Tag: Call

Barrett Business Services, Inc. (NASDAQ:BBSI) Q3 2022 Earnings Conference Call November 2, 2022 5:00 PM ET

Company Participants

Gary Kramer – President & CEO

Anthony Harris – CFO

Conference Call Participants

Christopher Moore – CJS

Jeff Martin – Roth Capital Partners

Vincent Colicchio – Barrington Research

Operator

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss BBSI’s Financial Results for the Third Quarter Ended September 30, 2022. Joining us today are BBSI’s President and CEO, Mr. Gary Kramer; and the company’s CFO, Mr. Anthony Harris. Following their remarks, we will open the call for 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 of 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 and 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 from those expressed or implied by the forward-looking statements.

I would like to remind everyone that this call will be available for replay through December 2, 2022, starting at 8:00 P.M. ET 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.bbsi.com.

Now I’d like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead.

Gary Kramer

Thank you, Ryan. Good afternoon, everyone, and thank you for joining the call. We had an excellent third quarter, both financially and operationally. Our performance and momentum continued across all facets of the business and resulted in us once again raising our full year outlook. We are executing on our objectives and our strategies are delivering superior results. Our growth in worksite employees resulted in better-than-expected financial results.

Regarding our client in WSE stack, we continue to execute on various strategies to increase the top of the sales funnel and I am pleased to say that we once again exceeded our expectations in Q3. This is the result of our three pronged strategy, to mature and deepen relationships with our existing referral partners, to utilize technology and digital campaigns to target and nurture new referral partners, and to utilize technology and digital campaigns to target potential clients directly.

I’d like to put a finer point on our new referral partner initiative. Through the third quarter of 2022, we have strategically targeted about 6,000 new potential referral partners and we have forged new partnerships with about 18{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of them. This is a long term strategy. Trust is earned slowly over time. As these new referral partners see BBSI, and our product in action, we believe they will become more comfortable recommending BBSI to their clients.

On a year-to-date basis, we added 41 new accounts from these efforts, up from 15 last quarter and expect this to continue to accelerate into the future. We will continue this strategy in 2023, along with targeting new referral partners that specialize in the benefit space. The next trend that we previously discussed is that we’ve been able to sell and support larger clients with our upgraded technology stack and national PEO licenses. This continues to progress favorably and the average size of the clients that we are adding are larger than the average size of the clients that are running off.

Regarding client runoff, our retention continues to be stronger than pre-pandemic levels. I’d like to attribute that to the work we do with our clients and the value our teams provide. The results of all these efforts or what I refer to as our controllable growth is that we added approximately 4,300 worksite employees year-over-year from net new clients. We bill as a percentage of payroll and we grow as our clients grow by adding worksite employees with wage inflation and as hours worked increases.

Our client base is resilient and we exceeded our internal forecast for worksite employee growth in the quarter. Our average worksite employees were up 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter, which is the culmination of controllable growth as well as our clients’ hiring. We exceeded our internal forecast for our worksite employee stack.

Moving to our staffing operations. Our staffing business increased 1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter and was less than we anticipated. There is still strong demand for labor and we are receiving more orders, we are placing more applicants and companies are increasing wages to attract employees. It is still a thin recruiting market, and we are unable to fill all orders. Anthony will give some regional color for what we’re seeing in the markets.

I mentioned previously that we made investments in our recruiting operations, and we are seeing positive results. One of our objectives was to provide recruiting services for our PEO clients. This is a valuable service to our PEO clients in a tight labor market, which also rewards BBSI. When we place a candidate, we receive a recruiting fee.

And as the candidate joins the client’s payroll, we realized PEO revenue. We have built out recruiting hubs in every region that support our branch network. On a year-to-date basis, we have placed 287 candidates with 147 PEO clients and generated $1.7 million in recruiting fees. We expect this to increase as we introduce to more clients.

Moving to the field operational updates. We are very pleased with our progress of entering new markets with our asset light model. Our first class of four is doing well, and we added 25 new accounts with about 250 worksite employees. In 2022, we started small with our first class as we were learning and refining the various aspects of our new market development program.

We are at a point now that we are confident that we can scale this program and have hired and are training the next class of 11 folks. This class is primarily located in the central states plus a few East Coast markets and will begin selling in Q1 of next year. At the end of Q3, we operated in 13 states and 68 markets, which is consistent with the prior year quarter and does not include our asset light markets. Some markets will be more profitable than others due to their maturity, but with our evolution, every market is expected to be profitable.

Regarding product updates. We successfully launched our new health benefits offering in the quarter and began selling for the 1/1/23 enrollment season. As a refresher, we entered into a strategic multiyear partnership with one of the world’s leading health insurance companies. This is a fully insured program where we take no underwriting risk. We have been derisking the workers’ compensation program over the past couple of years and it was a key objective of ours not to take underwriting risk.

We have invested in IT to allow this offering to be delivered seamlessly through our myBBSI portal and clients will find value from the ease of administration, billing, and compliance. BBSI clients will now have access to discounted products and plan designs that are not currently available to them in the traditional small group market. We will be offering health insurance plus ancillary benefits, including, but not limited to, dental, vision, life, disability, and critical illness.

In the quarter, we rolled this out to a limited number of existing clients in select markets for the 1/1/23 enrollment season. Our intent is to perfect our craft and then shift our focus to California and to new prospects. This will not move the needle for revenue or profit in 2023 as we targeted a very small cohort of clients, but we anticipate this will provide material contribution as we look to the future of BBSI.

We view this as an opportunity to diversify our clients’ profile while expanding our total addressable market. We have the people, products, operations, and technology in place and are executing to our sales plan. I am pleased with where we are with this new offering and of our sell-through thus far. In addition to our benefits offering, we have also been investing in electronic training and development.

You’ve heard me say over the past two years that we’ve invested in technology that was designed to train and develop our new market development managers. We are taking this technology and are now making it available to our clients through myBBSI. We are excited to be launching BBSIU in the fourth quarter. This is a learning management portal that our clients can purchase and contains various catalogs consisting of HR and compliance, risk and safety, leadership, and professional skills. This does not replace our experts in the field but will be a valuable tool that complements our offering.

Next, I’d like to shift and speak about the macro economy. The growth in worksite employees for our installed base during the third quarter was strong and our October numbers were equally strong. Wage inflation is still prevalent, but at a slower growth rate than 2021. As the payroll and HR company for over 8,000 clients over various states and industries, there is nothing in our data that would reflect the slowdown in the economy at this time. However, we would be remiss if we didn’t acknowledge that times are growing more challenging for business owners, given tight labor markets, record inflation, supply chain challenges, and a rising interest rate environment.

We know that labor is in high demand that the unemployment rate is still at all-time lows, that the labor force participation is lower than pre-pandemic levels. That job openings rose last month, that immigration is low. These are all unusual facts that do not fit any previous historical inflationary recession scenario. Also, layoff should be delayed due to business owners’ recent memories of how challenging it was to attract new employees post-pandemic.

Based upon all these factors, plus our higher-than-expected Q4 starting point for our installed base of clients and WSE stack and our optimism of our revamped and disciplined sales and service teams executing on controllable growth, we believe BBSI is poised for growth in 2023, even if a recessionary environment arises. As I think to the future, we have consecutive quarters of great momentum, and I don’t see it slowing.

Our client retention is the best it’s ever been, and we’re seeing more business opportunities. Our prospects continue to be larger because of our tech stack, coupled with our nationwide offering. We are executing to our plan and things are going well. Our optimism increases exponentially as we think of the opportunities that our new benefits offering brings to our existing clients, new clients, and new referral partners.

With that, I’m going to turn it over to Anthony for his prepared remarks.

Anthony Harris

Thanks, Gary, and hello, everyone. I’m pleased to report that we again had strong results for the quarter. PEO gross billings increased 13{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter to $1.9 billion, while staffing revenues increased 1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over prior year to $29 million. As Gary noted, our increase in PEO gross billings was driven by stronger-than-expected growth from net new clients in the quarter, continued stronger-than-expected hiring within our client base, and higher average billing per worksite employee.

Overall, worksite employees increased 8.2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over Q3 ’21 and average billing per WSE increased 4.2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. The increase in average billing per WSE was driven primarily by rising wages in our existing employee base, offset partially by continued hiring of more lower wage roles relative to the prior year.

PEO gross billings growth by region versus the prior year third quarter were as follows: Mountain states grew 21{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, East Coast grew 20{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. Southern California grew 14{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, Northern California grew by 10{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and the Pacific Northwest grew 7{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. Staffing revenues increased 1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over prior year, which is a slower growth rate than we have seen recently. We monitor our staffing revenues closely for broader trends, but the slowing growth this quarter was primarily driven by client and region specific circumstances.

In the Northwest, we have agricultural clients where work has shifted from Q3 to Q4 in response to a late harvest season. And in the Mountain States, we experienced a slowdown in certain light manufacturing clients due to supply chain challenges. Both of these examples are transitory. The one market where we have seen demand contraction is in Northern California, where we support more technology clients. However, we are not seeing broader negative trends.

We continue to see stability in our workers’ compensation market and our overall pricing has remained consistent and in line with our plan. Our gross margin rate continues to trend ahead of prior year through Q3 with cost savings in payroll taxes and more significantly from lower workers’ compensation expense in the current year.

Our workers’ compensation program continues to perform well with favorable claims frequency trends and favorable development on historical claims reserves. This quarter included an actuarially determined reduction of prior year estimated liabilities of $1.4 million compared to $0.8 million in the year ago quarter. As a reminder, we renewed our fully insured workers’ compensation program effective July 1 of this year. The prior year program has performed favorably, and our renewed program includes several enhancements, including even more cost certainty.

For the 12 month policy effective July 1, 2022, if claims developed favorably in future periods, BBSI received the benefit of those lower claims costs through return premium from carriers. If claims develop unfavorably, there is no additional premium that can be owed. That is BBSI continues to participate in all of the upside of favorable workers’ compensation customs but has no exposure to downside risk.

Turning to operating expenses. SG&A in the quarter is on plan. Our new health benefits program has launched successfully on schedule and with costs in line with our forecast. Our top line growth and profitability are ahead of expectations and we accordingly have increased employee compensation expense for profit sharing and incentives, but those increases have been offset by other savings in the quarter. As a reminder, we expect our earnings growth rate of approximately 1.5 times our top line growth rate. Even with the incremental expense in preparation for our health benefits offering, we continue to expect earnings leverage to be ahead of target for the year.

Moving to our invested assets. Our investment portfolios earned $1.6 million in the third quarter compared to $1.8 million in the prior year. With the rapid increase in interest rates, our fixed income portfolios remain in an unrealized loss position. However, we intend to hold those securities, and our portfolio continues to be managed conservatively with an average duration of four years, average quality of investment at AA, an average book yield of 2.1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}.

Looking at the balance sheet, we had $132 million of unrestricted cash investments at September 30 compared to $111 million at June 30. The increase is primarily due to the results of operations and the timing of payroll tax payments. As a reminder, BBSI is now completely debt free. We continue to see intrinsic value in our share price relative to our profitability and growth potential and we’ve continued to repurchase shares under the Board’s $75 million share repurchase program.

In the third quarter, BBSI repurchased 130,000 shares at an average price of $81.74 per share. Year-to-date, we have now purchased more than 7{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the company’s shares outstanding and still have $36 million remaining on the program. The company also paid $2.1 million in dividends in the quarter and reaffirmed its dividend for the following quarter. We have paid $6.6 million in dividends year-to-date.

Given the strong results for the quarter and positive trends, we are increasing our full year outlook. We now expect gross billings for the year to increase between 12{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 13{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, up from 11{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 13{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} previously. We expect average WSEs to increase 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 9{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, up from 7{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} previously. And we expect gross margin as a percent of gross billings to be between 3.1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 3.2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, up from 3.05{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 3.15{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} previously. And we expect our effective annual tax rate to be between 26{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 28{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, which is consistent with our previous guide.

As we finish this year and look ahead to the next, we believe BBSI is poised for continued growth even in an uncertain economic environment. We will continue to invest in growth in products, including our new health benefit offering and new market expansion. And even with those investments, we’ll continue to benefit from leverage in our operating model. In short, we are optimistic about the future and are looking forward to the year ahead.

Now I will turn the call back to the operator to open the line for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Chris Moore from CJS Securities. Please go ahead.

Christopher Moore

Hey. Good afternoon, guys. Congrats on another great quarter. Maybe just start on the property and casualty market side. So Hurricane Ian had a significant impact on the property and casualty market generated large losses. Is that causing more tightening of risk and rate tolerance by carriers?

Gary Kramer

Hey, Chris. Good question. It’s still early. A lot of that catastrophe was filled off seas, about 60{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of that loss is with Lloyd’s out of London. So 40{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} on the U.S. market, which is where you would have, call it, commonality with the workers’ comp lines business. Still early days. We’re seeing the rates kind of trade in a flat band of the plus 2, minus 2, we haven’t seen any broad stroking rate increases yet from everybody. We’ve continued to see the workers’ comp market get more rational, and we expect that it will stay in that flat up range for now. We’re just not seeing — we’re not seeing the deep discounts anymore like we used to see a year or two ago. It’s more trading at where the rate should be.

Christopher Moore

Got it. Very helpful. And maybe just to staffing, I mean, over the — I don’t know how many quarters you can be talking about staffing shortages that obviously continued into Q3. After Q2, you kind of had this thesis out there. So talking about hiring skilled workers. Was it a matter of businesses not being able to find enough skilled labor or they can’t afford these workers? Just maybe any follow-up thoughts you had on that from Q3.

Gary Kramer

Yeah. So we measure our orders, right, which is really people that want us to hire, right. So we measure our orders. Our orders are not down. So we’re not seeing the orders go down, which the question is, is that the canary in the coal mine, and we’re not seeing companies are still asking us to go higher for them on the staffing side.

We’ve had a couple of seasonality things that Anthony mentioned as far as in the Northwest and in the Mountain States. But companies are asking us to hire, that hasn’t slowed down. Really, these are — our fill ratios are dripping down again just because of the availability of the workforce. So we were able to fill less orders on a ratio basis in Q3 than we were in Q2. It’s still a tight labor market out there.

Christopher Moore

Got it. And maybe just last one for me on M&A. My sense is that M&A could happen at some point, but this is not really an area you’re spending a lot of energy on currently. Is that a fair statement?

Gary Kramer

We look at anything that comes across our desk. We go out and talk to folks as well on the offensive side. We are active in the market. But ultimately, we’re going to do what we think is the best for the company for the long term and we’ve shifted, right. We honestly were trying to find a company that had benefits. We couldn’t find a company that had benefits that we wanted to buy, and then we started our own benefits department, right.

And then we’re not going to sit idly by and wait for an acquisition. That’s why we’re going with our asset light model to enter new markets. So we’re excited that, we have 11 new BBSI folks that are in the training program that are going to be selling in new markets come Q1. So that’s how we’re going to fill out the map is with the asset-light model. So if we can find somebody inorganically that fits, we will do that. If not, we will grow it on our own.

Christopher Moore

That sounds great. I will leave it there. I really appreciate it.

Operator

Thank you. Our next question comes from the line of Jeff Martin from Roth Capital Partners. Please go ahead.

Jeff Martin

Thanks. Good afternoon. Kramer, I was hoping you could give us a sense of what the initial client reaction has been to the new benefits offering and what kind of uptake rate are you seeing or is it too early to really tell that?

Gary Kramer

Good question. I’ll say that the clients have been asking for this and Anthony and I were playing back and forth about whether we put a quote in our earnings script because we had a couple of nice quotes, but we ultimately left them out where they were very complimentary of a, BBSI doing this and then b, of the product that they have. We only did this in select markets, and we only did it to current customers that have benefits, right.

So we didn’t try to go real wide with this to start. So we went with a very select group. I can say that we’re positive, we’re optimistic on the sell-through that we’ve seen. We don’t have good numbers yet. We actually just started to push the enrollment out this week. So we don’t know how many participants are going to enroll. We don’t know of the total census what it’s going to look like.

But so far, I think it’s been a good launch for us, a good learning exercise. We learned some valuable things along the way so that when we try to take this thing to scale next year and offer in California and then offer it to new clients, we’re going to have a much better conversion rate because we’ve learned some things this year.

Jeff Martin

Okay. And then tied to that, what are you seeing in terms of attractiveness to referral partners that specifically traffic within the healthcare market?

Gary Kramer

That’s going to be a focus and attention for us next year, right. Because 90{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of our business comes from referral partners and of that 90{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, a large portion is P&C brokers. We don’t have a lot of life and health referral partners now because we don’t sell a life and health product, right? So we look at this and say, we have a mapping of our referral partners that do both sides of the house as far as the life and health and the P&C and we’re working with them.

And then we’re going to have a strategy similar to what we did this year as far as I call it making new friends going out and advertising and attracting new referral partners, specifically in the benefit space and explaining the BBSI product. I mean we’re the broker-friendly PEO. We make sure that if they put the business with us, they’re compensated in a similar way as if they put it with the standard market.

So really, if they put it with us, their life becomes easier because we’ve got a better retention and our platform makes their life easier. There’s less administration for the broker when they put it with us. So we think we have a lot of good selling points when we go to the market to try to bring on new referral partners.

Jeff Martin

Okay. Great. And then I was curious on the placements initiative, kind of first time you’ve talked about this. Has this been something you’ve been doing all year and it’s just kind of starting to reach a material part of the business that you’re starting to talk about it? And how much of a focus is this going forward?

Gary Kramer

Internally, we’ve promoted somebody to run our staffing vertical, and this was one of the objectives, was to bring recruiting to our PEO clients. So we started in Southern Cal with the recruiting branch to be a hub for Southern Cal. Good results there, we took it to Northern Cal, and then we took it to Portland and we took it to the Mountain States. And now we have a recruiting hub on the East Coast as well that supports all of our PEO clients.

So we tried it, it worked, and then we took it to all the other markets, and it’s working in all the other markets. So now we’re at a point of where we say we can do this nationally. And it’s a good value add, right. We do recruiting for our PEO clients. When we do the recruiting, we get paid a fee and then they go on PEO payroll and we make PEO revenue. So it’s a win-win.

Jeff Martin

Yes. Sounds very interesting. And then last question in terms of your workers’ compensation outlook as a percentage of gross billings next year, are you thinking it will — has the opportunity to come down from the 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 3.1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} range this year? Does it have further room next year to decline?

Anthony Harris

Yeah. Thanks, Jeff. The answer is we always think we can continue to improve, and we will. So at this point, we see positive trends. As I noted in my remarks, nothing worrisome coming through Q3 into Q4. That rate that we’re paying now on the fully insured program will continue, obviously, into the first half of next year, and then we would reset that next July 1. But we’ll continue to monitor that. And frankly, we’re optimistic so far in these first two years of our fully insured program that we’re more on the return premium side of that equation, right. We’ll get money back. So it’s still early to tell, but the trends are positive.

Jeff Martin

Okay. And then last one for me is in the absence of a significant falloff in the economy, what do you think the opportunity to start to grow worksite employees at double-digit rate is and over what time frame?

Gary Kramer

Yeah, that’s… We’re trying to stay away from ‘23. We feel — we said it in my remarks and Anthony said in his, that even if this is a weird recessionary environment, right, because of how tight the labor market is. We feel even if there is a pullback, we can put up growth next year. We feel like we can put up respectable growth. I don’t want to really give a range because we’re going to wait until we get through Q4 but we feel like we’ve got the controllable piece going, right.

The sales machine and the retention machine are going in a positive direction. We’ve said that quarter-over-quarter. This quarter, we did over 4,000 more WSEs, right, which is good controllable growth. And then we think we can grow on that. And then really the question becomes of what are our clients going to grow like in this environment. But we feel comfortable that all scenarios point to good growth for us in ’23.

Jeff Martin

Great. Thanks for taking my questions.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Vincent Colicchio from Barrington Research. Please go ahead.

Vincent Colicchio

Yes, Gary. Nice quarter. I came on the call a bit late. So sorry if this was already said. I’m curious how the PEO sales pipeline changed sequentially and how your traditional sales engine is working relative to your digital campaign.

Gary Kramer

Yes. I mean we think of these as — really, we’ve got, call it, three channels that we monitor. Our direct channel, our referral partner channel, and our client referrals, right. Our client referrals are a big piece of our prospecting. All three are up and to the right. That’s the trend we continue to see. We’ve got more leads that come in every quarter over quarter, and then it’s the scrubbing of those leads to get them through the prospecting and the discovery.

The one thing I would just say is, our clients now on average, are larger than the clients we’ve had historically. So we’re adding larger clients and the clients that runoff are a little on the smaller side. So we’re being able to attract bigger business and retain all of our larger clients, which is a good positive trend, which is a tailwind that’s helping support our earnings and WSE growth.

Vincent Colicchio

And on the staffing side, you’ve got some transitory issues you had mentioned. Will those sort of burn off next quarter or in Q4? And so will we see a nice sequential improvement?

Gary Kramer

Yeah. I think for the Northwest specifically, we’ll see that pick up because of the late harvest, the supply chain ones. There’s a couple on sites we have, where we do light manufacturing and light assembly. They’re the ones that may persist a little bit depending upon the supply chain challenges. I do think the recruiting that we did in Northern Cal is going to continue to slow down specific to the IT tech sector. As you know, IT is probably the one industry that’s under pressure right now.

Vincent Colicchio

And the sales and training capability, you’re adding to your service, was there sort of a minimal investment in that? Is it sort of let’s see how this goes and maybe we’ll invest more heavily in this over time? What is your thinking there?

Gary Kramer

Yeah. It’s a small investment for the company. And really, we made this investment when we developed the product to train our internal employees. So we built it to train our internal employees to kind of shorten the learning curve, and it’s worked well for us. And now we’ve kind of made some modifications and spun it up so that we can sell to our clients and put some different content in there for them to review.

This is not going to be a needle mover as far as revenue or earnings. This is something that the clients have been asking for, and ultimately, we think it will help with retention. So we’re going to charge for it. We’ll cover our costs, make a little spread but ultimately, it’s a tool that we think will help retain our clients.

Vincent Colicchio

Okay. And then as you’ve said before, clients were asking for health care, which you’re fixing now, and also a bookkeeping service. Is that the sort of the bookkeeping side, sort of a back burner or is this something you’ll consider doing in the next year or so?

Gary Kramer

We have a parking lot of full of products that we would look to add. Bookkeeping is one of them, but we have many of them. And as we think of our product roadmap, we’re not going to advertise our playbook to the competitors right now.

Vincent Colicchio

All right, Gary. Nice job.

Gary Kramer

Thanks.

Operator

Thank you. Ladies and gentlemen, 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.

Gary Kramer

Sure. Thank you. I’d like to just thank the whole BBSI team for working tirelessly to help our clients thrive. It’s been a very good quarter of a very good year for BBSI and we’re proud of where we are, and we’re really proud of where we’re going. So with that, I will call it quits, and thank you, everybody.

Operator

Thank you. The conference of Barrick Business Services, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

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Barrett Business Services, inc (NASDAQ:BBSI)
Q3 2021 Earnings Call
Nov 3, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon everyone, and thank you for participating in today’s conference call to discuss BBSI’s Financial Results for the Third Quarter Ended September 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 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 of 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 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 and to the Company’s quarterly and annual reports 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.

I would like to remind everyone that this call will be available for replay through December 3rd, 2021 starting at 8:00 PM 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.bbsi.com.

Now I’d like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead.

Gary Kramer — President, Chief Executive Officer & Director

Thank you, Doug. Good afternoon everyone, and thank you for joining the call. We had an excellent quarter, both financially and operationally. Our positive momentum we experienced in the first and second quarters continued in the third quarter as the economy continued to recover. Our overall performance exceeded our forecast, leading us once again to raise our full year outlook.

During the quarter our gross billings increased 12{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year’s quarter and exceeded our expectations. Our average worksite employees were up 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter and up 3.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} sequentially from Q2. Please note that we are almost back to pre-pandemic levels and expect to reach an all-time high at the end of next quarter. Our growth in worksite employees is a combination of our clients hiring or rehiring, as well as net new business and we are ahead of our forecast for worksite employee stack.

Our staffing business increased 2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter. It could have grown more, but continued to have challenges filling orders with the tightness of the labor market. We discussed last quarter that the government stimulus was set to expire in early September, and it did and that we expected to see an uptick in applicants and placements about three to four weeks after the stimulus expired and we did. As I look at our results in October, we are seeing more applicants, placing more applicants, and companies are increasing wages to attract employees. We are still unable to fill our orders, but our ratio is improving.

Next I’d like to provide an update on the de-risking of the company. We discussed last quarter that we entered into a workers’ compensation insurance transactions which de-risks our business model and results in better financial predictability. This was our first quarter in the newly insured structure and we are very pleased that the program is operating as intended. These transactions are structured in a manner that greatly limit any potential downside of our insurance program, but we can still share 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 the precision we are accustomed to.

Moving to our branch operational updates. Our branch footprint decreased by one to 53 total branches. We continued to expand on the East Coast and open new branches in Nashville and Pittsburgh. The East Coast is doing well and clients and referral partners are pulling us in the new geographies. We continue to be mindful of operating efficiencies and consolidated Orem into Sandy, Utah and are now referring to this market as Utah County; and Bend into Medford, and are now referring to this market as Southern Oregon, as well as Monterrey into San Jose, California. These decisions were made with the intention of continuing to grow revenue, while servicing our clients, but doing so in a more cost-efficient manner.

Our branch stratification is as follows. 22 mature branches with run rates in excess of $100 million, 19 emerging branches running between $30 million and $100 million, 12 branches we consider developing with run rates up to $30 million. Our business units totaled 100 and incorporates the new opening and consolidations previously mentioned. We also continued our migration into revised structure of the 16 member business units, which allows us to service more clients with less management employees and increases our return on management payroll.

Moving to our client and worksite employees stack. Our client retention continues to be stronger than pre-pandemic levels. I like to attribute that to the work we do with our clients and the value our teams bring in this ever-changing and complex economic environment. Regarding our referral channel distribution, leads and prospects in the quarter were greater than the previous quarter and exceeded our internal Q3 forecast. We are still behind pre-pandemic levels, but we are optimistic as we continue to see a gradual recovery as economies open. Our closing ratio continues to be in line with historical levels.

Last quarter we discussed our longer-term initiatives where we intend to increase the top of the funnel by focusing on lead generation via an omni-channel digital campaign where we target both clients and new referral partners in different markets. We are only four to five months into the various trials, but I am excited about what we are seeing and I’d like to provide some statistics since the last earnings call.

We’ve signed up 82 new referral partners and we set up 40 or 74 new meetings with interested potential clients. We are testing and refining our various sales initiatives by market, measuring the return on investment and will transport the most successful method to our other markets. We continue to package our new technology with our nationwide offering and we continue to see larger opportunities.

So, to summarize all these efforts, our client retention is better than historical. We are seeing more opportunities than we forecasted. We continue to see larger opportunities and we are closing at the same levels as historical. These positive trends resulted in the company adding 3,200 new worksite employees from net new customer adds over the past 12 months.

To put a finer point on this accomplishment, this is the most net new worksite employees from net new customer additions we had added over the past four years. This is just a fabulous result and a testament of our value proposition, as well as the focus of the organization.

Next, I’m going to provide some updates on other initiatives. We discussed last quarter a new strategy that we are pluming as asset-light markets. We have taken lessons learned in a COVID environment for how to operate remotely, coupled with our digital initiatives and we will hire and train a professional in a new market and have them sell into that market. We will service this client out of an adjacent branch or at corporate and invest behind them in infrastructure as they build up their client base. It is still early, but we hired four new folks in the quarter that are currently going through our training and emerging program.

Shifting to IT, our internally built client portal, myBBSI, continues to perform well and is being received favorably by our clients. We are committed to quarterly enhancements that will add new features or improve existing functionality. Our vision is to bring on additional products and services and deliver these through the portal and we have a dedicated team working on this.

So in summary, we are in the people business and people have never been more relevant to the business owner than they are today. 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.

Anthony Harris — Executive Vice President and Chief Financial Officer

Thanks, Gary, and hello everyone. I am pleased to report that our Q3 performance continued to build on the momentum we reported last quarter, with results that were once again stronger than expected. PEO gross billings increased 12{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year quarter and 5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} sequentially from Q2 to $1.66 billion. Staffing revenues increased 2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} over the prior year to $29 million.

As Gary noted, our increase in PEO gross billings was driven by stronger than expected growth from net new clients in the quarter, as well as stronger than expected hiring within our customer base. Our average WSEs increased 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} year-over-year, which is 1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} higher than our expectations. We also continue to see higher average billing per WSE which is up 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} in Q3 over prior year and continues to trend ahead of expectations.

PEO gross billings growth by region versus the prior year third quarter were as follows. Mountain States grew 35{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, East Coast grew 16{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, the Pacific Northwest grew 14{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, Northern California grew 13{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, and Southern California grew 6{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. While Southern California continues to grow steadily, our customers in the region are expanding more slowly than in other regions, and the effect is generally consistent across industries. For example, our construction industry clients in Northern California have grown 10{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} on average year-to-date compared to only 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} for those clients in Southern California.

Workers’ compensation expense continues to trend favorably in the quarter and included an actuarially determined reduction of prior year estimated liability of $800,000 in the third quarter. Our claims performance is also remaining favorable with a relative claim frequency 6{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} lower than the third quarter of 2019. We announced last quarter our new insurance program that became effective July 1st. This new program greatly reduces the workers’ compensation risk that BBSI now retains. As a reminder, we will now describe our workers’ compensation coverage for clients as being under either our insured program or our self-insured programs. Approximately 82{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of our workers’ compensation exposure, including all California clients, are covered by our insured program.

All claims incurred in these states after July 1 are now covered 100{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} by the insurance market with zero claim cost retained by BBSI. This is a significant change from our previous structure, which included $3 million of retention per occurrence. Because of this move to our fully insured program, our workers’ compensation liabilities no longer increased in the quarter, but instead decreased by nearly $19 million as remaining historical claims were paid.

Looking at our margin and pricing, we continue to hold our billing rates effectively flat on renewal when compared to the prior year. The workers’ compensation market is firming, but it’s still competitive in certain geographies and industries for new business. However, our strong client retention is an indication of the value we are creating for our clients even in this competitive market.

Looking at operating expenses, SG&A continues to trend in line with expectations. Although employee expenses are up relative to the prior year, the variance reflects prior year reductions implemented during the COVID-19 pandemic that have since been reversed, increased employee travel and marketing costs and higher profit share incentive pay in the current year due to stronger than expected results.

Through Q3 management headcount levels and non-IT operating costs, both remained below 2019 levels. Our investment portfolios earned $1.8 million in the third quarter compared to $1.6 million in the prior year. Our investments continue to be managed conservatively and have an average duration of 4.1 years, average quality of investment at AA, and average book yield of 1.8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. Going forward, 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 $116 million of unrestricted cash and investments at September 30th compared to $110 million at June 30th. 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 return capital to shareholders in the quarter through $2.3 million in dividends and $4.2 million of stock repurchases at an average price of $75.54. At quarter end, there is approximately $31 million remaining on the Board’s approved $50 million share repurchase program.

Turning to the outlook for the year, given the stronger than expected results in the quarter, we now expect gross billings to increase between 9{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 10{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, up from 6{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 8{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} previously. And we expect average WSEs to increase between 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, up from 2{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} previously. We continue to expect gross margin as a percent of gross billings to be between 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 3.1{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and we expect our effective annual tax rate to be between 22{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 24{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}.

I will now turn the call back to Gary for closing remarks.

Gary Kramer — President, Chief Executive Officer & Director

Thanks Anthony. In conclusion, we had a great quarter as we executed our short and long-term strategies. We continue to always think of the client first and to advocate for the success of the business owners. We’ve been working on the right things and I think we’re in a great position for future growth.

Now I’d like to turn the call over to the operator for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time, we’ll be conducting a question-and-answer session. [Operator Instructions]

Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore — CJS Securities — Analyst

Hey, good afternoon guys. Thanks for taking a couple of questions. Maybe I would just start on the kind of the mechanics and the impact of the Chubb agreement. So, my understanding is that, so you had the two LPTs that basically took care between 2014 and 2018. The current agreement with Chubb is — starts as of July 1st, 2021, so 2019-2020 and half of 2021 are the years where you still theoretically would have unfavorable workers’ comp claims could be an issue. Am I looking at that correctly?

Anthony Harris — Executive Vice President and Chief Financial Officer

Yes, that is correct. So, it was 2.5 years, the only claims we have remaining on the balance sheet. We do have some self-insured claims that’s outside of our fully insured program, right, that’s the 18{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, it’s not part of the fully insured. But under the fully insured program, those were the only remaining claims.

Chris Moore — CJS Securities — Analyst

Got it. And will there likely be — go ahead.

Gary Kramer — President, Chief Executive Officer & Director

I know that’s a little confused. I’ll just say it for lot. I don’t want to say it’s confusing, it’s a lot and there is a good disclosure in the Q that has, call it, the liabilities by year for what we’re at risk on.

Chris Moore — CJS Securities — Analyst

Got it. Alright, that’s helpful. Will there likely be additional LPTs, is there kind of a normal period of aging, like for example, mid next year was likely to be something that’s focused on 2019.

Gary Kramer — President, Chief Executive Officer & Director

Yeah, I mean we have it in our plan to look at the next year. But it comes down to price to risk, and if it makes economic sense for both sides of the transaction. So we both intend to look at it next year and if we can get to an agreeable price, then we’ll get a deal, if not then we’ll keep it, we’re comfortable keeping it if we have to.

Chris Moore — CJS Securities — Analyst

Got it. And maybe just one more from me. On the investment income. So it sounds like the investable base is going to continue to decline. I’m just — how rapidly should we expect that to happen?

Anthony Harris — Executive Vice President and Chief Financial Officer

It will be gradual as we pay claims. Our rule of thumb is that we pay about 25{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of our remaining claims in the year and that will trail that rate of decline in terms of the investments. We are seeing rates tick up slightly from their lows. So I’m also optimistic that we’ll get some offset there as our investment yield goes up.

Chris Moore — CJS Securities — Analyst

Got it. I’ll jump back in line. I appreciate it guys.

Anthony Harris — Executive Vice President and Chief Financial Officer

Thanks, Chris.

Operator

Our next question comes from the line of Josh Vogel with Sidoti. Please proceed with your question.

Josh Vogel — Sidoti & Company — Analyst

Thanks, good afternoon guys. Gary, you talked about initiatives to expand the business, whether opening new branches or the asset-light markets. The trials there, your investments in tech enablement and myBBSI. I’m curious if Q3’s SG&A run rate is the new normal — a new normal base for us to think about going forward?

Gary Kramer — President, Chief Executive Officer & Director

So Q3 is higher, because if you think this is the quarter where we’re increasing our guide and there is some variable compensation to the branches as far as profit share, if they hit revenue targets and they’re not only hitting them, they are exceeding them. So there is going to be a variable profit share that realizes in Q3. So that will be our highest SG&A rate for the — for the year, it will slow down in Q4.

Josh Vogel — Sidoti & Company — Analyst

Alright, great. Thank you. Obviously an impressive build in worksite employees, the — just anything that can be read into the average number being higher than the ending count, was that just because there’s some seasonal stuff that hit up over the summer months?

Anthony Harris — Executive Vice President and Chief Financial Officer

Yeah, in terms of the pattern of our worksite employee count, it always peaks in the middle of summer and that’s driven from two large industries, the agricultural industry and construction, just to have more bodies working in the summer.

Josh Vogel — Sidoti & Company — Analyst

Right, OK. I was looking at the safety incentive costs and it was down a lot, even from the prior two quarters in which you revised that element of the business, is this a move to do away with that altogether, and how should we think about that as part of workers’ comp going forward?

Gary Kramer — President, Chief Executive Officer & Director

Yeah, good question, Josh. If you go back to this quarter last year, we talked about how we refined our pricing in the market and what we really did was the — the workers’ comp market and specifically in California was competitive. And what we did was lowered our pay-in rates to our clients and ultimately what we did was move that safety incentive upfront and netted it out of what we would charge to clients and it made sense because of the competition of the market, number one.

And then number two, it helps them out in cash flow and we did that during COVID. So what you’ll — what you see now is we’ve renewed almost all of our accounts without a safety incentive which — some accounts still may have it, but I’ll say the overwhelming majority will not have it. And what you’re left with is a liability that’s going to slowly run off or has been running off.

Josh Vogel — Sidoti & Company — Analyst

Alright, great. And just last one from me right now. Thinking about the vaccine mandates, I know your average client has around 30 or less employees today. But you are moving upstream, you’re going after and landing larger national accounts. I guess, I know — we know it’s still early here, but what dialog are you having with clients today and you can make the argument that your relationship and value prop comes into play when thinking about holding their hand through a process like this. Similar to what you did in the early days of the pandemic with small business loans. Just curious, your thoughts around the mandates, the ongoing dialog you’re having with clients today and whether we can discern if this is going to be a potential positive or a tailwind for you?

Gary Kramer — President, Chief Executive Officer & Director

This is a tricky one, right, because it’s still not into effect. So, what we’re coaching our clients on and that’s how we’re handling our business now, right, because this will affect our management employees. It’s get your plan ready so that if it does go into effect, you know how to operate to it. So we have our own plan internally and then we’re working with our clients. So, if they are affected that they can develop their plan, but anytime nobody wants to get into business, because they want to be the vaccines are, right.

And this is an example of you open in a business and now you’re an employer and you have more challenges and this pulls you away from what you get in the business for which is your product or your service. And we’re there to help the clients get through this, because we see this and can take it to all of our clients rather than one person trying to figure this out on their own. So it really, it really does help the business owner to be with a PEO in times like this.

Josh Vogel — Sidoti & Company — Analyst

Great, well thanks for taking my questions.

Operator

Our next question comes from the line of Jeff Martin with ROTH Capital Partners. Please proceed with your question.

Jeff Martin — ROTH Capital Partners — Analyst

Thank you. Hi Gary and Anthony, hope you’re doing well. Gary, I wanted to dive into the referral partner network. You mentioned that the leads are still below pre-pandemic levels. Just curious if you give us some relative perspective if they’re three quarters back, if they are almost all the way back? And how would you describe the quality of those leads relative to perhaps pre-pandemic levels?

Gary Kramer — President, Chief Executive Officer & Director

So I gave a stat in my prepared remark, which was over the last — organically, over the last 12 months, for business we added versus business we lost. We added 3,200 WSEs. So over the last 12 months, our organic growth is 3,200, which I think going through a pandemic is a phenomenal number, and then you take that number and you add in the same customer sales, which gets us up to our total increase.

What we’re seeing in the pipeline is, good quality leads, we’re seeing larger leads, which we are being able to convert to clients. And that’s really what we’re seeing as far as how we’re able to build those 3,200 over the last 12 months, it’s, we’re keeping the business and the business that we’re adding is larger than it’s been historically.

So, even going through here with less submissions, we’re adding more WSEs which is why we changed our metric to get to WSE as opposed to the client count so that there is no head fix here on the business. Because the reality is, we’re growing the business organically through the pandemic.

Jeff Martin — ROTH Capital Partners — Analyst

Yeah. Great. And then with respect to your omni-channel initiative, could you give us some perspective, we added 82 new referral partners, I take it that’s off of a relatively small pilot test, not 82 out of a nation wide broad effort, some perspective there would be helpful.

Gary Kramer — President, Chief Executive Officer & Director

Yeah, we’re doing that in about 20 markets now and these 82, these are folks that signed up that want to be partners. It doesn’t mean, we’ve done a deal with them, but it means that they understand our value prop. They want to learn more about BBSI and they want to sell that value prop in the market or to their clients. So, we look at them is future pipeline that the teams out in the field are working with them to cultivate those relationships to hopefully bring on clients in the future.

Jeff Martin — ROTH Capital Partners — Analyst

Okay. And then you also made a comment, with respect to adding additional products and services on the technology platform. I was curious if you could maybe give us a sneak peek at that, what some of those are and if you — how mature you anticipate those being to growth acceleration over time?

Gary Kramer — President, Chief Executive Officer & Director

Yeah, good question. We built our portal out with the idea that we own our technology destiny. So we have the ability to plug in more products and services. Whether we make enhancements or increase productivity in there or we white label things and plug it in. There is a, I’ll say, a limitless potential for products and services that we can bring in. And we’ve got folks working on executing to that product road map so that we can ultimately have more things that we can sell to make us either more attractive or the business stickier. But we are not going to spill the popcorn until we do the launch on those.

Jeff Martin — ROTH Capital Partners — Analyst

Okay, great. And then just one housekeeping item if I could. What was the same-store gross number in the quarter?

Anthony Harris — Executive Vice President and Chief Financial Officer

So Gary said we added 3,200 worksite employees from net new customers. The year-over-year same customer worksite employee growth was 5,500.

Jeff Martin — ROTH Capital Partners — Analyst

Okay. That’s it from me, thanks guys.

Operator

As a reminder —

Anthony Harris — Executive Vice President and Chief Financial Officer

And that’s just — Jeff, just one clarification on that one. That’s just WSE growth, that doesn’t count wage inflation or anything like that, but just pure WSE growth.

Operator

Our next question comes from the line of Vincent Colicchio with Barrington Research. Please proceed with your question.

Vincent Colicchio — Barrington Research — Analyst

Hi, Gary and Anthony, I hope you’re doing well also. So, curious about, are you seeing any push back from any clients on pricing, giving the wage pressures out there in the market?

Gary Kramer — President, Chief Executive Officer & Director

I would say no more than normal. It has been a competitive market and it’s been competitive because of workers’ comp. And Anthony mentioned in his prepared remarks that we’ve been able to hold our renewals relatively flat. So our markup is relatively flat for 2021 versus 2020. So, we like to think that the product that we bring to market is worth the price that the clients are paying and because we’re able to hold the pricing pretty consistent. And then our run-off is the best we’ve seen. So it’s, I would say, all signs pointed in the right direction.

Vincent Colicchio — Barrington Research — Analyst

And what portion of your teams have transitioned thus far to the new model with more HR professionals?

Gary Kramer — President, Chief Executive Officer & Director

That model is when you’re going to get into the larger branches. So, it’s going to be those mature branches that have that model or are close to that model. So, the total mature branches is going to be 22. So 22 would have, I’ll say, adopted some form of that new model.

Vincent Colicchio — Barrington Research — Analyst

So the efficiencies you should start seeing from that are fully in place. Is that what you’re saying?

Gary Kramer — President, Chief Executive Officer & Director

Well, if you think of efficiency, so our management payroll is down still compared to 2019. So, we have more clients, we have more WSEs and our management payroll is still less. And the reason we’re able to do that is because of the efficiencies we get on the technology with myBBSI, and because of going into this six person team as opposed to a four.

Vincent Colicchio — Barrington Research — Analyst

And last one from me, how are some of your newer locations performing?

Gary Kramer — President, Chief Executive Officer & Director

It’s still early days. So, we opened Pittsburgh and Nashville and they are a month — they are about a three months into being new branches and opening. It takes a little time to try to do a judge on this. So, we have good professionals in those branches. One of them is — was from another BBSI branch. The other was a new hire who has been trained and operating in the new model. So, it will be a — we’re confident they will do well, but we got to give them a little time.

Vincent Colicchio — Barrington Research — Analyst

Okay. Thanks for answering my questions.

Operator

There are no further questions in the queue. I’d like to hand the call back over to Mr. Kramer for closing remarks.

Gary Kramer — President, Chief Executive Officer & Director

Sure. Thank you everybody for taking your time to be on the call. Thank you everybody at BBSI for the hard work and a great quarter. I appreciate everybody dialing in and we’ll talk to you again next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Gary Kramer — President, Chief Executive Officer & Director

Anthony Harris — Executive Vice President and Chief Financial Officer

Chris Moore — CJS Securities — Analyst

Josh Vogel — Sidoti & Company — Analyst

Jeff Martin — ROTH Capital Partners — Analyst

Vincent Colicchio — Barrington Research — Analyst

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