Barrett Business Services Inc Q1 FY2023 Earnings Call

Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's financial results for the first quarter ended March 31, 2023. 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 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 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 June 3, 2023, starting at 8:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.bbsi.com. Now I'd like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Please go ahead, sir.

Thank you. Good morning or good afternoon, everyone and thank you for joining the call. We had a strong start to the year and I'm very pleased with our results. We were laser focused and successfully executed on our short-term and long-term objectives. Our financial results are in line with our full-year projections and we produced record Q1 profitability. Moving to our financial results. During the quarter, our gross billings increased 5% over the prior year quarter. I would like to state that we have no direct exposure to the troubled regional banks and very few of our clients bank at these facilities. This was, in essence, a nonevent for BBSI. Regarding our client and WSE stack, our controllable growth exceeded our expectations in the quarter as we continue to execute on our various strategies to increase the top of the sales funnel and I am pleased to say that we once again exceeded our expectations in Q1. 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 is larger than the average size of the clients that are running off. Regarding client runoff, our retention in the quarter was better than the prior year quarter and continues to remain stronger than pre-pandemic levels. I'd like to attribute that to the work we do with our clients and to the value that our teams provide. The results of all these efforts, or what I refer to as our controllable growth, is that we added approximately 3,000 worksite employees year-over-year from net new clients. Our same customer sales were softer than we forecasted and is a mix of a couple of factors. I mentioned last quarter that California was receiving a colossal amount of weather, which we believed could impact our clients' operations. Our Northern California clients in the construction and landscaping industries were affected severely. In these industries and specific to Northern California, our clients reduced their worksite employees, reduced overtime and reduced hours worked. They were unable to work in these conditions and moderated their staff accordingly. We had positive same customer sales in every other geography, which more than offset the weakness in Northern California and we finished the quarter at a net positive but by less than we forecasted. To summarize, we grew our worksite employees by 3% which was on plan for the quarter as we sold and retained more business. This was partially offset by our clients growing slower than anticipated. Moving to our staffing operations. Our staffing business declined 23% over the prior year quarter and was lower than we anticipated. This decrease is a combination of many factors including but not limited to supply, demand, weather and varies by geography. Anthony will give some regional color for what we're seeing in our markets. Moving to the field operational updates. We are very pleased with our progress of entering new markets with our asset-light model. Our market development managers are doing well and largely achieving their goals of adding and servicing new clients and new referral partners. Our first three classes have all graduated and were selling in their respective 14 markets in the first quarter. We have hired our next class of five and they start their training in Q2 with the plan to start selling in Q3. Our results thus far are better than we expected and are exceeding our internal return hurdle rate. Regarding our product update, we continue to execute on the sales and service of BBSI Benefits, our new health insurance offering. As a refresher, we rolled out a soft launch to a limited number of existing clients in select markets for the 1/1/23 enrollment season. Our intent was to perfect our craft and then shift our focus to California and to new prospects. Our soft launch was successful and in March we started selling BBSI benefits in every market to new prospects as well as existing clients. Since our last earnings call, we have successfully sold medical and ancillary products to 31 additional clients, of which 11 are based in California. This brings our year-to-date total to approximately 101 clients on our various plans. More importantly, we have proven that our products sold successfully in every geography we operate in. I'd like to take a minute and discuss some successes of BBSI Benefits. We have been able to sell into our existing clients, which is a great thing. We've also been able to take this product to new distribution channels and to new client industries. Our BBSI Benefits products aligns well with benefits brokers. We onboarded 74 new benefit referral partners in the quarter. This is approximately 15% of the new referral partners that we added in the quarter and we expect the velocity and quantity to increase throughout the year. Our distribution channel has been heavily skewed to property and casualty brokers because of our workers' compensation product and this new product will allow for better balance and better diversification. Regarding our new client industries, we have had early successes in adding clients in the industries of consulting, healthcare, and financial services. These white-collar industries were previously more challenging for us to penetrate with the lack of a benefits offering. The company is extremely excited to work with all of these new markets. Next, I'd like to shift to our view for the remainder of the year. We've had consecutive quarters of great momentum, our controllable growth exceeded our expectations in Q1 and this trend continued into April. We are selling and servicing BBSI Benefits in all markets now and we continue to be optimistic regarding the road ahead.

Thanks Gary and hello, everyone. I'm pleased to report we finished Q1 with strong financial results achieving our highest Q1 income as a PEO and with strong controllable growth as we added more worksite employees from net client adds in the quarter than in the prior year quarter. Our overall gross billings increased 5% in Q1 2023 to $1.79 billion versus $1.71 billion in Q1 '22. With continued positive earnings leverage, we achieved diluted earnings per share of $0.12 compared to $0.04 in the prior year quarter. Looking more closely at our Q1 results, PEO gross billings increased 5.3% over the prior quarter to $1.8 billion, while staffing revenues decreased 23% over the prior year to $22 million. As Gary noted, our increase in PEO gross billings in Q1 once again included stronger than expected growth from net new clients in the quarter. This was partially offset by slower client hiring our existing customer base. Overall, WSE's grew by 3% for the quarter, which was in line with our expectations. With respect to client hiring, the decline in Northern California accounted for approximately two-thirds of our total slowdown in hiring. We have seen hours worked increase in April since the poor weather subsided in California but we continue to expect the pace of client hiring going forward to be slower than last year. Client wage rates have remained resilient, and even increased in the quarter, which will continue to drive billing growth for the remainder of 2023. However, as previously mentioned, our average billing per WSE was impacted by fewer hours worked and less overtime in the quarter. Average hours per WSE decreased 5% year-over-year, and overtime decreased 11%. As a result, our total average billing for WSE increased less than 1% for the quarter. Looking at PEO gross billings growth in total by region versus the prior year first quarter, East Coast grew 14%, Southern California grew 10%, Mountain States grew 8%. The Pacific Northwest increased by 1% when normalized for large one-time bonuses in the prior year. And Northern California declined by 2%. Looking more closely at the decline in staffing revenues, we anticipated that Q1 would be our toughest compare for staffing due to strong staffing demand in the prior year first quarter. Reviewing by region our primary challenge in the Mountain States continues to be the availability of labor to sell client orders as unemployment rates remain low. In the Pacific Northwest, several larger customers have decreased orders and moved more of their labor in-house. Our California regions were impacted primarily by weather and decreases in demand due to softening economic conditions. We continue to roll out our PEO recruiting services and in the quarter we placed an additional 73 employees of PEO clients. Overall, we expect staffing revenues to continue to decline year-over-year due to the ongoing challenges in the economy. So the decline should be at a slower rate than the Q1 decrease. Moving to our gross margin results, our gross margin continues to trend favorably with continued cost savings from lower workers' compensation expense in the quarter while our pricing has remained in line with plan. Workers' compensation expense continues to benefit from favorable claim frequency trends. And the first quarter included a favorable actuarially determined reduction of prior year estimated liabilities of $1.1 million. As a reminder, our workers' compensation exposure is now primarily covered by our fully insured program with no downside risk to BBSI for future adverse claim development. However, BBSI can still participate in the favorable claim development in future periods. Turning to operating expenses. SG&A for the quarter is in line with our plan included increases associated with the launch of BBSI Benefits largely offset by savings driven by cost management efforts. The result is continued earnings leverage and higher earnings for Q1 than prior first quarters. Looking at the remainder of 2023, we continue to anticipate slower SG&A growth in 2022 and continue to expect favorable earnings leverage in line with our long term targets. Moving to our invested assets. Our investment portfolios earned $2.3 million in the first quarter, up $700,000 from the prior year. Our book yield is 2.3% up from 1.8% in the prior quarter, and our portfolio continues to be managed conservatively with an average duration of 3.8 years and average quality of investment AA. Turning to the balance sheet. We had $133 million of unrestricted cash investments at March 31, compared to $160 million at December 31. The decrease is primarily due to the timing of year-end employee profit sharing and quarterly tax payments. As a reminder, BBSI is completely debt free and we do not incur any increased expense associated with higher interest rates. Continuing under the Board's $75 million share repurchase program, in the first quarter BBSI repurchased $8 million of shares at an average price of $88.67 per share. The company also paid $2.1 million in dividends in the quarter and reaffirmed its dividend for the following quarter. Turning to our outlook. Our expectations for 2023 remain consistent with our prior outlook. We continue to expect gross billings to increase between 5% and 8%. We expect average WSE to increase between 2% and 4%. We expect gross margin at the percentage of gross billings to be between 3.0% and 3.15% and we expect our effective annual tax rate to remain between 27% and 28%.

Our first question comes from Jeff Martin of ROTH MKM.

Could you give a little sense of the California market? Did you see any delayed decision making tied to economic uncertainty or banking sector kind of ripples throughout the month of March? And then any other factors within California on the PEO side that may be unique to the market?

I would say that the banking situation in and of itself was pretty much a nonevent for us. We don't have any direct exposure and we went through all of our clients and looked at the bank accounts and we didn't have much indirect exposure. And then regarding any slowdown because of it, we had a very strong April. Our momentum continued in April actually probably one of our best Aprils we've had in quite some time, we went back and I think it was our best April since 2016, something like that as far as our unit counts whatever we added. Didn't see any slowdown in April regarding new business transacting. We mentioned the weather in California and specifically Northern Cal, and it had an effect on our construction industry, right? If it's wet out there, they can't do the business. And we did see that slowdown, and we mentioned that in our prepared remarks, but we're starting to see that come back into April. Remember, we're a couple of weeks behind when we have our payroll run. So we can't see perfect data yet. It's not real time. But we did see payrolls bounce back some in April, specifically in Northern Cal in those industries.

Okay. And then could you comment with respect to pricing on new and renewing clients? Are you seeing pricing strength there? I think one of your competitors said they saw unexpectedly strong pricing coming out of the quarter?

I would say for the health insurance, specifically, we're still learning our craft in that one. So I'll just talk specifically to the workers' comp and ultimately, the admin we charge our clients. So we've been able to hold rate on the workers' comp. That market has been kind of bouncing at the bottom and even being able to hold rate pretty well on that. And then the other thing we've been able to do is increase our admin a little bit to offset the inflationary costs that we're feeling. So we have a strategy that if our costs are going up, we try to push some of these costs over to the clients, and we've had success with doing that over the last 18 months.

Great. And then my final question is with respect to the BBSI Benefits offering. What's your expectation in terms of kind of take rate? Do you expect more of that to come from new clients? Or are you looking at that as you probably have a pretty high batting average in terms of selling it to existing clients?

Yes. I think the sell-through, I'll say, over the next nine months is going to be better for our existing clients, right? So our clients know us, they value us. They like us. This is a good product that if it's going to help them with administration, it's going to help them with plan design. If the underwriting fits, we can be competitive. So we think the existing clients for what we're seeing through our sell-through now is going to be where we get the most ads in the next nine months. But we are able to sell this to new clients. I mentioned in my remarks that we're adding. We're adding clients that we've never had the ability to bring on before, right? So we're seeing hedge funds, money managers, law firms, companies like that, that are white-collar that typically would go with a different PEO because they had benefits. Now we're able to bring them on, and we're having good success rate on bringing on these new white-collar industries with our new product.

The next question is from Vincent Colicchio of Barrington Research.

If we set aside California, how is client hiring trends doing versus the prior quarter?

It's slower than prior quarter. It's slower than prior year quarter. But the example I would give you is Northern Cal, we were negative, negative about 1,800 as far as our clients actually pulled back worksite employees. And then as we got into Southern Cal, use that as a balance. Southern Cal, we were positive by about 1,300. So Southern Cal continued to add while Northern Cal share, and it was predominantly due to those industries that were weather-related. But across the board, every region and almost every industry we're in, our clients added worksite employees, except for Northern Cal.

It seems that your traditional lead generation platform is developing well. Did the digital marketing aspect meet your expectations for the quarter?

That's a complex question because my expectations are rarely met. I would note that we discussed this last year regarding our total available market strategy, where we focused on finding new referral partners, particularly among property and casualty brokers and other non-traditional entities. We had significant success with that last year, which we reported in our quarterly calls. We've taken those insights and are now targeting what we're calling TAM 2, which focuses on employee benefits brokers. We have a product that suits their needs, and they can also sell it. This new targeted approach aims to increase our referral partners in the life and health sector. I'm optimistic about this effort. We initiated it in the first quarter and have had solid results so far, and I believe we will improve as we progress through the year.

And you had stated in your prepared remarks that most of your first through third asset-light classes are performing within your expectations, I think you said. Has there been any incremental setbacks since last quarter?

No. We're doing well. I'm looking at reports now for the year, we've added 20 clients out of that new group, about 200-plus WSEs and they got a big pipeline of $140-plus million of potential revenue in the pipeline. So doing real well there, getting real good success. And that's why we're comfortable with launching the next class of five that we've already hired these folks and they're going through the training now with the intent to start selling in Q3.

And lastly, any changes in sales cycles or any other indications of a slowing economy?

No. I mean I feel a little bit like a home or when I talked about the weather, but the weather was, I would say, the only thing that was peculiar for us in the quarter. And the thing I'm just really optimistic about is we got more product to sell. We've got more people to sell it and our sales machine, our controllable growth. We've been executing above our plan.

The next question is from Chris Moore of CJ Securities.

So I just want to talk a little bit about the workers' comp model. Obviously, you've been significantly de-risked over the last couple of years. Is it fair to assume that at some point in time, the one-time workers' comp positive adjustments will start to get increasingly smaller?

Chris, the way that we think about this going forward is when we started to enter into these prospective transactions back in '21, we structured them so that we would share in our good underwriting, right? So we have these, I would say, scheduled so that we're setting ourselves up so that we continue to get favorability in the future on our prospective program. So we have return premium provisions in there. And our goal as an organization is try to get as much of that return premium back as an organization. So if you think about going forward, we're going to have potentially future benefits. If all things work out and our underwriting continues and the crystal ball is as clear as I hope it is, we'll continue to have these return premiums come in through the fully insured program.

Got it. That's helpful. And I was kind of looking at incremental health care earnings filling that gap, but it doesn't seem like there's a gap to be filled necessarily. Just from an expectations on the benefit side, I was kind of thinking that 24% would be modestly impactful, and then 25% is when we really feel benefits from a revenue standpoint. Is that a fair way to look at it?

I'm being cautious here because we have a significant presence in California, and we just began selling there at the end of March into April. We've experienced good success so far, having brought on 11 clients within those six weeks, and we're still actively selling for the July 1st selling season. The goal is to develop our representatives and refine their skills to fully take advantage of the January 1st selling season, which is the primary selling period for health care. I mention this because the impact will depend on our performance in California, and I currently lack sufficient data to provide an accurate estimate. As we consider this, we're bringing in business this year, and we expect our revenue to cover freight costs, while the profits should cover our expenses for 2023. For 2024, the profitability will depend on our performance; it will be profitable, but the question is how much profit it will generate, and we won't have that clarity until we gain more experience.

Got it. That's helpful. And maybe just the last one for me. I know BBSI has had some significant unrealized losses on investments and restricted investments. I guess the question is, is there any scenario where the losses on that investment portfolio could impact earnings if these are held to maturity?

And the answer to that is no, really right. So these are primarily held in our trust account. There's not a scenario where we would need to liquidate those investments. So as we noted, our average duration is 3.8 years. So it's not long duration, not long maturity. We're fully content to let those run out and amortize time to par value. So no risk of any kind of forced transaction that we required to realize those losses.

Yes, it's not a bank where there can be a sudden withdrawal of deposits. These funds are intended to support workers' compensation claims, and the payment timeline for workers' comp is challenging to adjust. Therefore, we don't have to be concerned about any rush to withdraw funds. We can allow them to mature gradually.

The next question is from Jeff Martin of ROTH MKM.

Wanted to ask Anthony with respect to payroll, payroll taxes, pseudo rates, things that fall into the cost of revenue line. Are you seeing any movement there? My understanding is pseudo rates are determined by states and those often don't come out prior to you booking the business for the year, renewing the business for the year. So just curious what you're seeing, if anything, in terms of trends, specifically on pseudo rates, and then also anything else within the payroll tax line that's moving around?

It's a great question. And we've seen a multiyear trend now of our cost of sales decreasing, right, over time. And we've seen that in our overall market going down. Seeing that again this year as well. So we continue to see our workers' comp costs go down. Our pseudo rates have come in flat or down overall across our various states. So once again, seeing favorable tax rate. The one piece that did go up, it was obviously in the news was there was pseudo credit reduction for a handful of states in the country, including California, but that was an incremental tax that we've negotiated with our clients to pass through in our rates real time. So no impact to margins from that. But overall, favorable cost trends.

You have repurchased a significant amount of stock since the Board approved the $75 million authorization, leaving you with $20 million. How likely are you to continue pursuing share buybacks, especially given the current stock price?

Well, again, the stock trading where it is, there's a lot of value there, and that's something we definitely look at. So as Gary noted, our fundamentals and our controllable growth have really never been better. And we've never been more optimistic about the company. So from our perspective, it's a great opportunity to continue the share repurchase program.

And then, Kramer, on the M&A side, are you still looking at potential acquisitions, or does the BBSI benefits offering negate the need to continue to look out there?

Good question. I would say we are still active in the market. Our focus has shifted some; we were previously looking for a PEO with a health insurance offering, but since we have built our own, that specific profile is no longer necessary. However, we are still interested in PEOs and geographies if it makes sense. Additionally, we are exploring IT products that can support our tech platform. The market is becoming a bit more rational in terms of valuations, and we are actively seeking opportunities. We have noticed the market declining to a level that we consider reasonable for buying. Previously, valuations were quite irrational when we looked at them one or two years ago, which made us hesitant to proceed. Now, we have some capital ready to deploy if we find something that aligns well with our needs.

Okay. And then since we have some time here, I wanted to ask, if we look out five years from a geography standpoint, from a client mix standpoint, blue-collar versus gray and white collar, geographic footprint, where do you see BBSI in five years with respect to being more of a nationwide player in a lot more markets and competing more for the white-collar side of the PEO market?

Let's focus on our organic growth and not get distracted by inorganic factors, which can distort our overall picture. We've made significant investments in our market development managers, currently having 14 active sellers and another five in training, totaling 19 markets where we weren't selling two years ago. There's ample untapped potential out there. In five years, we could realistically have a presence in most states with larger populations of small businesses in need of BBSI support, although I can't guarantee we'll reach every state like Alaska or North Dakota. Our core BBSI product has proven effective in various geographies. Additionally, half of the new businesses we're acquiring in these markets are typically white-collar and are also purchasing our benefits product. We're experiencing increased sales of both benefits and white-collar services in these new areas, and it will take time to see how this balance evolves over the next five years.

Okay. And then one more question if I could. Regarding the technology platform, my understanding is that the white-collar market requires a more advanced technology platform. Is that part of the long-term strategy to further enhance that platform? I know you recently upgraded it and it was a significant improvement, but I would like to hear your thoughts on that.

Yes. Everyone, regardless of their background, wants better technology, and we are dedicated to developing improved tech. Our IT team is very capable, and we collaborate with a strong offshore partner for our development needs. Essentially, we have transformed into a software-focused organization. We follow a regular monthly schedule, a quarterly schedule, and we also plan for longer-term projects. We have a solid product roadmap, and I can confidently say that we have a clear vision for the next year in terms of our product direction. While we’re not disclosing specifics publicly, we have team members who understand our vision and how we plan to achieve it.

The next question is from Bill Dezellem of Tieton Capital.

Great quarter. My first question is about wage growth. Can you discuss the rate of wage increases you are experiencing? The essence of the question relates to the broader economy, particularly with the Federal Reserve raising interest rates and concerns about inflation, and how these factors are reflected in wage levels.

Yes. Bill, we've seen consistent wage growth now for some time, and that really hasn't changed. So it's actually been very resilient. And if you look at the national statistics, you're seeing average wage rates this last quarter, a little over 5% year-over-year, and our internal statistics usually are ahead or higher than those national statistics, and that continues to be the case even through Q1. So we're seeing that the wages are resilient. Really the softness that we talked about on the same customer sales component was in those hours worked. So that was really offset by that the 5% lower hours worked that we talked about in Q1. But again, the hours worked are more temporary and that comes back, but those wages are resilient will continue to be a driver of growth.

And the hours worked, did you see any trends that were interesting or useful outside of the weather hampered West Coast?

So a lot of concentration in Northern California. That's what I said in terms of where the statistics are focused. That said, we did see reduced overtime in all regions. So that really was a little bit of a leading indicator, something others in the industry have seen as well that there is definitely macroeconomic softening or a little bit of caution out there. So that is, I guess, the one data point there that will be relevant.

And then relative to staffing, I know you talked a bit to it in the opening remarks. Would you step back and just talk about strategy relative to staffing and how you see it just philosophically fitting into the business over the course of time.

Yes. I would say we have more focus and attention on staffing now than we ever have. We have folks that are dedicated in leading the product line. We have been investing in IT to support the onboarding and the applicant tracking on the app on the staffing side. So we're committed to the business. The new product that we have is we do recruiting for our PEOs. We had another good quarter of that this year so far, and we continue to expect that to grow as well. I mean it's probably still the #1 thing we hear from clients is that they can't find employees to hire, right? Everybody reads the journal. Everybody knows that this is the most advertised recession in history. But fundamentally, everybody is still trying to hire. There's still more job openings, twice as many job openings as unemployed people now, right, still in this economy. So folks are having trouble finding good people. That has not subsided at all. And I think of staffing, right, our staffing is down, and it's down for a couple of different reasons, right? And Anthony mentioned it by geography. But really, what we've done is taken a hard look at our staffing as we modified our strategy. We started the call businesses that we weren't making our profitable ROI returns on. So we made decisions to get off of certain accounts so that we can deploy our recruiters on other businesses that's more profitable. We know that we're going to have profitability in the recruiting for our PEO clients. So we've been making choices and diverting resources. And some of the top line is intentional, and we've been going through this intentionally for about the last six months, and you're starting to see more in Q1 because it's going against the Q1 of '22, which is harder to compare. But we look at this saying, every branch that does staffing is profitable now, and we're driving better profitability in every staffing branch.

Would you please maybe reconcile one thing, which is that the overtime is down, but yet the #1 issue you hear from clients is they can't hire enough people? Those two seem like they could be in a little bit of conflict with each other.

In general, if given the choice, companies prefer to avoid paying overtime, as it typically costs more with time and a half wages. They tend to manage in a way that’s best for their business, favoring regular hours over excessive overtime pay. Overall, we are noticing a decline in overtime and a slight reduction in its use. However, outside of California, our clients still hired around 2,000 employees in Southern Calgary. This indicates that we are still growing, albeit at a slower rate compared to 2022, when there was significant pent-up demand from COVID. While the current demand is not as high as it was then, our clients continue to expand.

That's helpful. And so given that #1 problem is still not able to hire, but there is hiring taking place. Does that imply that the level of pain in terms of the ability to hire has maybe improved slightly. And so they are getting more of the employees that they would like, just not that they're not fully there.

It's difficult to provide a definitive answer because it varies by state and region. For instance, in Utah, the unemployment rate is likely the lowest in the nation. In our staffing business, we’re struggling to find candidates in those areas due to a lack of available workforce. Therefore, it’s challenging to generalize across the entire country since it depends on specific industries and geographic locations.

Great. That's a very fair point. One additional question then. You had mentioned that April was a very good month for you. The weather has certainly been better on the West Coast. So presumably, we should see an acceleration in the second quarter relative to the first quarter in terms of your underlying business strength, in terms of how it's viewed or reported externally?

Yes, we believe we will see some workers returning in Northern California, which will be beneficial. Looking at our unit counts, new clients, and the worksite employees we added in April, along with the clients we retained, April is shaping up to be a very strong month for us, even though it’s not closed yet. We feel optimistic about our controllable factors and the future overall. We expect April to outperform March.

That's helpful. I'm going to actually sneak in one more, which I believe in your opening remarks, you referenced that persistency was better than it was last year. Would you walk through what is leading to that persistency improvement and ultimately, the implications that has on your profitability?

Yes. Our client retention this quarter improved as we expanded our client base and experienced less turnover than we did in the first quarter of 2022. We had fewer clients leaving and less runoff compared to the previous year, and that’s on a larger base. We feel very positive about this. It’s a reflection of the service and value we provide to our clients. We are actively engaging with them, practicing our core discipline, visiting clients, and offering our support. We hope that our clients remember the assistance we provided during the pandemic. We were there when they needed us, and we continue to support them today, now with new products to help them run their businesses. I believe we have a strong, valuable product for them, which is why they continue to choose us.

Congratulations again on a great quarter.

Thank you. Ladies and gentlemen, that concludes our conversation on this session. And I would now like to turn the call back over to Mr. Kramer for some closing remarks.

Sure. I feel like I used all my words on this one, but I just want to thank all the BBSI professionals for a great quarter, and thank you, everybody, for dialing in for your support, and that concludes our call.