Q2 2021 Barrett Business Services Inc Earnings Call
[music].
Good afternoon, everyone and thank you for participating on todays conference call to discuss Bbsi's financial results for the second quarter ended June 30th 2021.
Joining us today are Bbsi's, president and CEO, Mr. Gary Kramer and the company's CFO, Mr. Anthony Harris.
Following their remarks, we'll open the call for your questions.
Before we go further please take note of the company's Safe Harbor statement within the meaning of the private Securities Litigation Reform Act from 1995.
The statement provides important cautions regarding forward looking statements.
These remarks during todays 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 those forward looking statements.
Please refer to the company's recent earnings release, and 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 from those expressed or implied by the forward looking statements on.
To remind everyone that this call will be available for replay through September 4.2021, starting at 8 P. M Eastern time Tonight.
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 P. B S Si dot com.
Now I would like to turn the call over to President and Chief Executive Officer of BBSI, Mr. Gary Kramer.
Sir Please go ahead.
Thank you, Kevin and good afternoon, everyone and thank you for joining the call we.
We had an exceptional second quarter, both financially and operationally the positive momentum we experienced in the first quarter accelerated in the second quarter as the economy reopens.
Okay.
Okay.
Leading us again to raise our full year outlook.
During the quarter, our gross billings increased 17% over the prior year's quarter and exceeded our expectations.
Our average Worksite employees were up 10% over the prior year quarter and up 6% sequentially from Q1.
Our growth in Worksite employees is a combination of our clients hiring as well as net new business and we are on plan for our Worksite employees back.
Our staffing business rebounded.
Increasing 20% over the prior year quarter, we could have grown more but is it challenging to fill orders with a tight labor market at the end of Q2, we had 1300 open job reqs nationally with approximately 700 open in California.
The tightness on the labor market is the number 1 complaint we hear from our PEO clients today on it.
A positive note we have seen an uptick in applicants and placements about 3 to 4 weeks. After the government stimulus is reduced or expired.
Our gross margin as a percentage of gross billings exceeded the prior year quarter and benefited from continued favorable development on workers' compensation as well as affirming of workers' compensation pricing.
Before moving to the operational update I'd like to spend some time on a strategic milestone for the organization.
We announced on July 6 that we entered into 2 material workers' compensation insurance transactions, which derisked, our business model and result in better financial predictability.
These transactions were a culmination of many years of hard work and were only possible due to our disciplined underwriting coupled with the quality of our insurance operations.
Anthony will go into more detail in his prepared remarks regarding the terms and structures of the transactions, but I'd like to make a couple of points on their significance.
These transactions are structured in a manner that greatly limit any potential downside of our assurance program, but we can still share in the upside of our disciplined underwriting.
In essence, we are passing off the risk to the traditional insurance market, but we can share in the reward as we execute with precision we are accustomed to.
We believe our value will be maximize due to the perceived insurance risk under the old model and that these transactions materially reduce or eliminate that insurance risk.
Moving to the branch operational updates on other initiatives.
We continue to be mindful of operating efficiencies and consolidated Vacaville in Concord, California, and twin falls into Idaho Falls.
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. The.
The consolidation decreases our branch footprint from 56 to 54 total branches.
And the stratification of our 54 branches as of Q2 is as follows 21 mature branches with run rates in excess of 121 emerging branches running between $130 million.
12 branches, we consider developing with run rates up to $30 million.
Our business units totaled 101 and decreased from the prior year quarter as we migrate into our revised structure of the 16 member business unit, which allows us to service more clients with less management employees and increases our return on management payroll.
In addition, we continue pursuing our strategy of opening new branches and we will open 3 new branches in Q3 of 'twenty 1.
Pittsburgh, Pennsylvania, Nashville, Tennessee, and Raleigh, North Carolina.
Next I'm going to provide some updates on operational initiatives.
We successfully completed the conversion of our existing clients over to our new my Mediasite platform I would like to thank our various teams and the folks in the field that supported the migration and the client education.
I'm very pleased with the platform, but more importantly, our clients are appreciative of the investment and the feedback continues to be positive.
We continue to package, our new technology with our nationwide offering and we continue to see larger opportunities in the quarter. We on boarded 3 clients in excess of $15 million annual payroll with operations in multiple states. These clients joined us for our core offering but without the technology investment we have made.
It is unlikely that we would have on boarded them.
Regarding our client count in previous earnings calls, we stated that our referral partners and business owners went into their bunker during the pandemic and this resulted in lower sales leads we continue to see a gradual recovery in saw more opportunities in Q2 net in Q1, but we are still behind pre pandemic levels.
Our client retention continues to be stronger than pre pandemic levels and is partially offsetting the slowdown at the top of the sales funnel.
We previously mentioned that we're not going to sit idly by and wait for business to come to us during the pandemic and we have been investing in sales and marketing initiatives. Accordingly in the second quarter. We executed on the next step of the plan, which is to increase the top of the funnel by focusing on lead generation.
On the channel digital campaign, where we target both clients and new referral partners in 10 different markets.
It is still early days as we are only 1 to 2 months into this initiative, depending upon the market, but I'm excited about what we're seeing and would like to provide some statistics.
We had about 7500 unit emails opened.
We had over 3000 views of our information and the prospects are spending more time viewing pages day than anticipated.
We set up 65 meetings with interested prospects.
We on boarded 3 clients. Thus far this is expected given the duration of our sales cycle, which is typically 45 days we.
We have signed up 50, new referral partners.
We are testing and refining our various sales initiatives by market measuring the return on investment and will transport. The most successful method to other markets.
In summary, I'm encouraged by our excellent client retention we are on.
On the people business and people have never been more relevant to the business owner than they are today packaging, our knowledge and expertise along with our new technology platform and the ability to transact nationally strategically positions us better in the market and with our referral channels. We have exceeded our plan for the first half of the year and I'm optimistic about the back half.
And beyond.
We are executing to our strategic initiatives and we are realizing positive results and seeing future positive trends, which result in our increased outlook for the remainder of the year.
Now I'm going to turn the call over to Anthony for his prepared remarks.
Thanks, Gary and Hello, everyone.
I am pleased to report that our Q2 results continue to build on the momentum we reported last quarter with results that were once again stronger than expected.
Gross billings increased 17% over the prior year quarter, and 9% sequentially from Q1 to 1.58 billion staffing revenues increased 20% over the prior year to $24.7 million.
PEO gross billings growth by region versus the prior year second quarter, whereas follows Mt.
Mountain States grew 36%, Northern California grew 24% the Pacific Northwest grew 20% East.
East Coast grew 17% and southern California grew 8%.
We've discussed for several quarters that we're seeing differences in performance by region, and particularly in southern California, where we've seen a significant lag in our customers expanding their workforce for.
For example, when comparing between northern California, and Southern California, There was a 6% difference in the growth rate of Ws season, the ear from existing clients and.
In Southern California remains the only region with negative year to date WMC growth through Q2, when compared to the prior year.
Our average client wage has historically been lower in southern California, and Northern California, and we expect that southern California is being impacted more than other regions by the effects of stimulus and other government programs and restrictions in place.
Looking at our overall increase in PEO gross billings for the company. The prior year second quarter was the period, most impacted by Covid and as a result, our year over year billings growth was driven largely by higher average ws he's paid versus 2020.
But the average number of Ws Sis in the quarter, increasing 10% year over year.
This is in line with our expectations overall, despite southern California growing slower than expected.
We also continue to see higher average billing for WMC, which is up 6% in Q2 over the prior year and continues to trend ahead of our expectations for the year.
Workers' compensation expense continues to trend favorably and included an actuarially determined reduction of prior year estimated liabilities of $5.5 million in the second quarter.
Included in this adjustment with a gain of approximately $1 million from the loss portfolio transfer that was effective in Q2.
Our overall workers' compensation claims performance remains favorable.
In the quarter with a trailing 12 month relative frequency of claims as a percentage of payroll increased modestly compared to the second quarter of 'twenty.
Frequency remains 11% lower than the second quarter of 2019.
Consistent with 2020, we continue to expect the COVID-19 claims on not materially increase our overall workers' compensation expense.
We are very pleased to report on the significant strides we've made in Q2 and de risking our business model related to our workers' compensation program.
First we entered into a loss portfolio transfer or L. P. T to transfer approximately $53 million of claims liabilities from our balance sheet at June 30.
These claims were primarily from the 2018 calendar here.
As a reminder.
With the L. P T entered into in 2020, and the L. P. T entered into this year, we have now effectively removed claim exposure from most claims incurred prior to 2019.
The workers compensation liabilities on our balance sheet, therefore relate primarily to 2019.2020 and the first half of 2021.
What is even more transformative as our new insurance program that became effective July 1st.
This new program greatly reduces the risks the BBSI will retain on a prospective basis.
For clarity, we will now describe our workers' compensation coverage for clients as being under either our insured program or our self insured programs.
Approximately 82% of our workers' compensation exposure, including all California clients.
Our covered under our insured program.
All claims incurred in these states. After July 1 are now covered 100% by the insurance market with zero claim cost retained by BBSI.
This is a significant change from our structure prior to July 1 which included $3 million of retention per occurrence.
Our ability to move to this fully insured model is a testament to the effectiveness and favorable performance of our overall workers' compensation program.
There is no incremental expense and moving from our high retention model to the new fully insured model.
The premium that we now pay for this coverage is equal to the Actuarially determined accrual rate that we have been recording for our retained losses.
Although workers' comp expense will not change there will be some impacts to our balance sheet.
We will now no longer accrue workers compensation liabilities for insured clients after July 1.
Because of this our workers compensation liabilities will no longer grow below instead begin to decrease over time as the remaining historical claims are paid.
Although BBSI has no claim exposure after July 1 uninsured clients, our insurance agreement provide for a premium adjustment in future periods, depending on the overall performance of our portfolio of clients.
If claims develop more favorably than expected the premium required will go down with potential refunds of up to $20 million for the 12 months policy year.
Net claims develop adversely we may be charged additional premium.
But this additional premium is capped at $7.5 million.
This structure allows BBSI to benefit from favorable claims trends like we have been seeing.
But also provides the company and our shareholders with the security of a cap on workers' compensation expense if claims developed negatively.
Our self insured programs remain unchanged, which include our self insured workers' compensation coverage in Oregon, Maryland, and Colorado and BBSI employees in Washington.
And coverage through our wholly owned insurance company equal in Arizona and Utah.
These states comprise approximately 18% of our workers' compensation exposure.
And we have retention limits of 1 million to 3 million per occurrence depending on the state.
We believe the regulatory structure and risk profile of these states warrants the greater level of retained risk in these locations and we are able to recognize cost efficiencies through self insurance.
However, we will continue to evaluate that optimal tradeoff of risk and economics as we move forward.
Turning to the pricing of our services and the fees, we were able to charge.
We've discussed for several quarters, the increased pricing pressure related.
From the current workers' compensation market, particularly in California.
While the workers' comp market remains soft overall.
We are seeing rates firming.
We are monitoring our billing rates closely on renewal and for Q2, our build margin is on average either up or flat over the prior year as expected.
Okay.
Looking at operating expenses SG&A continues to trend on plan.
Head count levels remain below 2019.
While current year increases in SG&A have resulted from increased it expense and increased selling activities and initiatives.
Our investment portfolios on to $2 million in the second quarter compared to $1.9 in the prior year.
Our investments continue to be managed conservatively and have on average duration of 4.3 years average quality of investment in double E and average book yield of 1.8%.
Going forward, our investment balances will begin to decline as our collateral funding requirements diminish under our new fully insured workers' comp program.
Turning to the balance sheet, we had $110 million of unrestricted cash and investments at June 30, as compared to 143 million at March 31.
The decrease in unrestricted cash is primarily due to the cyclical timing of payroll tax payments in April as.
As well as an agreement reached in the quarter to replace an existing letter of credit with other collateral.
Which resulted in the transfer of $25 million of unrestricted cash into restricted trust accounts.
Separately due to the timing of payments related to the loss portfolio transfer in the quarter.
Approximately $13 million was transferred from restricted trust accounts back to unrestricted cash in July after quarter end.
We continue to be debt free except for our $4 million mortgage on our corporate headquarters.
We remain committed to our capital allocation strategy and returning capital to shareholders in the form.
And in the quarter, we returned capital to shareholders in the form of $2.3 million on dividends and $3 million of repurchase stock in the quarter.
At quarter end, there was approximately $35 million remaining on the boards approved $50 million share repurchase plan.
Turning to the outlook for the year.
Given the stronger than expected results on the quarter. We now expect gross billings to increase between 6 and 8% up from $5 to 7% previously.
We expect average ws ease to increase between 2 and 4% unchanged from the prior quarter.
We expect gross margin as a percent of gross billings to be between 3 point O and 3.1% up from $2.90 to 3.1%.
And we expect our effective annual tax rate to be between 22, and 24% increasing from 21% to 23% due primarily to our higher income levels.
I will now turn the call back to Gary for closing remarks.
Yes.
Thanks, Anthony in conclusion, we had a great first half of the year as we executed our short and long term strategies. We continue to always think of the clients first and to advocate for the success of the business owner, we have been working on the right things and I think we're on a great position for future growth.
Now I'd like to turn the call over to the operator for questions.
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1 moment, please while we poll for questions.
Our first question today is coming from Chris Moore from CJS Securities. Your line is now live.
Hey, good afternoon guys.
Okay, Great maybe good good afternoon, maybe we could just start on day.
The new workers comp structure, so the trade off as I understand it is significantly.
Yes.
A risky business model and a bit less investment it comes out that's correct.
Yes that is correct that there's no expense.
Rental expense to the coverage so the economic tradeoff here is that we're no longer holding onto those funds are.
Prior to paying the claims payments premiums as we go so there'll be.
So on incremental decrease on our investment income gradually as those plus investment funds go down.
And the premium adjustments or penalties.
That's something that occurs on a quarterly basis on an annual investment how does how does that work.
So they'll reassess the performance at set milestones at multiple points in the future, but the first milestone won't be for several years. So we will do in the meantime is continue all of our same underwriting procedures. All of our same actuarial analysis of the book and we will monitor how those <unk>.
<unk> are performing.
And currently we record an accrual for our claims based on our best estimate of ultimate cost and essentially we will continue to do that so if those.
Develop adversely and our best estimate that we will owe additional premium for that we would accrue that in the period.
Got it and maybe could you just explain a little bit further why the 18%.
Is still self insured.
You talked about a little bit maybe just go a little bit deeper there.
Sure on the.
Chris It's Kramer on the self insured side you have a model that has less less frictional cost to it because you're self insured.
And the economics of trying to do a you know insured program there may not be beneficial to the company. So when we do this we look for the best price to risk. We can get I mean, this is really if I think of it. This was really a testament to the many years of hard work to be able to get this done right.
I've been here 5 years, and I've watched the company transform and grow up on the workers comp side.
And for years, we've you know we felt that we.
We didn't get a market multiple worthy of where we should be because of the perceived risk of insurance.
But now from an investor perspective that perceived risks should really go away and we look at this is.
We can focus on the growth in the core of growing our margin business.
That makes sense.
Just last 1 from me Cranberry you had mentioned.
Our workers comp rates.
Your prepared remarks, any any specifics around that.
For the when we look at our renewal booked for the second quarter.
We were slightly positive as far as rate increase.
It's <unk>.
Slightly positive is in a much better place than we've been in the market over the last 4 years as far as rates coming down on rate on rate. So for us to have the underwriting discipline to manage the portfolio to a flat rate was a very good outcome in and a lot of hard work for the folks on the field.
Got it I'll leave it there thanks guys.
Thank you next question is coming from Jeff Martin from Roth Capital Partners. Your line is now live.
Thanks, Good afternoon, Gary and Anthony I Hope, you're doing well wanted to ask a question on the workers comp Derisking you basically have a.
301 upside to downside ratio there.
I'm curious with respect to prior year adjustments you had roughly 6 on a half million in last year, and 13.5 million the year before that.
A similar.
Recognition of a return off of the premium so you be similar would be dollar for dollar with what you've seen in past years or is there a different formula that's tied to that.
Yeah, It's set up dollar for dollar so we set those as we negotiated this arrangement and we set those.
Levels strategically the idea being that with $20 million of potential upside we could comfortably absorb the favorable trends that we've been seeing.
So that would be right in line and that would be.
A direct pass through to us.
Hey, Jeff I would I would say the interest our interests are aligned with the insurance market, where we placed this.
If we make money if we get money back in the insurance market guarantees that they've made mark they've made money. So our our goal is to try to get every penny of that $20 million on we can.
Okay, and just to clarify is that on a.
Per year basis or is that over a certain term.
Yes, it's a 12 month policy period, so it'll be from July 1.2021 to June 32022, So all claims incurred in that 12 months.
Okay, Great and then was curious with respect to your guidance for Worksite employee growth, 2% to 4%.
That's very overly conservative given if you take the Q2 average W. S D based or even the low period and where you are.
Talking 4% to 5% if you don't grow from here I was just curious your commentary around that.
Because it seems to me like Worksite employees like the growth likely to grow between now and the end of the year.
Yeah.
So it's really we hope it is conservative Jeff, but it's really coming down to what we're seeing in southern California, Southern California is our largest region and were just haven't seen the worksite employee recovery there.
Those worksite employee level, they're still below below 2019.
So we grew worksite employees pretty quickly in the second half of last year right from the low of Q2. So right now we're comparing year over year to Q2 last year, which was obviously the most depressed quarter Q3, and Q4 last year grew.
A little better faster rate.
So the 2% to 4% of saying, we're going to grow faster than last year second half.
And assume that southern California continues to perform how it has.
We do think there's upside though as.
The stimulus runs off Q3.
And we're seeing more of these low wage jobs come back into the California. So we agree with you that there's potential upside growth.
Yes, just to put a finer just to put a finer point on that.
We saw in say, Utah for example, when they terminated the stimulus the flood of people that went to the market in about 3 to 4 weeks for for jobs.
What we're still seeing in California is the low wage folks have where the lower wage folks have not returned to the market and we know that the stimulus ends on September 6.
So you figure alright, well September 6 the stimulus ends.
Arguably you come October we've got more people on the job market, we havent forecasted that into our model and into our assumptions because we just don't know.
But we look at it and say if this if it to California, Southern Cal has to get a tailwind in and when it does it'll be Q4, and we just haven't.
We haven't put that into our numbers just because it's a.
It's an unknown on the macro side, but I think we definitely have a.
An upside there in southern Cal.
Okay, and then I was curious if you could kind of help breakdown the segmentation of 17% gross billings growth in PEO I think you said, 6% of that was rate how much of it came from.
Yeah from hiring and wage inflation.
So 10% WSB growth.
Year over year, 6% billing per WMC growth.
And those numbers compound with each other to get to the 17%.
Got it and what was your experience with net hiring within the client base and on the corner.
On the.
The the WC growth was primarily from growth in customer.
Expansion, but.
And which is on plan for where we thought it would be because we were a little ahead outside of southern California, obviously below in southern California, but again I would reiterate the point here that Gary mentioned in his remarks.
Which is that the consistent feedback.
Really across our branch network is that our PEO clients.
I want to hire even more than they have.
And cannot find the candidates.
So that's a potential tailwind as well as we go forward from here on the labor market finds its new equilibrium.
Great. Thanks for taking my questions and congrats on all the hard work.
On the workers' comp on that it's good to see it.
Thanks Scott.
Thank you. Your next question today is coming from Josh Vogel from Sidoti and company. Your line is now live.
Thanks, Good afternoon, Gary and Anthony.
You basically covered everything I had on workers' comp, so I'll shift gears a little bit.
I I was curious about your experience with sooner.
Pseudo rates.
And you know I.
I know a competitor of yours.
It's been coming in lower than what they had forecasted and in an effort to improve retention, but also prospecting there they're passing along pricing breaks I was just curious.
On your thoughts around that.
Yeah. So we haven't seen so so I would agree with the observation that you're referring to here, which is that in general states.
Have not increased order rates and particularly cornea. They they have not increased due to rates certain states have but broadly speaking, we haven't but we have seen.
More so for our performance is that Theres, a little bit of a shift in that suite of timing as the hiring ramped up as the economy opened later in Q1 or the beginning of Q2.
We saw hitting those wage caps later, so some of that trickled into Q2, where it would have been Q1.
That's 1 thing that as we look at potential tailwind from accelerated hiring in Q3 and Q4.
We could be incurring more.
Taxable wages from a student perspective cause usually it's only the first 6 to $10000 that are taxed depending on the state.
Could be hitting more of those as hiring ramps up but.
The pseudo rate increases were watching those very closely we are anticipating more states to raise the next year, but so far this year, we haven't seen a disconnect between the way we priced that in expense coming in.
Okay great.
Gary you had some comments.
Around the prospect funnel are bringing in.
Larger clients I think you said 15 million in annual payroll, so I'm, just thinking with new clients.
In general what's the average size, you're seeing from a from a WSI perspective, and then just talk a little bit more about the traction with those larger more national or regional clients and you know outside of those 3 that you on boarded you know what the prospect funnel is looking like there.
Yes, I mean, we love we love all of our clients on all of our prospects, but we have.
Margin thresholds that we need to make sure that we hit and.
So when we're bringing on clients now.
We're still around the average we've been.
We're seeing some larger ones now the 3 I mentioned it was the largest 1 in the quarter was about $26 million.
And we brought that on out of 1 of our California branches.
But you know we're getting those bigger looks that we that we didn't get call. It 2 years ago. When we didn't have the allstate's footprint and we didn't have the technology. So the larger clients are coming in are referral partners know that we can do the larger business that we can handle it that the clients appreciate our I T.
So that's no longer an obstacle that we have to try to sell against so larger clients.
Our referral partners or listen we're open for business and you can send them to us.
And then if I think on the funnel.
We we are stick you know, California is a large portion of our portfolio and California, specifically is where we are are seeing the slowness coming out of the pandemic and that's primarily it was the.
The most restrictive of all states and it hasn't opened up the way other states has in and we're still seeing that in our deal flow deal flow is getting better every month getting better every quarter.
But we're not we're not better than prepaid demick levels yet.
Understood I appreciate that color on just.
1 last 1 I.
I know you probably won't really want to comment on it but when we think about your guidance for this year and then rolling into next year and.
Thinking about prior years, what your targets where is that you know high single digit 8% gross billings growth is that a good target to think about outside you know beyond this year.
Okay.
We are in a normal COVID-19 in a normal market, where there is no COVID-19 I would agree, but let us let us get through Q3.
And understand where the economy is and we can we can answer that with a little more confidence.
Alright, great and actually just with that largest client you said you added in the California branches 26 Man I was just curious how many wsu's was at.
That was a 700 WRC count.
Alright, great $700. Thank you guys.
700 to $900 that 1.
Got a couple of them mixed up on my head.
No worries well thanks for taking my questions and good luck the rest of the year.
Thanks.
Thank you. The next question is coming from Vincent Colicchio from Barrington Research. Your line is now live.
Yeah, Gary Yeah, good good quarter well.
Well will you be expanding the scope of the digital campaign in terms of the target markets or is it too early.
Yeah.
So right now we're we've got about 3 or 4 we got on 4 different strategies and we're doing them in 10 markets.
And we're managing and measuring the results.
Then ultimately whichever 1 or 2 is the most successful when it has the best return on investment.
We will transport debt to the other branches so.
Where I call it test and refine where testing and refining now running through it and whichever 1 works the best we're going on we're going to let it loose from the company.
I'm on the staffing side should we expect a year over year growth to continue or.
Is that going to be affected by the hiring of a backdrop.
Yeah, I think we are excited about it continuing to grow but that is entirely constrained at this point by our ability to find candidates. So as Gary mentioned in his notes I mean, we have over 1000 open positions that we're trying to recruit for so we believe that those jobs.
And workers will come back and we also are continuing to invest in the staffing business in terms of making our recruiting more.
So yes, we believe it will continue to grow yes, we think that.
Similarly, when the when the stimulus subsides.
We will get a tailwind for both PEO and staffing because we'll be able to hire on the staffing and our clients will be able to hire on the PEO.
Remind me of the timing of when the.
The subsidies.
Yeah.
If nothing changes it would be September 6th.
Okay.
And what portion of your teams that have transitioned to.
On the new model of 6.
Just trying to get a sense for how many how much more efficiencies we have ahead.
Sure. So that that model is the most utilized in our mature branches.
So the grant as the branches grow and develop.
Some branches only have 2 people in the branches to grow on right. It depends on where they are in their maturity. So you typically will see them in the mature branches or in the upper emerging branches as they grow as they crossover into the mature.
Okay.
Okay.
You had a you.
You had mentioned some consult.
You could see consolidation in California.
Is there more of that to come in the near term what does that look like.
So when we're doing these consolidations. The idea is we're able to put more under 1 leadership team.
And we're able to get efficiencies out of scale.
And we will have 2 more that come online.
That actually came online in July and.
Those will probably be the last 2 for the remainder of the year.
Okay.
My other questions were asked thank you Gary good quarter.
Thank you.
Thank you next question today is coming from build to sell them from Teton Capital Management. Your line is now live.
Thank you again, great great quarter extend my congratulations along with others.
Relative to your commentary about having consolidated additional branches this quarter.
As you were walking through the <unk>.
The breakdown of branches there was over 100 those are what 32.100 et cetera.
Over time are you looking to consolidate any branch that you don't believe can achieve 100 million of revenues right and so therefore, you're really looking for all branches that you're going to keep in place to have that opportunity or am I thinking about this a little too rigidly.
Yeah.
You know it.
It's a good question and we don't think of it that way.
We I think of it as profitability and not not dollar size.
So if you think of Idaho falls.
We were there via acquisition on the staffing side many years ago and.
We're working to try to build a PEO market in a small town.
And our if you think of the area managers there the.
They're the the most expensive as far as payroll dollars on the branch.
And really all we're doing is for that branch, having it report into another branch.
And eliminating that layer.
It's really a you know.
Well leader, taking on more responsibilities with more upside with the idea of these are.
They're smaller markets that are a little more challenge to get to the tipping point of profitability.
Yes.
Thank you and then you'd mentioned that you have 1300 staffing openings, how does that compare to normal.
Okay.
I don't know what normal is anymore, but.
If I would say pre pandemic.
If you remember prepaying them. If we were we were in a tight labor market as well.
But the <unk> hundred is higher than where we were at pre pandemic by probably 35% to 40%.
Alright, that's certainly give scale. Thank you and then lastly, Wow, what is leading to the increased revenues per WMC.
So that's yes.
Yes, sorry, that's driven by higher average wages.
And that's that's that's.
That's a combination of things, there's some genuine wage inflation.
From roll to roll, but more so it's just mix we're seeing.
The average wage of employees now is higher and the lower wage employees.
Aren't there and the same numbers. So the average has moved up.
And that's where as we see that lower wage employees come back.
We may see that average billing number normalize or go down but that would be offset obviously by the increased wages if those employees, adding so.
It'll be an interesting tradeoff to watch. These next couple of quarters as those employees come back to the market.
And not to dive too far into what seems to be a bit of a political issue, but you are seeing after the the.
On a federal unemployment benefits are dropped into various states you said 3 to 4 weeks after a a significant enough increase in applications that you do believe that.
That are the debt the extra unemployment benefits are having an impact.
Yeah, I mean, it's we're not in every state. So I can tell you that the states that we're in.
When we watched the stimulus go up and down there is a direct correlation to how many people were applying to jobs.
That's helpful. Thank you and again great quarter.
Thanks Bill.
As a reminder, that star 1 to be please to the question Hugh.
Our next question is coming from rich glass from glass capital. Your line is now live.
Hey, guys didn't think I was going to make it.
Very nice quarter.
Can we look back to that.
Question on the digital campaign, you said you had 4 strategies in 10 markets now and maybe you don't want to do this for strategic reasons, but can you give us give us any insight as to what sort of variables or what the distinctions differentiations are between those 4 programs.
Yeah Rich that's a good question.
We're working hard on the secret sauce, and we don't really want to send the recipe.
Okay fair enough good enough answer.
Let's switch back to the Youre opening 3 branches and.
Nashville, Pittsburgh and another place Raleigh.
Maybe Pittsburgh is a good example, how should we think about Nashville is growing like a weed, but in a city like Pittsburgh, which is growing but maybe a slower more normal pace.
How should we think about given the new size of teams and things like that is are these branches a drag for us.
Quarter 6 months the full year are they break even for a full year kind of how should we think about if you're going to open up a new branch.
And tied into that is given the new model is.
The 1 branch for Pittsburgh like likely you're only branch for Pittsburgh and when you plan on your flag it'll be in other area.
Yes. So we will if you think of our model now right. So we've invested a ton in in.
And people right. So we really spend time with.
Our package being an employer of choice being able to attract and retain people right and we are more attractive in the market now than we ever were as far as our compensation of benefits. So we feel like we can go out and get better people that understand the culture and can sell BBSI alright, So thats the big 1 number 1 number 2.
We've invested in.
Organizational development right. So for that we've really tried to flatten the learning curve.
For how some 1 learns the business and can go out and efficiently and effectively sell the business.
So if we set our learning curve was 18 months, we think we've flattened it now to about 4 months so in 4 months.
On the individual in Pittsburgh will.
We will be she will be able to go out and sell on her market.
She goes out to sell on her market.
She will work from home until she gets some client base.
When she gets enough client base. She will go and get a shared office. After she gets a shared office. It has more client based and she'll go get a brick and mortar.
And when she goes to her market. She will have the support of the sales and marketing team, where we blitzkrieg the market for her ahead of her and.
And we're gonna Blitzkrieg referral partners and we're going to Blitz Cree.
Potential clients with the idea of hire good people pay them well trained them give them the tools and have them go sell and as they sell we grow into the infrastructure.
Okay. So with that description they should ramp pretty quickly in terms of the financial impact on the P&L should be.
Minimal to start and get to positive pretty quickly without putting a number on it.
Yes, yes, that's the way we've designed this debt we can we can scale into a market cheaper with the way we're going to market now.
Okay. So is it likely to be 1.
Office for greater Pittsburgh from here is that the way to think about it.
I I would think so but I I hope.
I Hope Pittsburgh is so big in the next couple of years that I have to have that conversation.
Alright, well that might be Nashville, yes, but that's a different a different topic. So my last question here is on the.
Buyback.
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Does getting rid of the letter of credit with the swap you did the asset exchange.
Does that free up.
The ability to do more on the buyback aside from trading volume and other restrictions like that.
I was just referring to like a covenant restriction.
Yeah. They didn't you guys have a limited on what you could do in a given year given the letter of credit.
Yes.
Yes, Theres, a covenant restriction and we talked about that Thats still in place. So our our credit agreement with our primary Bank Wells Fargo.
Does have a buyback restriction in there.
It was separate from the letter of credit agreement that was canceled in the quarter.
Yeah.
Okay why.
Given a cash rich balance sheet isn't that something that might be worth revisiting.
With say a lender like wells Fargo, who has their own problems.
To be kind.
Well funny you should mention that so we are in discussions to renew our letter of credit and we are doing a covenant review with them as we speak behind the scene. So we will continue to negotiate those.
On our best interest, but yeah, that's that's on our agenda.
Good good alright, great keep up the good work guys.
Thanks Robert.
We've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
No I just want to say thanks to everybody for dialing in and thank you for everybody of BBSI, who helped generate a great quarter.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Yeah.