Michael Elich - President and CEO Gary Kramer - CFO.

Chris Moore - CJS Securities Jeff Martin - ROTH Capital Partners Bill Dezellem - Tieton Capital Management Patrick O'Keefe - Cloverdale Capital.

Good day, everyone and thank you for participating in today's conference call to discuss BBSI's financial results for the fourth quarter and full year ended December 31, 2017. Joining us today are BBSI's President and CEO, Mr. Michael Elich; and the Company's CFO, Mr. Gary Kramer. Following their remarks, we'll open the call for your questions.

Before we go further, please take note of the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statement provides important cautions regarding forward-looking statements. The company’s remarks during today's conference will include forward-looking statements.

These statements along with other information presented does not reflect historical facts and 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 available for replay through March 28, 2018, starting at 3 o clock PM 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.barrettbusiness.com.

Now, I would like to turn the call over to Chief Financial Officer of BBSI, Mr. Gary Kramer. Please go ahead sir..

Thank you, Beth. Depending on where you’re dialing in from, good morning or good afternoon, everyone. The operations of the company continue to remain strong. Diluted income per share for the quarter increased 28% to $1.38 compared to $1.08 in Q4, 16. Net revenue of 244.7 million increased 11% compared to Q4 ’16.

Gross revenue of 1.4 billion grew 14% over the same period. In the quarter, PEO gross revenue increased 15% to 1.4 billion compared to the fourth quarter last year and same customer sales were 7.2% compared to 3.3% in Q4 of ’16.

We continued to consistently increase our client base with a gross addition of 259 clients or 120, net of run off in the quarter. Staffing revenue in the fourth quarter decreased 2% to 44 million. The decrease was in line with our expectations of flat to slightly down and as a direct result of the continued tight labor market.

Each quarter, we've discussed that this trend is making it difficult for our employers to hire and we are experiencing this effect in our staffing business. We had the demand and orders from our client, but it is challenging to fulfill all orders without compromising our hiring standard.

As such, we anticipate that staffing will continue to be a slight headwind to near term revenue growth. Workers’ compensation expense, as a percentage of gross revenue, was 5% this quarter, which is at the midpoint of our expected range of 4.9% to 5.1%. This includes a minor unfavorable change of 175,000 and prior years estimated liabilities.

As a reminder, although we are required to have an expert independent actuarial evaluation performed annually, we have chosen to have one completed quarterly and we booked that result. This process provides greater overall confidence and the adequacy of our reserves, but it may also lead to more volatility by quarter.

This minor amount is within our expectation and our workers' compensation portfolio is performing as expected and with better predictability. Our workers' compensation claims frequency continues to improve, as we experience the decline in relative frequency of claims reported.

In the quarter, we saw trailing 12-month relative frequency of claims, as a percentage of payroll, decrease 0.3% compared to the fourth quarter of 2016 and a decrease 14% compared to the fourth quarter of 2015. Our strategy of reducing claims frequency was initiated in 2014 and has been successful over the last three years.

We will continue with this strategy and expect future results to be similar to this quarter's frequency trend as we are now comparing against the lower base. Also, our claim severity continues to trend as expected. All in, the workers' compensation program is performing as expected.

This is a continued result of the way our branches manage their client retention, the controls and processes that we had in place to manage and mitigate risks and our strong partner relationships. Of note, we successfully renewed our annual Chubb fronted program effective 2/1/18.

Gross margin was 49 million or 3.4% of total gross revenue compared to 43.3 million or 3.4% in the prior year quarter. The fee we charge our clients remains consistent and the gross margin is in line with our expectation. SG&A in the fourth quarter was 34.5 million or 2.4% of gross revenue compared to 32.5 million or 2.6% in the prior year quarter.

Non-recurring expenses associated with accounting and security law issues in the quarter were 400,000 compared to non-recurring expenses of 1.8 million in the prior year quarter. The provision for income taxes in the fourth quarter was 3 million and includes the revaluation of deferred taxes resulting from the passage of the Tax Cut and Jobs Act.

We had no borrowing under our line of credit with Wells Fargo as of 12/31/17. We continue to be debt free, except for the $4.4 million mortgage on our corporate headquarters in Vancouver, Washington.

At December 31, 2017, we had cash, cash equivalents, investments and restricted securities totaling 456.6 million compared to 358.3 million at December 31, 2016. The unrestricted cash position in the fourth quarter increased to 59.8 million from 35.6 million in the third quarter.

As part of our fronted workers’ compensation insurance program with Chubb, we established and funded a trust account called the Chubb Trust. On the balance sheet, the Chubb trust is included in restricted cash and investments. The balance in the Chubb Trust was 380.6 million at December 31, 2017 and 277.1 million at December 31, 2016.

The trust is fully invested with a fixed income, asset liability matching strategy, targeting a duration of 3.5 years. At December 31, the book yield was 212 basis points with a duration of 3.4 years. The trust has eligible security guidelines with restrictions on asset class and asset diversification.

This is a high quality and highly liquid portfolio. At 12/31/17, the average quality of the portfolio was AA and no investment was greater than 4% of the portfolio. In the quarter, we earned 1.6 million of investment income from the trust.

The trust will continue to grow as BBSI grows and we believe will result in a greater return on our assets with low risk to the company.

In summary, for the year, we see slight headwinds due to softer same customer sales because of bad weather and a tightening labor market, while continued to focus on widening our client base and added 693 net new clients.

This resulted in a 31% growth in diluted earnings per share to $3.33 in 2017 and a 14% increase of the dividend for a total dividend return to shareholders of 7.3 million.

We will release our 10-K next week and I am proud to say that we will have a clean controls and procedures section as we have completely remediated our controlled efficiencies from last year. This was a companywide effort and I would like to thank everyone for their hard work and attention in ensuring that we achieved our goal of clean in ’17.

We’ve consistently shown that we were able to execute to our remediation plan and I am proud that we can now turn the page to the chapter that focuses on future growth and returning additional value to our shareholders. Turning the page to 2018 and our outlook on the business.

Our pipeline remains strong and we continue to build our base of net new clients. Our referral relationships are deep and our distribution channel continues to widen. We continue to expect gross revenue growth for the next rolling 12 month period to be approximately 14%.

Going forward, we will refer to this metric as gross billings due to the fact that this is a non-GAAP measure. For the full year 2018, we expect diluted earnings per share to be approximately $4.45.

This assumes approximately $0.06 per diluted share in estimated costs associated with accounting and security law issues as well as a lower effective tax rate of approximately 20%, resulting from the passage of the Tax Cut and Jobs Act.

This also assumes that workers' compensation expense, as a percentage of gross billings, will be in the expected range of 4.9% to 5.1%. Now, I would like to turn the call over to the President and CEO of BBSI, Mike Elich, who will comment further on the recently completed fourth quarter as well as our operational outlook for 2018.

Mike?.

Hello and thank you for taking time to be on the call. Before I move on to a discussion about the quarter, I'd like to comment on 2017. Our investment into 2017 moved us forward significantly, aligning many of the changes we have made over the past several years with the strategic objective of our long term plan.

In the year, we completed a full turn on our rebuild of accounting financial processes and controls, matured our operational bench, extending visibility and runway to how we execute.

We continued to mature our approach in support of market relevance and how we go to market through referral channels, refining a clear five-year view to where and how we expect our footprint to new market as our brand continues to chip in new geographies and successfully navigating slight headwinds to top line growth, while adding 693 net new clients, while maintaining better than 90% retention.

As we shift focus to 2018 and beyond, we continue to invest in infrastructure that supports both product evolution and our ability to scale into new markets with predictable outcomes. We see our -- we see an acceleration in our ability to develop talent in support of market opportunities.

We have defined methods for bringing efficiencies in to the delivery of our product, providing clear focus to our ongoing efforts to bring value to small business owners, which will ultimately support the trajectory of our brand. Moving forward, we had a solid quarter and the fundamentals of the business remain strong. We added 259 new PEO clients.

We experienced attrition of 139 clients, three due to accounts receivable, two for lack of tiered progression, 10 were cancelled due to risk profile, 17 businesses sold, 23 businesses closed and 84 left due to price competition and companies that have moved away from an outsourced model.

This represents an approximate net build in the quarter of 120 new clients. Related to pipeline, we continue to evolve our ability to scale from a model based on individual market contribution to a systemic approach with which for delivering referral channels on a national scale.

As a result, today, we are seeing development of new referral channel in all markets, which supports strong pipeline growth. Because of this, we are seeing consistent contribution to new business from all markets, supporting our ability to move into new markets and grow against the law of large numbers.

We [indiscernible], we have operationalized our approach to developing leadership and are roughly 18 months of runway with our existing bench. We continue to build the field organization to support future growth, scale in to new market and invest in support of our product offering.

In the quarter, we added a new branch in Long Beach, California, which brings our current total to 101 business teams, housed in 58 physical location. Related to branch stratification, we now have 17 mature branches with run rate in excess of 100 million. This is the measure we used to indicate a branch’s ability to increase leverage.

We have 15 emerging branches that are running between 30 million and 100 million in gross revenues. We regularly reinvest back into these teams to support capital capacity as they grow. Finally, we have 26 branches we consider developing with run rates of up to 30 million in gross revenue.

And these branches we invest to support capacity of pipeline while maintaining integrity of product as they scale. In conjunction with our long term growth strategy, our goal is to add 13 new business teams and four physical locations in 2018. At the end of 2018, we anticipate having more than one 117 business teams in 62 physical locations.

Looking forward, as I spend time in the field, my confidence and our ability to execute comes from the strength of the organization’s leadership. Feedback I've received from our clients and referral partners throughout the years supports the relevance of current and future product as we look at the next five years.

Looking forward, I am confident that we have put resources into the organization we've built with the emphasis on bringing consistency and predictability to the business, operationalized our approach to developing our leadership bench and have roughly 18 months of runway, brought a consistent approach to channel development, resulting in predictable pipelines and new client build and we have defined a variety of methods to stretch our teams with a focus on continued product relevance.

In my 7 years as CEO, we have seen five-fold growth, while reengineering every piece of the business. As we envision the future, we're beginning to see what is possible both and how we impact small business -- the small business community as well as the trajectory of the company.

Our mission is to ensure all future growth is built on a foundation of bedrock. With that, I will open up for questions..

[Operator Instructions] And our first question comes from Chris Moore with CJS Securities..

Maybe we can just start with the 14% gross revenue growth. In terms of kind of the assumptions there, obviously one is that you talked about still some staffing headwind, how about, if you look at it from a kind of a same store growth versus a branch expansion, branchless client expansion, how do you -- what's the mix look like to get to that 14..

Hey, Chris. It's about half. So we will pick up about 7% from same customer sales and then 7% from our net new adds..

Is there a goal? I see that you talked about four physical locations, 13 new teams.

Is there a net new client goal for 2018?.

Chris, when we look at it, we kind of try to stack on a year over year basis to support that 7 plus percent goal that offsets the growth you're going to see in same customer sales. So part of what we do is we go out and we're building pipelines on a consistent basis.

Markets will yield pipeline based on the process of what it does and then we’ll continue to add, but – and when we look at our business teams, we're trying to add on a consistent basis roughly 1.5 customers a month, so 3 every two months and then if we're maintaining that, our customer retention is north of 90%, the math works out to be kind of that exponential growth of 10% to 15% stack on year-over-year..

Got you. It’s helpful. Thanks. If I look at the kind of the four expense line items above operating income, direct payroll costs, payroll taxes, workers’ comp, SG&A, workers' comp, you talked about between 4.9% and 5.1%.

The other three, is there any assumed improvement or deterioration in margin as a percentage of revenue in 2018? And any of those changing significantly?.

No. Chris, I think the -- when you get to the end, your gross margin should be relatively consistent. What we are seeing is a little bit of geography shift.

And by that, I mean for payroll taxes, that's coming down a little bit and payroll is going up a little bit and that's just the function of squeezing a balloon to say that the states haven't adjusted the cap on their payroll taxes, so that cap has stayed flat, but their payroll has -- people's payrolls are getting wage inflation.

So, you're seeing a little bit of a shift, you're seeing just a little bit of a shift where payroll is going to pick up a little bit and payroll tax will tick down a little bit compared to gross billings, but in the end, it's just geography and our gross margins should be consistent as we're holding our pricing consistent..

Yeah.

Chris, I'll add to that too that as we have fairly good base now, critical mass brings stability in a lot of the cap cost matrix, but we'll watch over time as we go into new markets and what we're billing to might look a little different because of the individual state cost structures that that will maybe shift those numbers around a little bit as Gary mentioned, but it won't happen extremely fast.

It should be a slow move and we should be able to guide to what is happening there, but ultimately we have seen where our gross margin contribution is very consistent across all markets..

Just one, the depreciation and amortization was a little bit higher than I was looking for for Q4.

Is there anything particular in there and is that level going to remain steady moving forward or can you just talk about that a little bit?.

There was a little bit of an uptick in the quarter as we're building things out, as we grow the company, we're building things out, we're able to retire some assets. So, there is a little bit of that of moving down some assets. So it's a little higher than I would forecast going forward for ‘18..

We’ll take our next question from Jeff Martin..

Mike, can you talk to tiered progression within the client base. I know that's a big part of your underlying strategy for the business and we see each quarter, there are some clients that move out of the model for lack of tiered progression, I was wondering if you could speak to that, how that compares today versus a couple of years ago..

Yeah. So if I look at today versus several years ago, as we look at, go back to when we really started looking at that as a -- is how we looked at the client. So first of all, what we do is we look at -- as we bring on a client, the first tier 1 is really our tactical implementation, I’ll say, payroll, getting all the nuts and bolts in place.

We quickly though have to move that client to more of a tier 2, which is that of coaching and mentoring where we're not taking on the responsibility for doing, but we are more a knowledge base to that client, helping them run a better company from an operational and a tactical level and working with supervisors and -- but one of the things that we learned a few years ago is that a lot of times, we can push on that, but it’s better done as a pull.

So from day one now, as we come on board with the client, we are interfacing with them on a more strategic level, build -- mapping a blueprint with that owner of the company to define a little bit of what they're trying to get done, which creates a pull against how that progression happens.

So, if you go back to when we started this and say that the company has doubled since that period of time, when we look at our net trade out relative to tier progression today, it's almost nil, where when we are half our size, we might have lost 20 clients that weren’t matching up for us in a quarter to quarter basis that we were having to move out because they just didn't want to work with us.

So and that’s a complement to, one, how we're on boarding and bringing clients on, but also to how our value proposition is continuing to mature..

Okay. And then could you talk about how renewals have gone since the start of the year. My understanding is January, February, fairly big chunk of your renewals..

We don't -- we kind of have a very consistent base throughout the year. So we don't have a January clip. I mean, there's always maybe a little bit more of a spike seasonally, January 1, but we find that our renewal process is fairly well baked across all quarters and we see a lot of consistency there.

The one thing that we’ll see, even just going back to a number of companies that’s sold or closed, you’ll usually see more event related activity at year end where a company might look at it and say, I mean they're going to sell because it’s easier to sell at the end of the – as the calendar crossover or even if I want to close it, that's usually a watershed where I'm just -- I'm done.

And related to even the 84 customers that we left, that's just fairly in line with our overall base of clients when you look at an aggregated base that’s north of 5500 heading to 6000 clients..

I mean, typically fourth quarter is our softest for gross and net adds. If you go back and look at ’17, second quarter was actually our strongest as far as gross and net adds and that just has to do with having a strong pipeline that's not tied to any date, right.

We really try to make sure that we can have the pipeline so that we can ingest the business and the service the business when we on board them..

And then is there anything anomalous to the quarter in terms of the growth adds, relative to last year, just throw light on the gross side.

Was there weather related events? Was there other events that pointed to that or is it just moves around a bit from quarter to quarter?.

I would say no nothing that we're noting. It moves around on a quarter to quarter and that you almost have to look at your build rate flowing through 12 to 18 month cycle in that, but nothing really that we're seeing as headwinds.

If I were to get probably pretty granular, you might say, all right, businesses are fairly optimistic about how they're looking at their future, but how best and how aggressively are they making decisions to change today, that could be a little bit of a headwind.

One of the things that we have seen and we haven’t really talked about this, but there's been on the comp front, there's been headwind to pricing probably overlaps few years, couple of years where we've seen in some markets where comp rates have been literally cut in half.

And one of the things I won't do is let us off the hook and bringing our value proposition and so we've had actually a great deal of successes of continuing to add and retain in that environment, which actually speaks to the fact that our brand is less and less workers’ comp today and continuing to evolve in the area of where our true value is and so I -- but I don't get too hung up.

It's a hard business to manage through quarter to quarter results that way. It's more a matter of how do we look at the longer term trend of what we're building and what we're doing..

And I would just top that off to say what we've seen coming through for January and February is in line with what we expected for our guide..

[Operator Instructions] And we'll take our next question from Bill Dezellem with Tieton Capital Management..

First of all, would you please repeat how many business teams you're planning on adding in 2018 please?.

We have scheduled to add 17 new business teams or business units and we'll add, excuse me, 13 business teams, which will take us to upwards to 117 total business teams and we're going to have four physical branches to take us to 62 physical location..

Great. Thanks, Mike. I appreciate that. And now, would you talk a little bit further about employment trends that you are seeing and wage growth trends that you are seeing..

So if we went and looked at the last half of the year, employment trends continue to be very tight.

We continue to hear from almost all sectors that they can grow their business if they had people, but there is literally -- there is a very, very, very, very tight labor market and probably we're seeing it more today simply because we have a lot more skilled trades and when we look at businesses that require certain talents, there is scarcity in all areas.

Relative to wage inflation, we were seeing wage inflation as we watched our average pay per day going up from kind of a 24.5 historically back in, call it ’15, ’16 and into ’17 jumping up to closer to that 25.50 to 26 range over the last half of the year.

Since the beginning of the year though, we’ve seen it be relatively flat, but you kind of take in January, which becomes, I always call it the January hangover where everybody's trying to figure out the new market where we're going and what the new year looks like and so it's not really a strong data point to tell us where we’re at, but we're seeing the pressure to the upside and we're seeing continued labor pressure in all markets..

And so will it be correct to think that, if the 25.50 versus the 24.50 and I'm using the low end of that 25.50 to 26 range that that's 4 percentage points of the 7 percentage points of growth that you are looking on a same store basis comes from that.

Is that the correct way to think about that?.

Typically, what I look at is you're going to have, if you take GDP growth you take and small business is always going to have probably more of a GDP growth than maybe the large overall economy, so you're going to have growth just with market growth, you're going to have wage inflation or pressure against that and then you're going to have general business expansion.

So those are kind of the three ways I break down same store or same customer..

Yeah. I mean, what we're seeing now is, in the market is supply and demand. There is more demand for employees than supply that’s out there and that is leading to starting to see wage inflation and it's not rearing its head terribly, but we're starting to see that the wage inflation start to move..

One of the things that usually is a precursor to wage inflation or even a bigger jump is generally over time and hours worked and we have still not seen a real strong uptick in hours worked. We've seen it move from 38 hours a week to 40 hours or excuse me to 39 hours a week, but we haven't seen it where you would expect a lot more over time..

And to make sure that I'm understanding correctly that wage inflation ultimately is good for your business, correct?.

Yeah. It does help our business and because our gross margin is pegged to a percentage of payroll, it actually will tend to expand margin too..

And so employment growth, given this tightness that you have seen in the market, has employment growth slowed or has it just become more challenging or has it actually accelerated even in spite of those challenges?.

When we look at same customer sales for the rolling 12 for ’17, it came in about 6.5% for the year. And that -- there was a tight labor market in ’17. We’re forecasting that tight labor market is going to continue into ’18. When we give our range, it’s approximation, right. So we're going to say it’s going to be 14% over the rolling 12.

We have some puts and takes in there and we feel that the forecast is in line with the factors that we had felt in 2017..

Yeah. But we’re probably not given ourselves any real benefit that takes us from what we've seen as we look at our guide to ’17 or ’18, excuse me..

So let me switch quickly to earnings and I'd like to go to cash if I may after that.

Could you discuss how you are achieving a 30% earnings growth, kudos to you, on the 14% revenue growth and are there some special things going on this year in addition to the tax rate or other than that tax rate change, this is a typical sort of leverage in your model..

So comparing against ’16, ’16, we had some non-recurring events in there..

If I may interrupt, I was actually hoping to look at ’18 versus ’17 and maybe that's where you're going. I just didn't want to have the question misunderstood..

Yeah. No. I was just trying to set it up to say that, when you're trying to compare ’17 to ’16, ’16 had some nonrecurrings as far as the class action settlement and as far as legal and accounting and restatement. So ‘16 was not a good base.

When we look at ’17, ’17 is a better base for how we think, how we model the business going forward and based upon 14% growth, we anticipate that we will have leverage to the bottom line and then you take that leverage at a lower tax rate and that's how we get to our 445..

And I would comment too that, as we look at a lot of the infrastructure build that we were doing over really the past many years, the ’17 gave us a real solid base and we started to see where our build was matching up and normalizing to our growth.

So if we were out in front of -- from a build standpoint, the market a little bit in 2016 or ’17, early in the year, we have now normalized in and we feel that our infrastructure is caught up with where our growth rate is.

So now, we're starting to see leverage in our capacity of the organization and the incremental build that we have back into the structure is going to be more normalized compared to a little bit of the spikiness that we saw back in ’16 and ‘17..

And so if we think about the next five years, you should be able to continue to have nice earnings leverage on top of whatever revenue growth you’re able to achieve and if we're hearing you right, what appears to be the ultimate push up in wages could accelerate that that revenue growth, you really end up with a double benefit going forward..

Yeah. When you model it in an exact – in a perfect world, that's what you would see.

One of the things that will recognize is that quarter to quarter, even period to period, some time, you may deviate within your range of how you are spending to invest back in infrastructure based on what market is telling you and, but no, at the end of the day, our base is solid enough now.

We know that as we're building infrastructure to support brand growth, we kind of know where that build comes from. We have a pretty good idea of where we can invest capital back in to the business to sustain growth.

We've got a pretty decent handle on where our market is coming from, our brand is maturing in a way that we're gaining efficiencies towards how we’re bringing business on.

Probably the big thing that would deviate that from being a clear straight line will be where we'll find one market opportunities or where we’ll look out and we’ll say, we might have put that growth or a bad investment off a year. But it's a good time to be there.

The other thing too, as we look at operational infrastructure back to systems and we got to make sure that we're continuing to mature and evolve and invest there too.

So those will all be things that are – will work against maybe that straight line over time, but goal is that in the next five years, you're going to -- you should see consistency in how we're getting to where we're getting. It just may deviate from quarter to quarter a bit..

That's quite helpful. And then looking at your cash, I'm jumping forward a year now. So you ended this year with around 60 million of cash. Your net income will add, kind of pushing 30 million of cash and you'll end up paying 8 million or so out in dividend.

And if I’m just super rounding that, that takes your cash flow to 85-ish million, something in that neighborhood. That is one of the highest levels of cash that the company has had in its history.

And so with that in mind, how are you thinking about your cash on a go forward basis, particularly given what you just said about the rate of future growth, if you're going to be adding 30 or more million on top of the year end this year number each year going forward..

Yeah. Our short term view has not changed as far as, our belief is we want to put cash up on the balance sheet because we want to be able to control our own destiny if there ever is a shock to the market and we don't have to -- we don't want to have to try to execute on just in time capital management.

So, our short term, we want to get to that comfortable level. And then after we get to that comfortable level, obviously, we want to return to shareholders, albeit, a buyback or a dividend, but we don't see a buyback or anything big like that happening in the next -- in the near term, the next six months to a year..

I think you used a financial term that I'm not entirely understanding the definition and that’s that comfortable level, what would be the number you put on that?.

We talked about that a lot. It depends on the day..

How about providing a range?.

We haven't given a range. I mean, that's something that ultimately, once we get to that level, we've got to have a discussion with the board and then work to try to return to shareholders some way..

It's kind of a relative percentage or a basis because as we look at -- if you just took us out two more years and we thought we were getting there, it would be a little bit of an echo of how big is the business at that point, what are the demands for the business and what are the opportunities.

And so as we get closer to what we believe is call it inside that path and maybe that’s north of 100 million, now, your growth of your businesses is going to kind of dictate how much cash you want based on the size that you are and then when we look at ratios associated with that, then you're going to step back and say, all right, what is the high end of the range versus the low end of the range and how do we shoot the line.

So, there is a thought process behind it, but it's still -- we're still working towards that..

Understood.

But just to be clear, once you've reached that comfortable level, you do see that happening number one and number two, then continuing to grow the dividend at the early stages, once you have arrived at or surpassed that comfortable level, then the bigger use of the cash would likely be in the form of a buyback? Are you thinking about that’s generally correct?.

We’ll deploy capital in the best and the most effective way to add to or build shareholder values. So that’s definitely one path or one way to look at it..

We’ll take our next question from Patrick O'Keefe from Cloverdale Capital..

Yeah.

So looking at the depreciation expense and the comments earlier, it sounds like that was kind of a one-time non-cash impairment charge or something on some of hired assets?.

Yes..

So on the underlying kind of backing on as the cash basis, you would be more like 1 million run rate on depreciation, right?.

It would still be higher than that. I mean, the depreciation was higher than prior, but you got to realize we have been building out a lot more systems, we've been building out a lot more technologies. So our fixed asset has been going up and that is because we've invested into the business so that we can get synergies in the business.

So you're going to have a confluence of buildup of the asset, more depreciation on the asset as you deploy that technology and then the next thing is some slight impairments..

So I mean I guess maybe it's, call it, an extra million bucks or so up on kind of a one-time charge there?.

Ballpark, yeah..

Yeah.

So when I take that and I take the 400 grand of one time SG&A, that kind of backs out to me, almost kind of like an $0.18 after tax headwind there and maybe like an underlying EPS number of more like $1.50, $1.56?.

Yeah. I mean, when we look at the quarter, we say the -- look at the year and say, our guide of the 310, our operating results of this 310 were, we feel comfortable that we need those metrics. And then we have call it, some one-time pick ups, the one that you just picked up on there and then the differential on the tax rate..

I mean looking at that way, I mean I have EPS up over 40% kind of on a like for like operating basis, so tremendous leverage guys, great quarter..

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

As always, I very much appreciate everybody taking time to be on the call. Feel very good about where we're at, where we’re going. Looking forward to connecting in the coming quarters and watching how 2018 matures and how we forge our way into the future. Thank you..

Thank you for your participation. We look forward to talking to you again on our first quarter earnings call. Thank you..