Mike Elich - President and CEO Jim Miller - CFO.

Jeff Martin - ROTH Capital Partners Matt Blazei - Lake Street Capital Markets Josh Vogel - Sidoti & Company Joseph Vafi - Great Gable Partners.

Good morning, everyone. Thank you for participating in today's Conference Call to discuss BBSI's Financial Results for the Second Quarter Ended June 30, 2014. Joining us today are BBSI's President and CEO, Mr. Michael Elich, and the Company's CFO, Mr. Jim Miller. Following their remarks, we'll open the call for your questions.

Before we go any further, I would like to take a moment to read the Company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. The Company's remarks during today's conference call may include forward-looking statements.

These statements along with other information presented that are not 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 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 is being recorded and will be available for replay through August 30, 2014, starting at 3:00 PM Eastern 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 Web site at www.barrettbusiness.com.

Now, I would like to turn the call over to the Chief Financial Officer of BBSI, Mr. Jim Miller. Sir, please go ahead..

Thank you, Alan. And depending upon where you're dialing in from, good morning or afternoon, everyone. As you saw at the close of the market yesterday, we issued a press release announcing our financial results for the second quarter ended June 30, 2014.

The 18% gross revenue growth we experienced into the second quarter of 2014 is a direct result of BBSI's continued brand maturation in the marketplace. Complemented by a healthy organic growth from our existing client base and strong referral channels, we continue to drive new business and maintain our high client retention rate.

Looking towards the second half of the year, BBSI remains well-positioned to deliver another strong year for our shareholders, despite the client backfilling process we have undertaken.

We also continue to expand and invest in our infrastructure and internal talent, which we believe will help us ultimately support a much larger and mature organization.

Before taking you through our financial results, I would like to mention that yesterday's earnings release summarizes our revenues and cost of revenues on a net revenue basis as required by Generally Accepted Accounting Principles or GAAP.

Most of our comments today, however, will be based upon gross revenues and various relationships to gross revenue because we believe such information is, one, more informative as to the level of our business activity; two, more useful in managing and analyzing our operations; and three adds more transparency to the trends with our business.

Comments related to gross revenue as compared with net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses or net income.

Now turning to the second quarter results, total gross revenues increased 18% to $798.4 million over the second quarter of 2013, primarily due to the continued build in the Company's co-employed client count and same-store sales growth coupled with a modest increase in staffing revenues.

Overall, PEO gross revenues increase 19% over the second quarter of last year to $759.8 million, again primarily due to the continued build in our co-employment client count and same-store sales. Our PEO revenues from existing customers increased approximately 9% year-over-year due to increases in both headcount and hours worked.

This compares to a total of 12% increase in the second quarter of 2013 and a sequential 9% increase experienced during the first quarter of 2014. Staffing revenues for the second quarter of 2014 increased 9% to $38.6 million primarily due to an increase in new business, partially offset by lost business from former customers.

On a percentage basis, gross margin in the second quarter was 3.7% as compared to 3.5% for the second quarter of 2013.

The key drivers of this quarter's gross margin are as follows; direct payroll cost as a percentage of gross revenues decreased slightly from 84.3% in the second quarter of 2013 to 84.2% in the second quarter of 2014 which reflects a small increase in the overall average customer market percentage on a year-over-year basis due to some price increases across the board.

For the second quarter payroll taxes and benefits as a percentage of gross revenues was 7.7% compared to 7.9% in the year ago quarter, the lower effective payroll tax rate resulted from the Company’s ability to optimize the use of prior wages against the taxable wage basis as new customers are brought on-board and to arising the overall average wage rates which allow the tax ceilings to be reached sooner in the year for 2014 as compared to 2013.

We expect the rate of savings experienced in the 2014 second quarter to continue for the balance of 2014. Workers’ compensation expenses as a percentage of gross revenues was 4.4% which represents a 14 basis points increase over the same quarter a year ago, primarily due to the incremental costs associated with the new ACE program.

Looking ahead to the third quarter of 2014, we anticipate the level of gross revenues for workers’ comp expense to be in the 4.5% to 4.6% range. This projected percentage increase is due to the continued transition of California customers into the ACE program and the associated incremental expense of the program.

As we mentioned on last quarter’s call we are continuing to progress through our reserves strengthening process where we have moved dollars within our workers’ comp liability from the accrued IBNR bucket into specific open claims with the intent of accelerating claim development in order to move it closer to an ultimate expected level on all open claims, which should also improve the predictability of claim costs on a go forward basis.

As part of this process we have engaged an outside consulting firm who will soon be reviewing a sample of these strengthened claims to evaluate the sufficiency of the new estimated claim values as well as assist management in gaining an enhanced understanding of trends within our claim population.

SG&A expenses increased 24% to 18 million compared to 14.5 million in the second quarter of 2013 primarily due to higher management payroll, increased IT spend and other variable expense components within SG&A to support continued business growth.

The increased IT expense related to projects designed to enhance access and delivery of information to the field, as well as improved efficiencies overtime. The provision for income taxes in the second quarter was $4.1 million which represented a tax rate of approximately 36%. We expect a similar rate to continue for the balance of 2014.

As discussed during our call, last quarter the income tax rate is increased as compared to 2013 as we anticipate generating a lesser amount of employment tax credits during 2014 resulting from uncertainties surrounding the renewal of the Federal Employment Tax Credit program.

Now turning to the balance sheet at June 30, our cash, cash equivalents, marketable securities and restricted securities totaled 146.1 million, compared to a 143.2 million at December 31, 2013.

At June 30, 2014 approximately $10 million of our cash is unencumbered or said another way not part of our captive insurance subsidiary or our new ACE program.

Related to our unencumbered cash balance during the second quarter we paid out approximately 24 million, a first quarter payroll taxes which were accrued at March 31, but not paid until the end of April of 2014.

We expect the unencumbered cash and investments to continue to grow during the third quarter and then decrease during fourth quarter as payments are made into our captive insurance company prior to the end of the year.

During the second quarter we funded approximately $3 million of cash into the new ACE trust account to supplement our initial 20 million deposits during the first quarter for our new workers’ comp insurance fronted arrangement with ACE.

These funds are included as a component of restricted marketable securities and workers’ compensation deposits within long-term assets on our balance sheet. The balance in the ACE trust account will continue to build as we transition customers into the ACE program throughout the remainder of 2014.

As a reminder of this program during the first quarter of 2014, we began our new workers’ compensation insurance fronted arrangement for right coverage to BBSI employees in California.

The arrangement typically known as a fronted program provides BBSI with a use of a licensed admitted insurance carrier in California to issue policies on behalf of BBSI without the intention of transferring any of the workers’ compensation risk for the first 5 million per claim.

The risk of loss up to the first 5 million per claim is retained by BBSI quite similar to our expiring self-insurance program in California. This arrangement addresses the requirements of California Senate Bill 863 which prohibits BBSI from continuing its self-insurance program in California beyond January 1, 2015.

We generated approximately 8.7 million in operating cash flow during the first six months of 2014.

Much of our cash generated from operations is in the form of free cash flow except for the build in the workers’ compensation and safety incentive liabilities as cash used to fund our insurance subsidiaries is primarily generated from workers’ compensation expense we recognize but do not immediately pay out to third parties.

Now turning to our outlook for the third quarter of 2014, we are expecting gross revenues to increase at least 14% to a range between $870 million and $890 million, compared to $764.1 million in the third quarter of 2013. The projected increase of 2014 third quarter gross revenues is based upon recent revenue trends.

We expect diluted income per common share to increase to between $1.30 and $1.35 compared to $1.21 in the third quarter of 2013.

It should be noted that the diluted earnings per common share in the third quarter of 2013 included a positive impact of approximately $0.08 per share from a more favorable tax rate of 30.6% compared to our estimated tax rate of 36% for the third quarter of 2014. I look forward to addressing you again on our third quarter earnings call.

Now, I'd like to turn the call over to the President and CEO of BBSI, Mike Elich, who will comment further on the recently completed second quarter and our outlook for the third quarter of 2014.

Mike?.

Thank you, Jim. Good morning and thank you for taking time to be on the call, very pleased with the results of the past three months. We have made significant progress in all areas since the beginning of 2014; however, overall shaping to be a great year.

In the quarter, we added 223 PEO clients, we lost 36, four for accounts receivable or AR issues, eight were cancelled for non-AR issues and lack of Tier progression, 11 businesses sold, 13 left due to pricing competition, four companies to have moved away from an outsourcing model taking payroll in-house.

This resulted in an approximate net build of 187 new clients in the quarter. Also in the quarter, we saw a 9% same-store sales build. We saw clients’ increased hours along with increase of payroll on a sequential basis in the quarter. All trends were positive. We had saw 47% of clients adding new headcount. We had saw 26% of clients reducing headcount.

We saw 27% clients unchanged. We saw 69% of customers increase payroll while 30% reduced payroll and 70% of clients increased hours worked while 27% reduced hours worked. That is actually a step up from what we’ve seen in the past couple of quarters sequentially.

Related to pipeline and regional growth, we continue to see strong momentum across all regions in serving the organization as to forward looking pipeline strength and general market outlook. We are not seeing change in momentum and things seem to be continuing on-track related to new client adds.

Related to structural and organizational build, we continue to expand and build business unit as needed to support current and future organizational market demands. Currently, we have 33 business units supporting 52 branches.

We currently have two business units being built out and are forecasted for an additional three business units to be started on or before the end of this year. We also continue to see a positive momentum within new markets opened in the past two years.

As we look at quality and underwriting of the business, we’ve made significant progress in transitioning about a third of our new and existing clients into the fronted arrangement through the end of last week with very little disruption to this point.

After four months of transition, the new arrangement continues to be very well received and should work to complement the overall offering into the future. And then also related to workers’ comp in the quarter, as mentioned by Jim already, we continue to make progress within the reserves strengthening process.

With the process when completed will serve to provide us a solid basis for a level of ultimate expected liability using our history of claims, and within the quarter we continue to see positive trends related to claim frequency in the current year relative to payroll and payroll growth.

We also see positive trends in claim count build and settlements of more complex claims. Moving forward, as the company continues to grow we continue to mature our view of the business. We’re constantly looking for more effective ways to model and forecast results within our business.

When we were a small company, a 10 million to 20 million in deviation in forecast over 13 weeks was reasonable. As a larger company, with a growing revenue base, even small percent in deviation in forecast result in large revenue deviations based making it difficult to hit a narrower target.

Therefore moving forward, we believe that it’s in the best interest of the company and/or our shareholders, to no longer provide quarterly revenue guidance and/or EPS guidance. Instead the next quarter we will begin to provide a forward rolling 12 month estimate as to the level of growth we expect in our client business.

This allows for smoothing seasonal and/or episodic fluctuations that makeup weekly, monthly and quarterly revenue trends. We will also continue to review measures we provide, and to determine the best indicators that support the understanding of the business.

As the company matures, it’s important that we also mature data-points we use to build and maintain visibility within the business. Overall, I’m very pleased with the progress we have continued to make while continuing to recourse systems and infrastructure to meet the demand of our product offering.

We continue to see strength in our pipeline reflecting the quality of our brand and look forward to a continued prosperous future. With that, I will open it up to questions..

Question:.

and:.

Thank you, sir. (Operator Instructions) At first we will go to Jeff Martin with ROTH Capital Partners.

Could you touch on the client additions in the quarter and to me that seems like a really good number and it seems like it’s a good indicator for some revenue growth acceleration, maybe two or three quarters out.

Could you kind of share your perspective on that?.

Could you touch on the client additions in the quarter and to me that seems like a really good number and it seems like it’s a good indicator for some revenue growth acceleration, maybe two or three quarters out.

Could you kind of share your perspective on that?.

Yes, it was a very good quarter for us since dark days, we are now back, for about 4 years and I think it was probably our record in customer build. What I feel good about it is that I believe too that our underwriting standards and how we’re looking at business coming in today is probably stronger than it has ever been.

So it’s not -- it’s really a reflection of stronger pipeline, more mature in relationships in the market and also a broader contribution from the overall organization.

When you’re growing up and you’re smaller and emerging, you tend to get caught into more of an 80-20 rule where 80% of your market growth or your opportunity is coming from 20% of your branches and as we’re continuing to mature how we are looking at the business, and where we’re putting attention, and we’re starting to see more of our growth coming from a broader base and also markets throughout the company.

And to your point of the stacking effect of clients, what we have learned in the quarter just through new modeling is that what’s added in the quarter has somewhat of a minimal effect in sequential growth. But when you stack that client base over three to four quarters, it becomes a very strong levered effect against the broader base.

So our job and our goal here is not to spike it but also to build this one practice to have consistent growth over the coming quarters while at the same time not chasing markets to be able to achieve certain revenue growth levels..

And how would you characterize, and it’s the 187 net adds which is certainly the best second quarter adds you’ve ever had.

In terms of the average client size or maybe if there is some comparison that needs perspective on the 187 client number in terms of client employees, is that similar on a per client basis that you’ve seen in the past?.

And how would you characterize, and it’s the 187 net adds which is certainly the best second quarter adds you’ve ever had.

In terms of the average client size or maybe if there is some comparison that needs perspective on the 187 client number in terms of client employees, is that similar on a per client basis that you’ve seen in the past?.

Yes, it is. You will always have a little bit of that deviation where you have got four clients that are a little bit below, maybe that million benchmark and then you’ve got the one client that is not that mature. They are above it but overall the average size seems to still be right around the same blend..

Okay, and then glad that here you are talking about giving annual revenue and EPS guidance, sounds like you might also be giving some additional metrics for the business and may be give us the preview of if that’s the case what sort of things you are start to provide?.

Okay, and then glad that here you are talking about giving annual revenue and EPS guidance, sounds like you might also be giving some additional metrics for the business and may be give us the preview of if that’s the case what sort of things you are start to provide?.

One of the things that we have done is, I kind of look back and since I have been doing what I have done, what I do in my role, I took what I had three years ago and just continued to move it forward in a lot of ways.

And as we have now matured and grown up as an organization and really up against bigger numbers too, you start to reflect on and say can you continue to look at the same things to indicate a level of visibility, something else for myself and then also how do I communicate to the market.

So, when we look at just even our client count overall, we have gone through a transition over the last couple of years when we have gone from our old system of [indiscernible] HRP of being able to look at our client count differently and that we have moved from client count numbers to more of an FEIN number and how we count our client base.

The challenge with it is, is that you still have movement in that base and what we are trying to assess is with that movement in the base, you have a client that is still the same client but they change FEIN number because they either sold the company or some change within the organization.

So that base is moving, so when you try to go out and count how many clients you have, you are always going to have a little bit of deviation. In the quarter, we always true that up on adds and then what move out but we still have movement within that base.

So, when we look at certain indicators as to where that base is, it’s always going to be a bit of an estimate. So, when I look back at even counting client add versus client to leave, I think that’s still a good indicator.

We may move to look at that more on a revenue basis to try to understand how that revenue is stacking sequentially on your base to be able to create your year-over-year growth.

The other part is and I have had feedback related to talking about client growth in percentage of adds of headcount versus percentages of deletions reflected in our payroll and headcount. And I think that metrics can be a lot tighter than it is and it can take something more effectively to help model and represent the business.

So, we have gotten into the bunker with the and look at our own modeling and how we are trying to extrapolate our future guide based on what we see happening today and what we see ongoing in the business.

And I think as we looked at, play out a little bit further and know that the modeling that we are having is being effective, I think there will be indicators that will fall out of that, that will give us a better guidance to where we are going..

Okay, great and then on the workers comp side could you elaborate on plant frequency and plant count trends that you said trending positively?.

Okay, great and then on the workers comp side could you elaborate on plant frequency and plant count trends that you said trending positively?.

When you look at year-over-year, the goal is that if you have a basis, when you go into your next year with growth on a relative basis you hope that your frequency and you are building your organization, so your frequency should be less than your growth rate and so when we look at the last two years and a fact we have seen a relative reduction in growth in frequency relative to growth in payrolls that’s a positive indicator.

The other part is that when we look at net bills, so if you look at your overall pod open claims, you know you are making progress when your growth in open claims is again staying smaller than your overall real growth of payrolls.

And so when we look at that growth in existing open claims being somewhat natural in the year almost that means that we are closing close to as many as we are opening.

And that pod claims are closing which is reducing, I am giving you better indication of what your back year severity looks like while at the same time you are being overlain on the front end by new claims.

So, that’s just two ways that we look at a positive trend on the go forward basis, trying to know that your pool in a sense should overtime theoretically get cleaner..

Right, thanks. And then you mentioned an outside consultants working on workers comp, I didn’t catch what exactly that project is and what you look to achieve from it.

Could you elaborate on that as well?.

Right, thanks. And then you mentioned an outside consultants working on workers comp, I didn’t catch what exactly that project is and what you look to achieve from it.

Could you elaborate on that as well?.

Jeff, this is Jim, so what we are trying to do is we are trying to narrow down the loss development factor and I think maybe we have touched on this in the past but typically when you get to the end of the year, end of the year of 2014 under I guess prior reserving practices that we have had in place for years, you might say that when you get to that year that ultimately developed out, you say that your total cost of year going to be four or five times what the value in that first year and so what we’re trying to do with this reserve strengthening process is to really accelerate that development time so that it’s a lot less and so that we get much more full reserve more quickly, which will give us better predictive value as to what the real cost of claims are.

And it should narrow the variability of having such a wide range of possibilities on that ultimate value..

Got it. Okay. Thanks guys and congratulations on the clients during the quarter..

Got it. Okay. Thanks guys and congratulations on the clients during the quarter..

Thank you..

And next we’ll go to Matt Blazei with Lake Street Capital Markets..

Good morning guys, it looks like the investors are pretty pleased with the results today.

A couple of questions on my end, first on the guidance for Q3, I am curious as to that the change in year-over-year growth from the 18% this year to the 14% in Q2 to the 13 in Q3, is that a function of lower expectation as in same-store and same client growth or lower expectations as a new client growth?.

Good morning guys, it looks like the investors are pretty pleased with the results today.

A couple of questions on my end, first on the guidance for Q3, I am curious as to that the change in year-over-year growth from the 18% this year to the 14% in Q2 to the 13 in Q3, is that a function of lower expectation as in same-store and same client growth or lower expectations as a new client growth?.

I would probably go to the more towards lower expectation model of same-store existing client growth. One of the things that we saw a year ago and this is going up against greater cost. I think third quarter a year ago was 13%.

Right now as we got through second quarter, we see an overall base of roughly 9% growth with trends moving towards the 10% growth towards the end of the June and generally you would expect that to follow-through, but you have a little bit of gap.

And if you could go to ’13 in the quarter where we just haven’t seen indication in the past with that so far so - we run it through a model and the model kind of tells us where we should be and that’s where -- but that is the biggest driver in the equation.

The ad in the current quarter actually probably only have maybe an effective of third of your sequential growth that you’ll see and we just backed maybe 25% to 30%..

So the reduction sort of the sequential year-over-year comparison as an assumption in the same client growth is going to slowdown from 9%?.

So the reduction sort of the sequential year-over-year comparison as an assumption in the same client growth is going to slowdown from 9%?.

We are actually modeling where we see same-store sales probably going to the 10% in the quarter mainly on a seasonality basis, but we’re going up against the quarter a year ago where it was 13%..

Okay, I appreciate that.

And secondly, you mentioned that you were one-third of the way to your conversions with the run rate and even California, how is now that is relative to the plan and how should we look at that continuing to remainder of the year?.

Okay, I appreciate that.

And secondly, you mentioned that you were one-third of the way to your conversions with the run rate and even California, how is now that is relative to the plan and how should we look at that continuing to remainder of the year?.

I didn’t rule out the plan. We are on track. We had little late start in the year than we originally anticipated. We feel like we’ve caught up out the plan, so we were accelerating a little bit in the last couple of months. As we look to the basis to remainder of the year, you will see that similar sequential build -- we’re roughly at third today.

So if you pick up another third in the third quarter and now will position us to not be haven’t take too much operational capacity to get the balanced done the last half of the last quarter. So our goal is to try to have majority of everything done by the end of November or early December..

Okay that’s what we’re looking from you. Thank you. That’s it for me. Thank you, guys..

Okay that’s what we’re looking from you. Thank you. That’s it for me. Thank you, guys..

Next we will go Josh Vogel with Sidoti and Company..

In another words three to four months passed the completion of the wedding process, I think you had originally estimated about 200 million revenue that is going to be called out, was that the actual amount and can you maybe give us a sense of how much was backfill in Q2 and thus far in Q3?.

In another words three to four months passed the completion of the wedding process, I think you had originally estimated about 200 million revenue that is going to be called out, was that the actual amount and can you maybe give us a sense of how much was backfill in Q2 and thus far in Q3?.

Q3 I would say, it’s hard to look at Q3 because you just have a couple of weeks that you have client bill on a month to month basis. It is holding trend to what we saw in the second quarter. You get a little bit of seasonality in that July. It’s already the strong month. June is already the strong month. May is a good month.

April, the day you get into August, we have vacation times and so Q3 is still green but we kind of feel pretty confident that those trends will continue to have. When we look at number of clients that are gone we have already backfill bad and more -- when we look at dollars, we’re now starting to gain on that again from where we were.

The 200 million is still probably an estimate when you look at the full trough of the process. But we know that we as far as the stacking goes we’ve stacked quite now in the first quarter and then in the second quarter. And we will continue in the third quarter and then we’ll get this up front of it..

Okay, and now that’s obviously a great customer build number you put up in the quarter.

Can you just talk about the timeframe between when you think of new customer, so when they are fully up and running, and then how long until an average client becomes profitable for you?.

Okay, and now that’s obviously a great customer build number you put up in the quarter.

Can you just talk about the timeframe between when you think of new customer, so when they are fully up and running, and then how long until an average client becomes profitable for you?.

So when we look at, what is going to be added in the quarter, one way to look at it is that you said you added a hundred clients. And you said that every client averaged roughly a million bucks say you added $100 million.

So the way that would be realized is on a go forward basis you would recognize the quarter of that every quarter going forward, that you’d recognize 25 million, 25 million, 25 million stacked.

Now what happens though as in the current quarter, you’re only going to take roughly about 60% of that revenue at best, maybe even half is blended into the current quarter. So you really are only going to, of that what you added in the quarter, if it was a 100 client, you should probably only going to see benefit of maybe 15 million.

And that’s a result of what you -- when the client comes on-board and then when you’re going to see them added in the quarter by over a 13 week period and then you have in addition to that, what payrolls or revenue levels are going to be recognized in that same quarter.

And then from a profitability standpoint, it’s even harder to get down to the granularity because it stops the moving noise and if you are going to pin operating resources backup with to what that takes, it’s probably a question of first quarter new business add and then beyond that it starts to be accretive but it’s how we are building that..

Okay, that’s helpful.

Now, many look at California, can you maybe just give some comments on the market penetration there, the opportunity you see in the competitive landscape and the pricing environment?.

Okay, that’s helpful.

Now, many look at California, can you maybe just give some comments on the market penetration there, the opportunity you see in the competitive landscape and the pricing environment?.

We just added more clients from the last quarter than we have ever added in our history. So I would still say that we have quite a bit runway left. The competitive environment, there is, I will be insulting my teams in the field if I said there wasn’t any complication, I just -- we have to be good enough to be able to compete.

And as far as the landscape overall, our brand continues to mature and, like I would say we’ve gone through our metamorphosis over the last three years where even the product offering today compared to even a year ago or two years ago is much stronger. It’s better, it has received better across all markets, and the brand is more mature as well.

When I look at the market itself, there is a lot of market for us still to penetrate and there are still a lot of markets as well for our competitors. And as we continue to just be better of what we do and offer better product quarter-over-quarter, will continue to make headway there.

This is the fourth side better results so we need to be able to have contribution from other markets and other states and we are seeing continued momentum in those areas..

Okay, just one last one on workers comp. I know you talked about the positive trends with regards to frequency in count.

As we get closer to the Senate Bill deadline, have you been seeing an increase in litigated claims?.

Okay, just one last one on workers comp. I know you talked about the positive trends with regards to frequency in count.

As we get closer to the Senate Bill deadline, have you been seeing an increase in litigated claims?.

No. I don’t think we’ve really seen a change in trends related to -- our book too is I think we steal a little bit from maybe what might be industry average just because of the way we manage and work internally with our customers. We’re not saying changes either in severity or complexity of claims relative to litigation.

But that varies unlike in all the other directions..

(Operator Instructions) We will next go to Joseph Vafi with Great Gable Partners..

I was wondering on the reserve strengthening process, where there anything that particularly instigated you implementing this program to strengthen your reserves was that you just in general continuing to manage the business tighter and predictable?.

I was wondering on the reserve strengthening process, where there anything that particularly instigated you implementing this program to strengthen your reserves was that you just in general continuing to manage the business tighter and predictable?.

I would say the latter.

We were looking at this two years ago realizing that we have some mature practice to run the business tighter to ultimately reach to greater probability of outcome and more predictable and that was the reason for the undertaking and then ultimately to us to do, trying to get ourselves to a point where we can get up on front of it and bring a more mature look and prospective to the overall company in that process as well..

Okay, and then secondly on calling of the clients, is there any kind of implication on margins as revenue kind of rebound back to, or what do you think that -- do you think your margin expansion without the call clients in place versus if the call clients were still in the base?.

Okay, and then secondly on calling of the clients, is there any kind of implication on margins as revenue kind of rebound back to, or what do you think that -- do you think your margin expansion without the call clients in place versus if the call clients were still in the base?.

Well, what you find out with clients and we need to continue to systematically move out clients that are using a disproportionate amount of resources relative to our operational bench.

One of the things that we have been able to do a little bit is normalize our growth in business units and build an infrastructure over the last quarter and will now throughout the balance of this year which means that we are out in front it a little bit better and part of that as you move out a client that’s using 50% of the capacity of a team, you gain that back.

And if you add a better, cleaner client into that mix, you are going to leverage infrastructure which is ultimately going to flow through over time more earnings to your bottom-line..

Okay and then just last quick one.

I know a little discussion is already going on the pricing environment, I wonder if you could particularly address workers’ comp pricing specially in California, it does seem like there have been may be a little noise from some of the bigger guys in the market that they may be coming in and that they may be pricing a little more aggressively and I was wondering if you are seeing that at all back there in the field?.

Okay and then just last quick one.

I know a little discussion is already going on the pricing environment, I wonder if you could particularly address workers’ comp pricing specially in California, it does seem like there have been may be a little noise from some of the bigger guys in the market that they may be coming in and that they may be pricing a little more aggressively and I was wondering if you are seeing that at all back there in the field?.

No, not really, we have continue to get pricing to where we feel we need to be and as we are going to through this transition ourselves, we are going back to our client base and capturing the margin that we need to capture. And likewise within that model is, you try to do it methodically and you try not to create disruption.

Our model beyond just some of the guys that are just learning the straight intense model, we have a tremendous value add proposition on the other side of that and so we don’t really fear so as an insurance company as much as we really are coming in and creating a value-added effect for our client which is working systemically for their whole organization to run better the company.

And as we are doing that I think it gives us the little bit more of a competitive edge relative to price..

At this time that concludes our question-and-answer session. I would like to turn the call back over to Mr. Elich for any additional or closing remarks..

Again thank you for being on the call. We will continue to update you as the business continues to mature and look forward to seeing you next quarter. Thank you..

That does conclude today’s conference. We thank everyone again for their participation..