Barrett Business Services Inc Q3 FY2020 Earnings Call

Good day, everyone, and thank you for participating in today's conference call to discuss BBSI's financial results for the third quarter ended September 30, 2020. Joining us 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 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 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 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. I would like to remind everyone that this call will be available for replay through December 4, 2020, starting at 3:00 p.m. Eastern Time this afternoon. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.mybbsi.com. Now I would like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead.

Teams are performing effectively across the country with our clients as we navigate this rapidly changing economic environment together. Delivering the best of BBSI to our clients is making a significant impact, and we are witnessing improved client retention, a lower-than-anticipated client failure rate, and better-than-expected revenue. I want to express my gratitude to everyone in the BBSI family, many of whom are on this call, for their outstanding response during this crisis. I would also like to thank our clients for trusting us. Your entrepreneurial spirit is adaptable, resilient, and inspiring. In terms of our financial strength, our balance sheet is robust, with unrestricted cash investments increasing by 8% compared to Q2 of 2020. Anthony will provide more details on our capital and its utilization in his remarks, but I want to emphasize that we are operating from a position of strength. This strong capital base gives us the confidence to concentrate on our operations and continue investing in long-term growth. For the third quarter, we surpassed expectations in nearly all financial metrics. Our gross billings fell by 2.6% year-over-year yet rose by 10% sequentially compared to Q2 2020. To summarize, we faced a tough second quarter, with revenue down 14% in April and 3% in May and June. We anticipated that Q3 would follow a similar trend to May and June, and we are pleased to report that we performed slightly better than expected. As noted earlier, we do not have clients in the most severely impacted sectors like airlines and cruises, and our exposure to other industries such as retail, restaurants, gyms, and salons is low. Our industry forecasts aligned well with our actual results for the quarter. Overall, we are fortunate that our strategy of working with all clients, rather than focusing solely on specific industries, has helped us minimize concentration risk. We added 253 new PEO clients this quarter. As mentioned before, we observed referral partners and business owners retreating in response to COVID. Each month, we are gaining more leads, and the market is adjusting to operating under COVID conditions. Our sales conversion ratios remain consistent with pre-COVID levels, though there is simply less business being conducted. Our Q3 leads improved by 30% compared to Q2, but are still trailing behind Q3 of 2019. Client acquisition in the current environment is our top priority. We are not passively waiting for business to come to us; we have multiple initiatives that I will discuss shortly to actively seek out business opportunities. We experienced the attrition of 139 clients, which was a better retention ratio than Q2 of '20 and the end of Q3 of '19. This shows that during a crisis like COVID, our product was needed more than ever. Regarding client attrition, we lost 3 due to accounts receivable, 8 due to risk profile, 5 businesses sold, 14 businesses closed, 36 businesses closed due to COVID, and 73 left due to pricing competition or companies that moved away from the outsourced model. This represents a build in the quarter of 114 net new clients. Our staffing business rebounded slightly and was down 16% in the quarter compared to being down 26% in Q2. Results vary by geography, but in the aggregate for the quarter, we have the orders, but not the supply as the majority of individuals could earn more money on unemployment stimulus versus working wages. We are seeing this business pick up some in October as the stimulus has expired. Regarding our branch footprint, at the end of September, we had 59 total branches. We continue to be mindful of operating efficiencies and consolidated the Dow's Oregon branch into the Portland Oregon branch. This decision was made with the intention of continuing to grow revenue while servicing our clients, but doing so in a more cost-efficient manner. Our Mountain regions have been exceeding our expectations, and we made additional investments opening 2 new branches: Albuquerque, New Mexico and Glendale, Arizona. As discussed last quarter, the quality of our product will be the same, but how we approach these markets will vary slightly. The new area managers will approach their market focused on sales and pipeline development. We will not commit to commercial real estate, but we'll utilize alternative lease options to keep costs down. Support of these branches will be helped by adjacent markets or a corporate unit until they reach a critical mass, and then we will invest in local teams to support the business. Our branch stratification of the 59 total branches is as follows: 19 mature branches with run rates in excess of $100 million, 20 emerging branches running between $30 million and $100 million, 20 branches we consider developing with run rates up to $30 million, our business unit teams totaled $114 million. Regarding other operational updates, our SG&A was down significantly in the quarter compared to the prior year. This is the result of cost cutting, cost deferrals and restructuring that took place throughout the year. I'm pleased to say that we no longer have any employees on furlough as our revenue increased, and our folks returned to grow and support our business. Next, I'm going to provide an update on our other initiatives and strategies. In June, we announced the successful launch of myBBSI for all new clients. Client feedback thus far has been overwhelmingly positive as they appreciate the ease, simplicity and individualization of the system. All new clients since June are on the new system. And as of last weekend, we have converted 82% of our existing clients. We are on pace to be fully transitioned before the end of the year. We are also pleased to announce that we are now able to offer our PEO services nationwide. We have the systems, licenses and operations in place and are starting to sell this value. We were able to expand relationships with 15 existing clients and successfully brought on 11 new clients that utilize this offering. It is still early days. We are optimistic that we will see more and larger opportunities as a result of this offering. Regarding larger opportunities, we can package our new technology with the nationwide offering, and we are asking for larger clients. In the quarter, our percentage of larger leads were up 14% over Q3 of '19. We know that we need to be adaptable and are not sitting back and waiting for the business to come to us. We have been actively pulling our client referral lever, and almost 10% of our ads in the quarter were from client referrals. In addition, we mentioned previously that we formed a dedicated sales and marketing team. The team has been working on various strategies and initiatives, and I am pleased to announce that we will have a new company website that will launch later this month that will better reflect the best of BBSI value proposition. It is being designed with the intent to better tell our story, but more importantly, to attract additional business. We have a long-term marketing and sales plan that hinges on our website refresh, and we will have more to discuss in the upcoming quarters. When we go to market, we are offering the best of BBSI. We have various products and services consisting of strategic consulting, human resources, information technology, insurance, risk management, retirement services, staffing and recruiting. When we meet with a potential client, they may join BBSI because they have a certain pain point today, but they will stay because we deliver our whole suite of products flawlessly. People have been and continue to be our product, which has never been more relevant to the business owner than it is today, packaging their knowledge and expertise with our new technology platform and the ability to transact nationally strategically positions us to go after larger, more tech-savvy clients and increases our total available market. Now I'm going to turn the call over to Anthony for his prepared remarks.

Thanks, Gary. And hello, everyone. Our quarterly results were strong despite the continued economic impact of the COVID-19 pandemic. Net income for the quarter was $18.5 million compared to $25 million in Q3 '19, with the reduction due to lower billing volume, lower favorable development on claims incurred in prior years and a decrease in investment income, partially offset by reductions in operating expenses in the period. Gross billings declined 3% to $1.5 billion. PEO gross billings declined 2% to $1.48 billion and staffing revenues declined 16% to $28.5 million. Net revenues of $227.5 million were down 8% from Q3 '19. As Gary mentioned, these results were better than management's expectations for the quarter. PEO gross billings growth by region versus the prior year quarter were as follows: Mountain states grew 17%, East Coast grew 6%, Northern California and the Pacific Northwest were both flat and Southern California declined by 8%. Same-customer sales for the period were down 1.3% from Q3 '19 due to the ongoing economic downturn. This decrease was in line with expectations and was attributable to a decrease in headcount, partially offset by an increase in average payable rates over Q3 '19. Average hours worked in the period were generally consistent with the prior year. Workers' compensation expense as a percent of gross billings was 3.4% this quarter, which is below our expected range of 3.8% to 4.0%. This decline is primarily attributable to actuarially determined reductions of prior year estimated liabilities of $3 million in the third quarter. Our overall workers' compensation claims frequency continues to trend favorably. In the quarter, we saw trailing 12-month relative frequency of claims as a percentage of payroll decreased 15% compared to the third quarter of '19. We continue to monitor the impact that the COVID-19 pandemic may have on our workers' compensation program. This includes monitoring updates to state regulations in response to COVID-19 and changes to the presumption of coverage. The only significant update to report this quarter is the passage of legislation in California in September that codified COVID-19 coverage in a way that is generally more restrictive and, therefore, more favorable than the governor's executive order that was issued in May and has since expired. The new legislation will apply to most employers in the state that have a COVID-19 outbreak. An outbreak is defined as having positive COVID-19 tests from either 4 employees or 4% of the workforce, whichever is greater, and the cases must occur within a 14-day window. We reported previously that we've had minimal COVID-19 claims exposure and minimal claims reported through Q2. And with the more favorable terms of the new California legislation, we continue to believe that COVID-19 claims will not materially increase our overall workers' compensation costs. However, we continue to monitor the situation carefully, and we have contemplated COVID-19 uncertainty when selecting our accrual rates for our workers' compensation reserves. We have discussed previously that the broader market for workers' compensation insurance has become increasingly competitive, particularly in California, where most carriers have instituted price decreases over the last 2 years. While we do not compete primarily on price and our offering is more comprehensive than traditional insurance, we continue to adjust our pricing and marketing strategies to remain competitive and attract new types of customers. One of the adjustments we made was to scale back our safety incentive program in exchange for lower service fees. This change is particularly attractive in the current environment, as it allows customers to pay less money upfront and allows BBSI to better position our pricing relative to competitors. This change is expected to be margin-neutral, but you will see our safety incentive costs and liabilities decrease with a corresponding reduction in gross billing rates. SG&A in the quarter was $35.6 million compared to $41.4 million in the prior year quarter, representing a decline of 14%. As we described in our previous earnings calls, cost savings measures were implemented in response to COVID-19. And while we continue to be cautious in our spending, SG&A levels will continue to increase modestly as business volume grows. We also incur a larger share of our variable employee compensation, including profit share and other incentive payments in quarters 3 and 4. Our investment portfolios earned $1.7 million in the third quarter compared to $3 million in the prior year. The decrease in investment income is directly attributable to the lower interest rate environment compared to the prior year and is consistent with our expectations for the period. Our investments continue to be managed conservatively with an average duration of 1.6 and average quality of investment at AA. Due primarily to our variable rate holdings, our average book yield has decreased to 1.5% from 2.3% at year-end. Turning to the balance sheet, we had $148 million of unrestricted cash investments at September 30 compared to $130 million at June 30. We continue to be debt-free at quarter end with the exception of our $4 million mortgage on our corporate headquarters. We announced in Q1 that we increased our line of credit with Wells Fargo as a source of additional financial flexibility, given the current economic uncertainty. Our agreement with Wells Fargo provided the option to revert to a lower credit line amount if we wished. And due to the available unrestricted cash and investments on hand and the general resilience of our operations, we have elected to lower our credit line back to $33 million at September 30, which also included corresponding fee reductions. As our cash investment balances increase, management and the Board of Directors have remained diligent in our approach to capital allocation. We have discussed previously the importance of establishing a working capital reserve sufficient to weather unforeseen circumstances, and the COVID-19 pandemic was a validation of that strategy. But we believe we now have unrestricted cash and investment balances above the levels necessary for these reserves, and we will continue to execute on our capital allocation philosophy. This philosophy has four priorities. First, our investments in our company to take advantage of the significant market opportunities available to us. The PEO industry is widely underpenetrated, and BBSI is well positioned to serve the addressable market. We are excited about continuing our journey of growth in part by enhancing our products and evolving our strategies. The launch and continued enhancement of the myBBSI portal is an important example of that type of investment. Second, Gary has previously mentioned that we are now pursuing strategic inorganic growth opportunities, where we believe we can launch into new geographies more effectively through M&A than we can through greenfield branch openings. We continue to actively evaluate potential targets but are maintaining high standards as we consider who we might bring into the BBSI family. It is important that our people, product and vision are all aligned before we would move forward. Third, the Board reinstated our stock buyback program, and we repurchased approximately 57,000 shares at an average price of $53.61 per share during the trading window. We will continue to be an opportunistic buyer of our stock as a preferred method of returning capital to shareholders. Fourth, we remain committed to our quarterly dividend, which the Board just reaffirmed at $0.30 per share. We will continue to evaluate and update our capital plans regularly to ensure that we are responsive to our environment and new opportunities as they arise. Turning to outlook for the year. With the favorable results of Q3, we now expect full year diluted earnings per share to be $4.10, up from $3.70 in our prior outlook. We now expect gross workers' compensation expense as a percentage of gross billings to range between 3.7% and 3.9% versus 3.8% and 4% previously. And we continue to expect an effective tax rate of approximately 21%. As with our past forecast, these estimates do not include significant economic deterioration or widespread shelter-in-place orders in the remainder of the year. I will now turn the call back to Gary for closing remarks.

Thanks, Anthony. In conclusion, our product is strong and has never been more relevant to the business owner. We have responded swiftly and decisively to the unusual events of 2020. Q3 exceeded our expectations, and we have raised our full year earnings guidance accordingly. We are working on the right things, and I'm extremely optimistic about the future. We continue to always think of the client first and to advocate for the success of the business owner. Now, operator, I'll turn it over for questions.

Our first question comes from Chris Moore with CJS Securities.

Yes. I just want to make sure that I'm looking at the guidance correctly. So the gross billings guide for fiscal '20 is down 3% year-over-year. So that would imply that Q4 gross billings is down closer to 6%. Is that right?

Yes. Approximately. Yes, proportionately, that's right. We have it closer to 5%.

Got you. And...

And Chris, just one thing for Q4, right? In Q4, a lot of our business owners pay themselves bonuses. And we made a, call it, non-model adjustment that we thought based upon the way the economy is that bonuses were going to be less this year. So that's why the number is down a little much because we factored in about a $20 million decrease in bonuses for '20 versus '19.

Got it. That's helpful.

But that's a little bit of a gut feel there. There's nothing that I can give you quantitative or qualitative on that one.

Got it. And in terms of the cost structure, I mean, you guys are doing a great job there. Just trying to get a sense in terms of what as things turn around, are there costs that the cost structure improve moving forward? Or for example, from an SG&A standpoint, if fiscal '21 revenue was roughly equivalent to '19, would the SG&A be roughly equivalent to '19? Or likely a little bit lower? Or just any kind of big picture thoughts there?

No, it's a great question. So we have some pretty significant cost reductions, as you know, in Q2, and we said that those were not sustainable as the business grew until and so those have increased in Q3. We have been very mindful, as Gary said, to look at operating efficiencies where we can, and we've learned a lot of important lessons, and we've been very strategic about how we bring cost back and where we spend money, frankly. So the answer to your question is, so SG&A will continue to scale up with operations, as you saw from Q2 to Q3, and that trend would continue from Q3 to Q4. But if business volume, all else equal in '21 were consistent with '19, you would expect SG&A to be less because we are being very mindful of where we're adding back.

Our next question comes from Jeff Martin with ROTH Capital Partners.

Sorry, I didn't quite catch exactly what you said relative to the implied guidance for Q4. It seems like $0.75 is a very conservative number, which is the implied guide. Understood that there's some catch-up in the profit share at the branch level. But is there anything else that is different relative to what the business was running operationally in Q3?

Yes, Jeff, it's a challenging time for forecasting right now. We still don't have the election results. We provided a number that we believed was achievable and we aim for a high level of confidence in it. However, there are two significant challenges for our year-over-year comparison for Q4. The first challenge is that we expect sales representatives to decrease, which will impact earnings by about $0.25. The second challenge is related to our investment income, which is expected to decrease by $0.17 to $0.20 per share in 2020 compared to 2019 due to the current yields on our portfolio. So, those are two major obstacles.

Q4 generally tends to be less profitable than Q3, which is our most profitable quarter. There are a couple of reasons for this, including the reset of payroll tax caps on a cash basis, which means some of that gets accrued back into Q4. When comparing Q3 to Q4 from 2019 and 2020, the projections are fairly consistent with what we're expecting.

Right, right. Okay. And then were there anything in particular driving any movement in some of the non-business-related cost of revenue, specifically payroll taxes and benefits and direct payroll costs?

Nothing seems particularly abnormal or significant that will be noteworthy for reporting. I would say it’s a straightforward quarter.

Okay. In terms of new business leads, was there any notable progression as you moved through the quarter and with October now behind us? Are you starting to see an increase in those leads? If so, what is contributing to that?

Yes, we've been discussing this for a few quarters. We recognized that business owners and referral partners went into a protective mode. Business owners have been more focused on the front of their operations rather than the back end, which means they were concerned about keeping their businesses afloat rather than looking at backend processes. Our product is designed to support and scale their offerings, so they weren’t considering us during that time. In Q3, we saw a 30% increase in leads compared to Q2, but we were still about 15% to 20% behind where we were in Q3 of 2019. It's primarily a volume issue, and we're actively working to address it. When we do meet with business owners, our conversion rates are on par with pre-COVID levels. We have adapted to selling in a virtual environment, so it's not a sales problem—it's simply a matter of lead volume. Our conversion rates are strong; we just need more opportunities. However, we are noticing improvements as each month progresses.

Okay. And then last question. PEO growth by region, Mountain certainly performing very well, Northern California and Pacific Northwest, doing okay. But is there any specific to the Southern California market? Is it kind of concentration by the industry? Or can you identify any other trends going on there that's driving the underperformance there?

Yes. We analyze everything by industry and geography, and there's no common factor explaining the decline we're experiencing in Southern California. Same-customer sales in Southern California are slower compared to Northern California, and this issue is primarily related to the worksite employees in Southern California being down more than in any other region we operate in.

Our next question comes from Vincent Colicchio with Barrington Research.

Yes. Gary, you had cited increased success using clients for referrals. Have you implemented any changes there that are drawing that out?

No. I mean, other than our teams want to grow and they get compensated for growth, right? So everybody in our company has a sales goal and a sales target, so they want to make sure they're hitting it. So it's really just taking a step back, and as you're working with the client, it's saying, 'Hey, we did all these great things, do you have anybody else that would benefit from our services?'

You mentioned some changes to your workers' comp pricing. How will that affect your overall pricing strategy as you enter the market?

If you consider the safety incentive, for example, if your rate per payroll is $0.10 or 10%, we would previously have returned 10% of that 10%, amounting to 1 point. This required us to charge the client 11 points. Now, we are adjusting it so that we only charge 10 points, eliminating the safety incentive. Previously, we would add this into the rate, but now we are taking it out. This adjustment allows us to remain competitive in the market while incurring no costs ourselves, as it merely reduces a pass-through. For business owners, the safety incentive operates in a way where they pay us initially and then receive a refund at the end, which enhances their cash flow—especially important during challenging times.

The staffing business had a good quarter. You mentioned it's hard to secure talent. Having said that, should we expect staffing to drop back down? Or are your thoughts there for the sequential period?

I think it's going to be very tied to what the stimulus package is. So if you're figured out, if it's going to be a bipartisan government, I think the pressure is going to be on stimulus. And I think there's going to be less stimulus, and I think that's going to be better for staffing. But that one specifically is going to be the most affected by the stimulus.

Okay. Well, one last one for me. You have a good amount of branch consolidation. We're just curious, is there any more that you think you can do that we may see in coming quarters?

More importantly, when we're doing those, it's just kind of removing some cost out of the equation, but we're able to sell and service the business. And you saw in the quarter that we've opened 2 branches in the Mountain States, and they're doing very well. They've learned the craft quickly, and they're out there converting business. And we're not done with organic growth, right? So right now, we are actively recruiting in Pittsburgh, Memphis, Nashville, and Atlanta, right? And the idea there is we're looking for good talent that can go run their operations, and we want to bring them in, train them as quickly as possible and get a math there to go get at the market. So we're playing more offense than we are defense at this point.

Our next question comes from Josh Vogel with Sidoti & Company.

I just want to build off one of the earlier questions about the safety incentive program. Anthony, you mentioned you guys plan to scale it back, but are you going to ultimately eliminate it altogether?

We will scale it down by default, but we have a decentralized sales structure, and there are certain referral partners, certain clients that, that is very valuable to them. And the economic trade-off there might make sense. So it's not going to be a wholesale. We're not allowed to do that anymore. We are giving kind of the general guidance to the field, but it's not going to be a 100% reduction.

Okay. And just to confirm that whatever the reduction is, is it dollar-for-dollar on the gross billings line?

Correct. Yes.

So it's a little bit of a headwind for gross billings as we do this because we're reducing the pass-through, but the zero effect on margin is just the pass-through.

Okay. I just want to get a little bit of a better handle on the leverage in the model. You talked about the efficiency on the SG&A line. But maybe at what level of gross billings and business mix when you include staffing, do you think that you can get to a 1% operating margin?

That's a great question. I don't have the exact number you're looking for, but I can share that we are mindful of our leverage. As our volumes dropped in 2020, we experienced reverse leverage, which led to a decline in our EBITDA to gross margin ratio. We responded by cutting costs as much as possible. If you examine the Q2 ratio, you'll see that our leverage remained consistent from Q2 2020 compared to Q2 2019, which is notable given the substantial drop in volume. As we moved forward, we reinvested some costs to ensure we weren't compromising our future growth, focusing on long-term success. We have noticed a slight decrease in our full-year leverage by a couple of percentage points, but it has held strong overall. We're committed to investing wisely and believe we are at sustainable SG&A levels. Therefore, we anticipate leverage benefits as we approach 2021 and beyond, returning to normalized growth patterns regardless of how you frame it—post-COVID, pre-COVID, or otherwise.

All right. And just one last question. I know we're in November, and the situation with COVID is still changing. We are uncertain about the political landscape. However, can you provide any commentary or outlook for 2021, considering the current scenario and how you expect the year to unfold, particularly in the early months? Any insights you can offer would be appreciated.

Yes. Our business relies heavily on our client stack, and before we can provide guidance for 2021, we need to assess the state of that client stack for the year. Considering the various factors at play, such as the election, COVID, shelter-in-place orders, and the vaccine rollout, there are many uncertainties. While we anticipate a return to growth in 2021, we are hesitant to specify a growth figure due to these unknowns.

Our next question comes from Bill Dezellem with Titan Capital Management.

And I have a group of questions. First of all, let's start with staffing. You mentioned that you have seen a rebound in October. And given that the stimulus ran out closer to the end of July, do you have a perspective of why you didn't see that rebound earlier, whether it be August or September?

Yes, it depends on the geography we're in. In certain areas, we noticed an increase while the majority remained the same. We still have more orders than we can fulfill. Customers relied on their savings for a while before needing to return to work. There was a slight delay between when stimulus checks stopped and when their savings began to dwindle, prompting them to seek employment again. In July and August, several of our branches had 300 to 400 orders each week that we couldn't fill due to a lack of staff willing to work. This situation is improving now in September and October, with October showing better staffing levels than September.

For clarification, does an order equal one body, or can an order, when you mention 200 or 300 orders, have multiple people that they are looking for?

Typically one order is one body. And then Bill, on that one, too, just to qualify, too, our staffing is more than just placement. We do a lot of placement fees and the placement fees, right? So you go and you hire some money, and we pay like a recruiting fee; do you want to think of that? That business, we saw slow down the most just because people, during the time of uncertainty weren't hiring. So it was a little bit of a little bit of people weren't hiring permanently and then they wanted to do temporary and we couldn't fill the temporary orders, and we're seeing the temporary orders come back. We haven't seen the full-time employments come back yet as far as our recruiting piece.

Great. And then relative to your investment income at $1.7 million this quarter, what are you expecting on go-forward quarters, given what you know about your reinvestment rates on your portfolio and growth in the cash?

So we indicated in our Q1 call, when we gave some broad guidelines that we thought investment income would be down $4 billion for the year, and that's turning out to be fairly accurate. I will say the delta between year-over-year, investment income is going to widen in Q4. And that's not so much because our interest income will go down. It will go down a little in '20. But Q4 '19, we had a pretty significant increase in interest income there. So it also attributes for some of the delta between Q4 '19 and Q4 '20. But our interest income has held fairly steady. You can see that the trend is it gradually decreases in Q2, Q3, Q4. And I would say we expect that trend to continue.

And do you have...

Bill, about half of the portfolio is invested in longer-term assets. These assets will mature, and we will need to reinvest at a lower rate. This situation involves not just new money for upcoming business but also reinvestment at lower rates. Unfortunately, when rates drop to zero, it negatively affects savers, and we are in that category.

Understood. I think the key point is that you have $150 million in unrestricted cash on your balance sheet, which represents about 30% of your market cap. Can you share your thoughts on that? Anthony, I recall you mentioned the four priorities earlier in the call, but I'm more interested in discussing the philosophical aspect rather than prioritization. Given that 30% of your market cap is in cash, could you elaborate on that with us, please?

Yes, going back to my earlier comments, we were deliberate in accumulating a certain level of cash to weather challenges, which was a strategy implemented before COVID. We aim to maintain that financial cushion around the company. Currently, we have more cash than necessary in that regard, and we are proactively considering how to utilize it. Since our last discussion, we have resumed stock buybacks, purchasing 57,000 shares, and we remain committed to being opportunistic in buying our stock in upcoming quarters alongside our dividend. We are also exploring strategic investments and assessing acquisition targets in key regions where acquiring a CEO is more beneficial than opening a new branch, as this aligns with our modeling for high returns for shareholders. We anticipate that these acquisitions could be financed largely with our available cash. We are taking a cautious approach while being diligent in our efforts. Regarding our market capitalization and its ratio, that is influenced by market pricing post-COVID, and we are focused on running a strong company. We are optimistic about the future and expect our value to increase.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kramer for closing remarks.

Thank you, Jessie. So I just wanted to, again, say that the company is strong and the business is resilient, and the small business owner is resilient through these times. And I really believe that we are in a good position to get back to strong growth, and we have the right people, the right product and the strength of the company behind us. So we're optimistic about the future. I don't know if we'll talk to anybody between now and the holidays, but have a good holiday, and we'll talk to you next year. Thank you.

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