Q3 2020 Barrett Business Services Inc Earnings Call
Tempur Thirtyth 2020.
Joining us our BD <unk>, President and CEO Mr., Gary Kramer and the company's CFO Mr. Anthony Harris.
Following their remarks, we will open the call for your questions.
Before we go further please take note of the Companys Safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 the.
The thing that provides important cautions regarding forward looking statements. The companys remarks. During today's conference call will include forward looking statements. These statements along with other information presented that does not reflect well excuse me does 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 entered 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 December 4th 2020, starting at three PM. Eastern time. This afternoon. 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 Dot My baby <unk> Dot 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.
The teams are performing around the country with our clients as we traverse this rapidly changing economic landscape together [laughter], bringing the best the Bbs side. The market is a difference maker to our clients and we are experiencing better client return.
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Lower than expected client failure rate.
And better than expected revenue.
I want to again. Thank every one of the Bbs I family many of whom are listening to this call for their exceptional response to the crisis I.
I would also like to thank all of our clients were interesting VBS side.
Your entrepreneurial spirit is adaptable resilience and refreshing.
Regarding the company's financial straights.
Our balance sheet is in an excellent position as our unrestricted cash investments grew 8% burst Q2 28.
Anthony will go into more detail regarding our capital and use of capital in his prepared remarks, but I would like to state that we are operating from a position of financial strength having.
Having a strong capital position affords us peace of mind to focus on the business and to continue to invest in future growth for the long term.
Regarding the third quarter operations, we exceeded our expectations in virtually every financial metric in the quarter, our gross billings decreased 2.6% over the prior year and is up 10% sequentially over Q2 20.
To recap, we navigated a challenging second quarter, where our revenues were down 14% in April and then down 3% in May and June.
We forecasted that Q3 would behave similar to May and June and we are pleased that we finished slightly better than forecast.
As previously discussed.
We do not have clients and the most distressed industries, such as airlines and cruises and we have low concentration in other industries, such as retail restaurants gyms and salons.
Our forecasting by industry was relatively in line with our actual results for the quarter.
Overall, we are extremely fortunate that our market approach of working with all clients rather than focusing on industry verticals has helped us avoid concentration risk.
Regarding our plane count.
We added 253, new PEO clients.
We have previously mentioned that we saw referral partners and business owners go into their bunkers in reaction to Covance.
Each month, we are seeing more and more leads and the market is adapting to operating in a coded world.
Our sales conversion ratio continues to be consistent with pre covered metrics, but simply put there is just not as much business transacting arc.
Our Q3 leads were sequentially, 30% better than Q2, but still behind to Q3 of 19.
Client acquisition in a coded world is our number one priority, we're not sitting idly by and waiting for the business to come to US we have various initiatives that I will speak to shortly about going and getting the business.
We experienced attrition of 139 clients, which was a better retention ratio than Q2 of 20 end of Q3 of 19. The shows that during a crisis like coded our product was needed more than ever.
Regarding client attrition.
We lost three due to accounts receivable eight due to risk profile five businesses sold 14 businesses closed 36 businesses closed due to coded and 73 left due to pricing competition or companies that moved away from the outsource model.
This represents a build in a quarter of a 114 net new clients.
Our staffing business rebounded slightly and was down 16% in the quarter compared to being down 26% in Q2.
Results vary by geography, but in the aggregate for the quarter, we had the borders but not the supply as the majority of individuals could earn more money on unemployment stimulus first working wages. We're seeing this business picked up some in October as the stimulus has expired.
Regarding our branch footprint at the end of September we had 59 total branches.
We continue to be mindful operating efficiencies and consolidated the Dalles, Oregon branch into the Portland, Oregon Branch. This decision was made with the intention of continuing to grow revenue, while servicing our clients, but doing so in a more cost efficient manner.
Our mountain regions have been exceeding our expectations and we made additional investments opening two new branches.
Albuquerque, New Mexico in Glendale, Arizona.
As discussed last quarter, the quality of our products will be the same but how we approach. These markets will vary slightly the new area managers will approach the market focused on sales and pipeline development.
We will not commit to commercial real estate, but we'll utilize alternative lease options to keep costs down.
Supporting these branches will be helped by adjacent markets were at corporate until they reach a critical mass and then we will invest in local teams to support the business.
Our brand stratification of the 59 total branches is as follows.
19 mature branches with run rates in excess of 100 million.
20 emerging branches.
Running between 30 and 100 million to.
20 branches, we consider developing with run rates up to $30 million.
Our business unit teams totaled 114.
Regarding other operational updates our SGN any was down significantly in the quarter compared to prior year.
This is the result of the cost cutting cost deferrals and restructuring that took place throughout the year.
I'm pleased to say that we no longer have any employees on furlough.
As our revenue increased our folks returned to grow and support our business.
Next I'm going to provide an update on our other initiatives and strategies.
In June we announced the successful launch of my Mediasite for all new clients client feedback. Thus far has been overwhelmingly positive as they appreciate the east simplicity and individualization of the system.
All new clients its june or on the new system and as of last weekend, we have converted 82% of our existing clients. We are on pace to be fully transitioned before the end of the year.
We're also pleased to announce that we are now able to offer our PEO services nationwide.
We have the systems licenses and operations in place and are starting to sell this value.
We were able to expand relationships with 15 existing clients and successfully brought on 11, new clients that utilize this offering.
It's still early days, we are we are optimistic that we will see more and larger opportunities as a result of this offering.
Regarding larger opportunities, we can package, our new technology with the nationwide offering and we are asking for larger clients in the quarter. Our percentage of larger leads were up 14% over Q3 of 19.
We know that we need to be adaptable and are not sitting back and waiting for the business to come to us we have been actively pulling our client referral lever and almost 10% of our ads in the quarter were from client referrals in.
In addition, we mentioned previously that we formed a dedicated sales and marketing team.
The team has been working on various strategies and initiatives and I'm pleased to announce that we will have a new company web site that will launch later this month that will better reflect the best the Bbs I value proposition.
It is being designed with the intent to better tell our story, but more importantly to attract additional business.
We have a long term marketing and sales plan that hinges on our website refresh and we will have more to discuss in the upcoming quarters.
When we go to market, we're offering the best the Bbs side, we have various products and services consisting of strategic consulting human resources information technology insurance risk management retirement services staffing and recruiting when.
When we meet with a potential client they may join BB aside because they have a certain pain point today, but they will stay because we deliver our whole suite of products flawlessly.
People have been and continue to be our product, which has never been more relevant to the business owner than it is today packaging their knowledge and expertise with our new technology platform and the ability to transact nationally strategically positions us to go after larger more tech savvy clients and increases our total.
Billable market.
Now I'm going to turn the call over to Anthony for his prepared remarks.
Thanks, Gary and Hello, everyone.
Our quarterly results were strong despite the continued economic impacts of between 19 pandemic.
Net income for the quarter was 18.5 million compared to 25 million in Q3 19 with the reduction due to lower billing volume lower.
Lower favorable development on claims incurred in prior years.
And a decrease investment income, partially offset by reductions in operating expenses in the period.
Gross billings declined 3% to 1.5 billion.
PEO gross billings declined 2% to 1.48 billion and staffing revenues declined 16% to 28.5 million.
Net revenues of 227.5 million were down 8% from Q3 19.
As Gary mentioned these results were better than management's expectations for the quarter.
[noise] PEO gross billings growth by region versus the prior year quarter were as follows.
Mountain States grew 17%.
East Coast grew 6%.
Northern California, and the Pacific Northwest were both flat and southern California declined by 8%.
[noise] same customer sales for the period were down 1.3% from Q3 19 due to the ongoing economic downturn.
This decrease was in line with expectations and was attributable to a decrease in headcount, partially offset by an increase in average payable rates over Q3 19.
Average hours worked in the period were generally consistent with the prior year.
Workers compensation expense as a percent of gross billings were 3.4% this quarter, which is below our expected range of 3.8% to 4.0%.
This decline is primarily attributable to actuarially determined reductions a prior year estimated liability of $3 million in the third quarter.
Our overall workers' compensation claims frequency continues to trend favorably in the quarter. We saw a trailing 12 month relative frequency of claims as a percentage of payroll decreased 15% compared to the third quarter of 19.
We continue to monitor the impact that the COVID-19 pandemic may have on our workers compensation program. This includes monitoring updates to state regulations and response to cope in 19 and changes to the presumption of coverage.
The only significant update to report this quarter is the passage of legislation in California in September the codified COVID-19 coverage in a way that is generally more restrictive and therefore more favorable than the Governor's executive order that was issued in may and has since expired.
The new legislation will apply to most employers in the state that have a COVID-19 outbreak.
An outbreak is defined as having positive COVID-19 tests from either for employees or 4% of the workforce whichever is greater and the cases must occur within a 14 day window.
We reported previously that we've had minimal COVID-19 claims exposure and minimal claims reported through Q2.
And with a more favorable terms of the new California legislation. We continue to believe that COVID-19 claims will not materially increase our overall workers' compensation costs.
However, we continue to monitor the situation carefully and we have contemplated COVID-19 uncertainty when selecting our accrual rates for our workers compensation reserves.
We have discussed previously that the broader market for workers compensation insurance has become increasingly competitive, particularly in California, where most carriers have instituted price decreases over the last two years.
While we do not compete primarily on price and our offering is more comprehensive than traditional insurance, we continue to adjust our pricing and marketing strategies to remain competitive and attract new types of customers.
One of the adjustments, we made was to scale back our safety incentive program in exchange for lower service fees.
This change is particularly attractive in the current environment.
It allows customers customers to pay less money upfront and allows Bbs I to better position our pricing relative to competitors.
This change is expected to be margin neutral, but you will see our safety incentive costs and liabilities decreased with a corresponding reduction in gross billing rates.
As gene ending the quarter with 35.6 million compared to 41.4 million in the prior year quarter, representing a decline of 14%.
As we described in our previous earnings calls cost savings measures were implemented in response to cope with 19, and while we continue to be cautious in our spending as Jenny levels will continue to increase modestly as business volume growth.
We also incur a larger share of our variable employee compensation.
Putting profit share at other incentive payments in quarters, three and four.
Our investment portfolios and 1.7 million in the third quarter compared to $3 million in the prior year.
The decrease in investment income is directly attributable to the lower interest rate environment compared to the prior year and it's consistent with our expectations for the period.
Our investments continue to manage conservatively with an average duration of 1.6 average quality of investment at double A.
Due primarily to our variable rate holdings, our average book yield has decreased to 1.5% from 2.3% at year end.
Turning to the balance sheet, we had $148 million of unrestricted cash and investments at September thirtyth compared to 130 million at June Thirtyth.
We continue to be debt free at quarter end with the exception of our $4 million mortgage on our corporate headquarters.
We announced in Q1 that we increased our line of credit with Wells Fargo as a source of additional financial flexibility given the current economic uncertainty.
Agreement with Wells Fargo provided the option to revert to a lower credit line amount, if we wished and due to the available unrestricted cash and investments on hand, and the general resilience of our operation.
We have elected to lower our credit line back to 33 million at September Thirtyth, which also included corresponding fee reductions.
As our cash investment balances increase management and the board of directors have remained diligent in our approach to capital allocation.
We have discussed previously the importance of establishing a working capital reserves sufficient to weather unforeseen circumstances, and the COVID-19 pandemic was a validation of that strategy.
But we believe we now have unrestricted cash and investment balances above the level necessary for these reserves and we will continue to execute on our capital allocation philosophy.
This philosophy has four priorities.
First our investments and our company to take advantage of the significant market opportunities available to us.
The PEO industry is widely Underpenetrated and Bbs I is well positioned to serve the addressable market.
We are excited about continuing our journey of growth in part by enhancing our products and evolving our strategies.
The launch and continued enhancement of the my Bbs I portal as an important example of that type of investment.
Second it Gary as previously mentioned that we are now pursuing strategic in our organic growth opportunities, where we believe we can launch into new geographies more effectively through M&A than we can through Greenfield branch opening.
We continue to actively evaluate potential targets that are maintaining high standards as we consider who we might bring into the Bbs I family.
It is important that our people product envision are all aligned before we would move forward.
Third the board reinstated our stock buyback program, we repurchased approximately 57000 shares at an average price of $53.61 per share during the trading window.
We will continue to be an opportunistic buyer of our stock as a preferred method of returning capital to shareholders.
Fourth we remain committed to our quarterly dividend.
The board just reaffirmed at 30 cents per share.
We will continue to evaluate and update our capital plans regularly to ensure that we are responsive to our environment and new opportunities as they arise.
Turning to outlook for the year.
With the favorable results of Q3, we now expect full year diluted earnings per share to be $4.10 up from $3.70 in our prior outlook.
We now expect gross workers compensation expense as a percentage of gross billings to range between 3.7, and 3.9% versus 3.8 and 4% previously and.
And we continue to expect an effective tax rate of approximately 21%.
As with our past forecast. These estimates do not include significant economic deterioration or widespread shelter in place orders and the remainder of the year.
I will now turn the call back to Gary for closing remarks.
Thanks Anthony.
In conclusion, our product is strong and has never been more relevant to the business owner.
We've responded swiftly and decisively to the unusual events of 2020.
Three exceeded our expectations and we have raised our full year earnings guidance Accordingly.
We are working on the right things and I'm extremely optimistic of the future.
We continue to always think of the client first and to advocate for the success of the business owner now.
Now operator, I'll turn it over for questions.
Thank you, Sir ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation indicate that your line is in the question queue you may.
Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question comes from Chris Moore with CJS Securities. Please proceed with your question.
Hey, good morning, guys.
Thanks for taking a few good morning, just wanted to make sure that that I'm looking at the the guidance correctly. So that the gross billings guide for fiscal 20 is down 3% year over year. So that would imply that the Q4 gross billings is down closer to 6%.
Right.
Yep.
Definitely yes, proportionately that's right we have it closer to five got.
Got you and Chris.
Well I guess, one thing for Q4 right. It's.
In Q4, we a lot of our business owners pay themselves bonuses.
And we made a call it a non model adjustment that we thought based upon the way. The economy is that bonuses were going to be less this year, So that's where.
That's why the numbers down its a little much because we we factored in about a 20 million dollar decrease in bonuses for 20 versus 19.
Got it that's helpful.
Thats a <unk> EPS.
That's a little bit of a gut feel there there's no. There's nothing that I can give you a quantitative or qualitative well.
Got it and in terms of.
The cost structure I mean, you guys are doing a great job there just trying to get a sense in terms of.
What.
As things turn around.
Are there costs that that.
You know the cost structure improve moving forward or for example from from an EPS you know standpoint, if if fiscal 21 revenue was.
You know roughly equivalent to 19 with the EPS DNA be roughly equivalent to <unk> to 19, or likely you know little bit lower or any kind of big picture thoughts there.
No. It's a great question. So we had some pretty significant cost reductions as you know in Q2, and we've said that those were not sustainable as the business grew until those increased in Q3.
We have been very mindful as Gary said to look at operating efficiencies or we can and we've learned a lot of important lessons and they've been very strategic about how we bring cost back and where we spend money frankly, so the answer to your question is the SJ will continue to scale up with operations as you saw from Q2 to Q3 and.
That trend would continue from Q3 to Q4.
But if business volume all else equal were in 21 were consistent with 19.
You would expect EPS you need to be less.
Because we are being very mindful of where were adding back.
Got it I appreciate that I will jump back in queue I appreciate your time guys.
Yeah.
Thank you. Our next question comes from Jeff Martin with Roth Capital Partners. Please proceed with your question.
Thanks, Good afternoon guys.
Sorry, I didnt quite catch exactly what she said relative to the implied guidance for Q4 seems like 75 centers.
It's a very conservative number which is the implied guide I understood that there's some catch up in the.
Profit share at the branch level, but is.
Is there anything else that is different.
Different relative to what the business was wasn't running operationally in Q3.
Yeah, Hey, Jeff So it's.
It's a tough time to forecast for everybody out there right. We don't even know who won the election yet so we.
We put out a number that we thought was.
Attainable right. So any any number we put out there we want to make sure that we got a high degree of confidence that we have a high degree to a high degree of confidence in that number.
And.
There's two when you're trying to do your year over year compare for Q4, there's there's you know I'll call. It two headwinds for Q4 of 20. The first headwind as you know we are forecasting reps to be down which is.
Call. It 25 cents differential on earnings. The second is if you look at just the way the yields are working on the portfolio for investment income our investment income is going to be down.
You know 17 to 20 cents per share.
For for 20 versus 19 so.
Yes, two to.
Two big headwinds, there and I'll couple that Jeff with the fact that Q4 typically is quite a bit less probably Q3 Q3 is always our most profitable quarter and there's a couple of reasons for that one of which is the the payroll tax caps reset on a cash basis and so some of that gets accrued back into Q4, if you look at the ratio of.
19 to 20, it's actually not that far off or 19 Q3 to Q4 from 20 Q3 to Q4, it's not that far off from what were forecasting.
Right right, Okay, and then where are there anything in particular driving any movement in some of the non business related cost of revenues specifically payroll taxes.
And.
And direct payroll cost.
Nothing I guess abnormal or significant that were to be noteworthy for reporting so I'd say for those it's it's a it's a pure quarter.
Okay, and then in terms of new business leads was there any progression to to.
Of note as you move through the quarter and as you know October is now behind that so are you starting to notice those pick up and if so what's driving that.
[noise] Yeah. I mean this is we've been talking about this for a couple quarters now right that we knew.
We knew that the the business owner in the referral partner one in their bunker right and if you think about the business owner there. They are more worried about the front of their shop instead of the back of the shop right. So they were worried about staying in business. They weren't worried about doing anything on the backend. So if you think of our product it it helps support and scale their products. So they weren't thinking on on Nexus.
Early for for Us at the time.
So you know we Q3, we were up 30% as far as our leads.
Compared to Q2, but we were still about 15% to 20% behind our leads for Q3 of 19.
So it's really a volume issue and we're we're not sitting idly by and waiting for waiting for it we're out there, beating the bushes trying to get it.
It's just where when the business comes in and we go meet with the business owner our conversion ratios are as high as as pre Covance. So we know how to sell and then encoded world. We know how to sell on a virtual world. Its not a sales issue. It's a volume issue. So our batting average is good we're just not getting as many play to pay.
Your answers but.
But we're seeing that good it's good it's been getting better as every month goes by.
Okay, and then last question, Yeah, PEO growth by region and mountain certainly performing very well.
Northern California and.
Last two in doing okay, but you are being exposed to the southern California market is that kind of concentration by industry or is that they.
Kent can you identify any other trends going on there that's driving the underperformance there.
Yes, there is no I mean, we look at we look at everything by industry. We look at everything by geography, and there is no theres no common commonality I'll say between why we're seeing it down the way it is and southern Cal.
You know we are seeing the same customer sales in southern Cal.
Be slower than northern Cal and it's really a same customer sales issue.
And it's it's just the the Worksite employees and southern Cal are down more than in any other geography that we have.
Got it okay. Thanks for taking my questions.
Thanks, Jeff.
Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Please proceed with your question.
[laughter] Yeah, Gary you had cited increased success using the clients for referrals have you implemented any changes there that are drawing that out.
No I mean other than you know our teams want to grow and they get compensated for growth right. So you know everybody everybody at our company has a sales goal on a sales targets and they want to make sure they're hitting it.
So it's really it's really just taking a step back on as you're working with the client and saying Hey, you know we did all these great things do you have anybody else that would benefit from our services.
And then you talked about the and that he talked about some changes to your workers comp or price.
Pricing I I will that impact your overall pricing package as you go to market.
So if you think of safety incentive right. So you're.
So your rate per payroll is 10 cents right or 10%.
For safety incentives say, we're going to get back 10% on that 10%. So called one point, we would have to charge the client 11 points.
So what we're doing now is we are reducing its only charge 10 points and they get no safety incentive so before we would gross it up in the rate and now we're just netting it out and the idea. There is you know rates have been competitive it allows us to be competitive it's at zero cost to us. It's just reduced reduction of a pass through.
But the idea there is you know it it's more competitive for us in the marketplace to reduce the pass through number one and then number two for the business owner you know that.
Way to safety incentive works it stay would they pay US up you know they pay us during the time and then they get it back at the end. So it helps their cash flow and especially during these times of extenuating circumstances is it helps their cash flow to pay less in.
Thanks for that yeah, the staffing business had a good quarter you mentioned.
Hard to.
Secure a talent.
Having said that should we expect staffing to drop back down or what are your thoughts there for the sequential group.
<unk>.
I think it's going to be very tied to what the stimulus packages.
So.
If you're if you're figuring out if it's going to be a a bipartisan.
Government.
I think the pressure is going to be on stimulus and I think there is going to be less stimulus and I think that's going to be better for staffing.
But that one specifically is going to be the most affected by the stimulus.
Okay, one last one for me.
You had a good amount of branch consolidation I'm. Just curious is there any more that you think you can do that we may see coming quarters.
More importantly, one we're doing those it's just kind of remove some cost out of the equation, but were able to sell and service the business.
You know when you saw in the quarter that we you know we opened two branches in the mountain States.
And they're doing very well.
They've learned the craft quickly and they're out there converting business.
And we're not done with organic growth right. So right now we are actively recruiting in.
Pittsburgh, Memphis, Nashville, Atlanta, right in the idea there is where we're looking for good talent that can go run their operations and we want to bring them in train them as quickly as possible and get them out there to go get it the market. So you know we're we're playing more offense than we are defense at this point.
Okay.
Nice quarter. Thank you.
Thank you. Our next question comes from Josh Vogel with Sidoti and company. Please proceed with your question.
Thanks, Good morning, guys.
Just want to build off.
One of the earlier questions about safety incentive program as you mentioned your.
You guys plan to scale it back but are you going to will ultimately eliminate it all together.
We will scale it down by default, but.
We have a decentralized sales structure and there are certain referral partner certain clients that that is very valuable to them and the economic trade off there might make sense. So it's not going to be a wholesale we're not a lot does anymore. We.
We are giving kind of the general guidance to the field, but it's not going to be 100% reduction.
Okay, and just to confirm that whatever the reduction is a dollar for dollar on the gross billings line.
Correct, Yeah, so its a.
It's.
It's a little bit of a headwind for gross billings as we do this because we are reducing the pass through but the zero effect on margin.
Hi, just a bathroom.
Right.
I just want to get a little bit better handle on the leverage in the model you talked about the efficiency on the EPS. She may line, but maybe you know at what level of gross billings and business mix. When you include staffing do you think that you can get to a 1% operating margin.
Well its good question I'm not I don't know that I have the specific number that you're in a look for there, but I can tell you that we do pay attention to leverage obviously as our volumes have decreased in 20.
Our <unk>.
We had reverse leverage in the sense that our EBITDA to gross margin level ratio went down, but we responded and cut out as much cost as we could and honestly if you look at that ratio in Q2.
Our leverage is pretty consistent Q2, 20 over Q2, 19, which is impressive given the significant volume decrease we had as we progressed, we put back end costs to make sure we werent hindering our future growth and make sure that we're looking at the long term and setting ourselves up for success. So we have seen our full your leverage decreased.
Slightly.
But only a couple percentage points, so leverage is holding pretty well.
The idea is that we are investing wisely and we think we're at.
Good sustainable SDMA levels, so we should see leverage benefit.
Going into 21 and beyond as we start to return to.
Kind of non coated post cobot pre cobot, everyone to look at it normalized growth patterns.
All right and just one last one I I know, we're sitting here in November and a fluid situation with Kobe, we still don't know what's happening in.
On the political front, but is there any commentary or outlook that you can share heading into 2021.
Given the current environment.
How you see the year, playing out, especially earlier on just any sort of commentary you can share would be great.
Yeah, I mean, there's.
Where we sit now and you know that our business all comes down to our stack right. So we before we even venture into giving a guide for 21.
We need to know where our ending client stack is for the year, but I.
I mean, if you if you think of everything that's out there Josh right between the election between coded and shelter in place between the vaccine is it going to happen one is going to happen how everybody can get a get it are we going to do another stimulus.
It's from where we sit at this time, we know that we're going to return to growth and 21.
We're just a little apprehensive to put a number on that growth just because of all of the unknowns out there.
Yeah makes sense well. Thank you guys taking my questions.
Thanks.
Thank you as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question comes from Bill Sutherland with Titan Capital Management. Please proceed with your question great. Thank you I have a group of questions first of all.
Well, let's start with staffing are you mentioned that you have seen a rebound in October and given it the stimulus ran out closer to.
The end of July.
Do you have a perspective on why you didnt see that rebound earlier, whether it'd be August or September.
Yeah, I mean, if you <unk> it depends on the geography were in right. So just and you know.
Certain geographies, we saw a pick ups or other geographies, which was the majority. It was still though we still have more orders than we can fill in if you just look at the savings rate the folks had.
They lived on their savings rate for a little bit before they had to.
Before they had to go back and.
Obtain gainful employment.
So you had a little bit of a lag between when the when the stimulus checks started the stops first when their savings started to decrease the when they have to start to get back out there and yes.
We in July and August we.
We had you know depending upon the branch we had some branches that you know had three 400 orders and on and on any given week that we couldn't fill.
Just just because we didnt have the bodies and the people that wanted to do the work so thats.
That number is decreasing now that we're watching it in September into October October was a better month in September for staffing.
And for clarification does an order equal one body or kind of an order when you say two or 300 orders each of those could have multiple people are that they're looking for.
Typically one orders one body.
Great. Thank you.
Then backfill on that one too just just just to qualify to write or our staffing is more than just just placement we do a lot of.
You know placement fees.
And the placement fees right. So you go and you hire somebody we paying like a recruiting fees when I think of it that way.
That business, we saw slow down the most just because people during the time of uncertainty weren't hiring so it was a little bit of a little bit of people weren't hiring permanently and then they wanted to do temporary and we couldn't fill the temporary orders and we're seeing the temporary orders come back we havent seen.
The the full time employment, it's come back yet as far as our recruiting fees.
Great. Thanks, Gary.
And then relative to your investment income at 1.7 million this quarter what are you expecting.
On go forward quarters, given what you know about your reinvestment rates on your portfolio and and growth into cash.
So we indicated in our Q1 call when we give some broad guidelines that we thought investment income would be down for in for the year.
And thats turning out to be fairly accurate I will say the delta between.
Year over year investment income is going to widen in Q4, and that's not so much because our interest income go down it will go down a little.
20, but Q4 19, we had a pretty significant increase in interest income there. So that also attribute for some of the Delta between Q4 19 in Q4 20.
But it's it's our interest income has held fairly steady. It you can see that the trend is it gradually decreases.
In Q2, Q3, Q4, and I would say, we expect that trend to continue.
And do you have built a little the little bit of a function to have weve you know about half of the portfolio is of the invest it out in the call it longer term.
And youre going to have a situation where those assets are going to be coming due in maturing and never going to be reinvesting at a lower rate. So it's not only the green money coming in for the new business. It's also going to be the reinvestment going at a lower and.
You know, we unfortunately, when when rates go to zero it punishes savers are more saver.
Understood and I think an exclamation point just behind the euro safer when you look at the 150 million and I'm rounding of cash that you have on the unrestricted cash on the balance sheet and since that represent about 30% of your market cap.
Talk to us about Youre, just how you are thinking about that and Anthony I know that you earlier in the in the call.
Paul referenced the the four items and the priorities.
I'm thinking more philosophically than a than prioritization.
So just given that that 30% of your market cap is in cash.
<unk> talk through that with us please.
Yeah, we can.
Going back to my remarks earlier, he were intentional about accumulating that level of cash or.
Well I should say a level of cash to be able to weather storms like I said and that was pre co bid.
So we do want that financial moat around the company, we now have.
More cash than we need in that respect and we are being very proactive around how we deploy that we did start buying back stock again since we last spoke to you bought back 57000 shares and we have an ongoing.
[noise] commitment to be an opportunistic buyer of our stock going forward in future quarters.
In addition to our dividend.
We also.
Continue to look at where we can invest strategically and as we look at acquisition targets in key geographies, where we feel like going in acquiring a PEO is more strategically advantageous than.
Implanting a new branch.
That is per our modeling a high return for shareholders.
And our expectation now that that would be financed.
Largely or perhaps entirely acquisition with some of that cash as well.
[noise]. So we're mindful that we want to be cautious.
But we are being diligent with that with respect to our market cap.
And the ratio of that I think that's as much a function of.
You know.
The market pricing golf relatively post Covidien, we continue to focus on running a good company and.
We're excited about the future and expect that that will continue to go up.
Great. Thank you both.
Thank you at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Kramer for closing remarks.
Thank you Jesse so I just wanted to again say that the company's strong and.
And the business is resilient and the small business owner is resilient through these times and.
I really believe that we are in a good position to get back to strong growth and we have the right people the right product.
And the strength of the company behind Us. So we're optimistic about the future don't often talk to anybody between now and the holidays, but have a good holiday and we will talk to you next year. Thank you.
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