
Yeah, we look at it.
Centrally adding to capacity utilization of our teams because we're we really are removing some friction of where.
Just for instance, where we do some functions that might be as six or seven step process. We can we're reducing that to maybe one or two or where technology is taking care of some of the product functions and processes that were using that's just on internally.
That itself is going to.
Open up capacity for the organization and capacity utilization.
How many of your teams are maxed out would you say at this point if you have 118 at this point.
I like.
That's not stratify is itself when we look at our full capacity utilization today were run right around 64%. So you've got the build branches, where you're coming up in the bill teams, where you're running can build up and then you've got those that are I wouldn't say that today more than.
Maybe 20% or maxed out.
But I would say that even in development, where we look at the queue of the 80% that are up and coming.
Well get more runway out of them than we might have otherwise and I think two it also enhances the quality of the product to Gary's point, when we don't have somebody even just doing a renewal running 20 reports to try to get to an answer and they can.
And go to one spot kind of click on a button and get the information in a minute and we know that thats been a drain on the capacity of the organization and so what it does if nothing else. It takes us away from the real work, we should be doing and it puts us into an administrative.
Role and if we can eliminate that.
That high touch model becomes much much more effective.
Right, but theoretically at.
Arguably your best teams that are getting freed up in terms of capacity if they're the ones that are maxed out.
All else equal.
Correct, yes, and the one coming up will be better and smarter at the way that we do it.
Right.
Just to clarify is up 50 million dollar buyback is that's the right number.
50 million over three years.
Right, but obviously that there is no given timeframe and within those three years is the.
Blackout, a few days a week whats the timeframe for that for you guys usually.
At this point.
Yeah, I got to be careful what rabbit hole I go down here, but it's so we have covenants with well with wells Fargo.
Where we have authority of $15 million here, so a $15 million year, which we expect over three years.
Okay alright, thank you.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Ilitch for closing remarks.
Again I'd like to thank all of you for joining us today.
I look forward to catching up with you next quarter. Thank you.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
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