Michael Elich - President and CEO Gary Kramer - CFO.

Chris Moore - CJS Securities Jeff Martin - ROTH Capital Partners Bill Dezellem - Tieton Capital Management Kevin Casey - Casey Capital.

Good day, everyone and thank you for participating in today's conference call to discuss BBSI's Financial Results for the First Quarter ended March 31, 2018. 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 up 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 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 results and the company's quarterly annual reports filed with the Securities and Exchange Commission for more information about risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through June 2, 2018, starting at 3 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.

I would now like to turn the call over to the Chief Financial Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead..

Thank you, Aaron. Depending upon where you’re dialing in from, good morning or good afternoon, everyone. The operations of the company continue to be strong. Net revenue of $224 million increased 7% compared to Q1 '17. Gross billings of $1.4 billion grew 10% over the same period. Diluted loss per share was a $1.25 compared to a loss of a $1.55 in Q1 '17.

Please recall that we historically incurred a loss in the first quarter due to higher effective payroll taxes at the beginning of the year. In the quarter PEO gross billing increased 11% to $1.3 billion compared to the first quarter last year and same customer sales growth was 6.3% compared to 3.7% in Q1 '17.

We continue to increase our client base with a gross addition of 301 clients were 152 net of run-off in the quarter. As we mentioned on prior calls, we're seeing pricing pressures specifically regarding California's workers compensation insurance but we continue to hold our pricing firm.

This discipline results in losing some larger accounts this quarter as these accounts can be more susceptible to price competition where we believe our value proposition is much more than workers compensation and we will not chase the market to the bottom. Staffing revenues in the first quarter decreased 7% to $35 million.

This decrease was in line with our expectations and is a direct result of the continued tight labor market. Each quarter we discuss that this trend is making it difficult for our employees to hire and we are experiencing this affect in our staffing business.

We have a demand and orders from our clients but it is challenging to fulfill all orders without compromising our hiring standards. As such, we anticipate that staffing will continue to be a slight headwind to near-term revenue growth. We continue to expect staffing to be flat to slightly down for the year.

Workers compensation expense as a percentage of gross billings was 4.9% this quarter which is at the low end of our expected range of 4.9% to 5.1%. This includes a minor favorable change of $6500 in prior-year 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 be booked to that results. This process provides greater overall confidence and the adequacy of our reserves.

Our workers compensation claims frequency continues to trend in line with expectations. In the quarter, we saw trailing 12 month greater frequency of claims as a percentage of payroll, increased 0.1% compared to the first quarter of 2017 and decreased 13% compared to the first quarter of 2016.

Our strategy of reducing claims frequency was initiated in 2014 and has been successfully operationalized and now forms part of the DNA for our branches manage their client onboarding and retention.

We've taken many actions over the past year to enhance controls and processes while improving program structure to manage and mitigate risk and cost more effectively.

Over the last three quarters, our total open claims have decreased 2%, while gross billings have increased 12% over the same period and we have experienced accumulative minor favorable change by 111,000 in prior year's estimated liabilities.

All in, we continue to apply laser focus to the workers compensation program and it is performing as expected with better predictability. Gross margin was $16.3 million or 1.2% of total billings compared to $10.5 million or 0.9% in the prior year quarter.

SG&A in the first quarter was $29.4 million or 2.2% of gross billings compared to $26.6 million or 2.2% in the prior year quarter. Nonrecurring legal expenses associated with accounting and security law issues in the quarter were 200,000 compared to nonrecurring expenses of 400,000 in the prior year quarter.

The benefit from income taxes in the first quarter was $3.1 million. The first quarter effective tax rate is higher than our previous guidance due to a one-time prior period tax credit which was renewed in the first quarter.

We continue to expect the full year effective tax rate of approximately 20% resulting from the passage of the Tax Cut and Jobs Act. We increased our credit line with Wells Fargo from $25 million to $40 million during the quarter.

As we continue to grow, we look for a partner and a credit line that will grow with us and this increase positions us for the renewal of the credit line at 7/18. We had no borrowings under the credit line as of 3/31/18 and we continue to be debt-free except for the $4.3 million mortgage on our corporate headquarters in Vancouver, Washington.

The unrestricted cash in the first quarter decreased to $24 million from $59.8 million at December 31, 2017. The decrease was primarily related to 2017 annual payroll tax filings due in the first quarter of 2018. 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 399.7 million at 3/31/2018 and $380.6 million at 12/31/2017.

The March 31 Chubb Trust balance does not reflect an additional $12.1 million that was in-transit and paid to Chubb in late March but was not deposited into the trust account until early April. On the balance sheet, this in-transit amount is included in other assets.

The Trust is fully invested with a fixed income asset liability matching strategy targeting the duration of 3.5 years. At March 31, the book yield was 226 basis points with the duration of 3.46 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 3/31/18, the average quality of the portfolio was AA and no investment was greater than 4% of the portfolio. In the quarter, we earned $2 million of investment income from the Trust.

Rising interest rates resulted in the portfolio yield increasing 14 bps and this will continue to tick higher as new money continues to flow into the Trust.

Bond prices move at the end versus interest rates and we have an increase in accumulated other comprehensive loss that we view as temporary as our investment practice will be to hold these bonds until maturity.

In summary, we continue to build out of base of net new clients and our earnings for the quarter were strong as we came to leverage out of our model.

While we experienced slightly lower revenue growth than prior quarters, it was driven by an active decision to not chase the workers compensation market and we are confident that this will be offset by a robust referral channels. Regarding our outlook, we continue to expect gross billings for the next rolling 12 month period to be approximately 14%.

For the full year 2018, we continue to confirm diluted earnings per share to be approximately $4.45. This assumes approximately $0.06 per diluted share in estimated legal 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 Cuts and Jobs Act.

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

Mike?.

Hello, and thank you for taking time to be on the call. For my review of the business, we've built a strong foundation and the fundamentals of the business are sound. We continue to invest in infrastructure and talent that support our product evolution, and our ability to scale into new markets with predictable outcomes.

We have defined methods for bringing efficiencies to a delivery of our product, we had a clear focus of our ongoing efforts to bring value to small business owners which supports our brand trajectory. In the quarter, we saw solid results as we added 301 new PEO clients.

We experienced attrition of 149 clients, 4 due to accounts receivable, 4 for lack of tier progression, 11 were canceled due to risk profile, 15 sold, 23 businesses closed, and 92 left for pricing or competitive for competition or companies that have moved away from the outsourced model.

This represents an approximate build in the quarter of 152 net new clients. We're seeing continued support for value proposition as we add new clients. Although our gross billings are slightly off plan our pipeline is strong and we have confidence that we will close the gap in the coming quarters.

We're seeing a slight uptick in client attrition due to pricing in competition but it continues to be in line with expectations. We are paying close attention to pricing and competitive pressures in the market specifically as it relates to insurance in California.

Given the work we have done in the past several years to differentiate our value proposition, we have held our own very well over the past three years as pricing related to worker's compensation in California has softened. We will continue to hold through with our pricing methods as we recognize it historically rates are cyclical.

Outside of California all other regions are experiencing growth rates in excess of 25% year-over-year. Related to pipeline, we continue to hold our evolver ability to scale from a model base on individual market contributors to a systemic approach for developing referral channels on a national basis.

As a result, today we're seeing development of new referral channels in all markets which supports strong pipeline growth. We continue to bring brand awareness in consistency through ongoing educational efforts with our referral partners. Because of this we're seeing consistent contribution to new business from all markets and from broader channels.

Related to organizational structure, we have operationalized our approach to developing leadership and have roughly 18 months of runway with our existing bench. We continue to build the field organization to support future growth, scale into new markets, and invest in support of our product offering.

In the quarter, we added a business team in Portland, Oregon. We currently have a total 102 business teams housed in 58 physical locations. Related to business branch stratification, we now have 17 mature branches with run rate in excess of a 100 million. This is a measure we use to indicate a branch's ability to increase leverage.

We have 17 emerging branches that are running between 30 million and 100 million in gross billing. We regularly reinvest back into these branches to support capacity as they grow. Finally, we have 24 branches we consider developing with run rate of up to 30 million in gross billing.

In these branches we invest to support consistency 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 117 business teams housed in 62 physical locations.

To that end Las Vegas became operational in April and we expect Pasadena, California to open in its doors in May. We also consolidated teams in Tillamook and Roseburg, Oregon into existing physical locations. Moving forward they will continue to reflect as business teams but no longer as branches.

Looking forward as I spend time in the field my confidence in our ability to execute comes from the strength of our organization's leadership. I am seeing clear methods for bringing consistency and predictability to the product and the business. As we envision the future we’re beginning to see the impact we could have on small business.

We're creating communities within markets resulting in a clear understanding of our brand and acceleration and to believe of what is possible from the model. With that, I'll open it up for questions..

[Operator Instructions] Our first question comes from Chris Moore from CJS Securities. Please go ahead..

The pricing pressures in the - kind of the increase turnovers that you're seeing at clients.

I guess the question is, is the profile or size of the companies that are leaving, is that much different than the companies that are coming in from profitability standpoint or is it take a while for these new guys – their extra cost associated with that to kind of match the declines that are leaving?.

What we're seeing in California is not new. Since 2015 the California rating agency called the WCIRB has lower rates by about 35%. And California in general is seeing favorable trends in worker's comp.

So the California worker’s comp bureau has enacted some laws over the past five years and the reforms are actually working which are trending to favorable development in California worker's comp and as such you’re getting more people in lower prices come into the market.

So, when we look at our book we’re seeing some insurance carriers and that’s like a market, come in and start to decrease prices. So, when they come in they’re not going to try to price smaller accounts, they’re typically going to stay at the higher end of our book.

And that's where we're really seeing the pricing pressure is that - the higher end of our book. So when we have some of those clients leave, the goal is we continue to backfill and bring in additional clients and that's where we’re at. We had 301 gross adds in the quarter 152 net off the runoff..

And I would also add Chris that one of the things when you look at our larger clients we have less than 2% of our clients are over 5 million in total revenue.

So it’s a small concentration and the other part that we see is that, even with that where we might see pricing pressure in particular we’re finding where if a client can save $100,000 by going somewhere else to get Worker’s Comp.

We’re seeing go do that and appeal the offering and just stay with us for what we really do which is I hope you run better operation and we’re seeing a lot of traction there on a year-over-year basis we've actually seen about 30% gain in the number of clients that are without worker’s comp coming into our book.

Maybe to answer your other question too, when we look at working with clients that might be a little bit smaller, yes, we don't have to price to the economies of scale.

So typically they will be more profitable, out of the gate and as a collective portfolio and they are more profitable and we have more efficiency in working with them so because of the way we do things But as there is a kind of rolls through, it will normalize itself and I think ultimately to as you would might look at call it recessionary environment at some future date, you’re more at risk clients in a recession or typically that larger client where the smaller more nimble client is one that probably will whether it more effectively and probably is paying a higher wage rate.

So we don’t see as problem, we see it more a little bit of C change and it’s in the opportunity for us just continue to build with..

In terms of the 14% guidance over the next 12 months, kind of versus 14% guidance for fiscal year 2018 obviously it only makes a difference if you are making kind of a big assumption difference for Q1, 2018 versus Q1, 2019 growth rates. Is there Q1, 2018 was a little bit soft are you assuming much of a pickup in Q1, 2019..

What I would say is that, we probably we were seeing a little bit softness pricing wise and we’ve talked about a little bit after the fourth quarter. And we feel like we’re kind of making a turn on it and our pipelines are very strong right now.

And so one other things that we're not doing as our yields dropped a little bit off the pipeline, but we also recognize that there is some areas where we can improve on how we’re going to market to ensure that we’re capitalizing on the opportunities that are good opportunities.

So, we’re not letting ourselves off the hook and I think that just with our - what are seeing in the pipeline and what we’re continuing to see as build, we just have to execute and we feel that we’ll close the gap.

If you look at the gap between where we were anticipating being as our net build and where we ended up being our nets builds in the first quarter that was only about a 20 client spread.

So we can - we’ll close that likewise the biggest thing that will come into play is always the known process the same customer sales percent which was a little lighter to us in quarter than we anticipated and that can be quarter to quarter. It can move on you a little bit. And we’re seeing strength in our client base.

We’re not seeing any kind of erosion there. So that gives us confidence that will kind of make the turn there. And then ultimately we would see ourselves in a stronger position first quarter of 2019..

Our next question comes from Jeff Martin from ROTH Capital Partners. Please go ahead..

Gary could you comment on the sustainability of worker's comp at the lower end of your range which is, but the most part been the last three quarters.

So curious what your thought is there?.

Yes, we have pretty much restructured our operations how it comes to, how plane comes in, how it could set up, who we work with on that aspect, how we work with them, the pricing with them. So we really are - I’ll say we had a focus effort on trying to take the administrative costs out of the model.

And that's something we’re continuing to look at it something that we feel is a good return to shareholders to try to remove as much friction out of models. We can and we’re going to continue to look at that.

So when we look at comp for this quarter, you’re going to have a little bit of ebb and flows as far as - that's why we give the range in the 4.9 to 5.1 but looking at the model and what we’ve done, we think it’s going to be more in the 4.9 to 5.0 but you can always have some up and downs. So we feel that where we’re at is sustainable for the future..

And then that kind of segways into the gross margin is up nicely year-over-year even when you back out the prior year's change in estimates for workers comp for previous year claims.

If you think that you’re on a trend where you could see year-over-year improvements in the gross margins on a quarterly basis?.

Yes, I mean that’s our goal. Our goal is to try to get as much to try to get leverage out of gross margin to try to get leverage out of the SG&A.

Our branches take the margins seriously and we handle the pricing that way, I mean if you back out the change in prior you get to like a 0.12 percentage increase over Q1 of 2017 and we are proud of that, we feel good about that, this was a good quarter, this is a good earnings number for us and it had a lot to do with all the work that we’re doing in the field and what we’re doing in corporate.

So we’re proud of that and we think it’s going to be sustainable..

And Jeff I would play out, I feel though we made a little bit of a turn on all of the restructure, reinvest and build that we’ve been doing actually over the last six, seven years and it seems like we’ve geared up and we’re coming into our own little bit and we’re really reaching a place where we can find leverage in the model if you look at just the stratification piece, we had where you want to see the shift in stratification was a movement from our developing branches into emerging this last quarter and that becomes an important one because those are usually the developing branches are the ones we might be feeding, where the emerging ones are now what we’re still feeding but they’re holding their own pretty well.

If you’re watching over the longer period of time, we will be the number of branches that we’re moving into that $100 million plus mark because that’s where you really see lot of leverage to get SG&A within that infrastructure..

And I was wondering if you could shed some perspective into the pipeline, it sounds like you’re optimistic on it but curious to kind of know underneath surface, and what gives you that level of confidence.

Otherwise I think we’re sitting on the scenario where maybe you grow a less than that 14% but your margins are much, much better, so your earnings kind of grow a lot faster than that?.

Yes, I’d say the work that we’re doing to educate the market helps us receiving a stronger pipeline. So we got pretty good visibility in our pipelines through sales force we build.

We can look out and go and almost week to week know what’s going on yield wise and you kind of have to almost look at over a three months moving average but if we were to look at pipeline today versus where it was probably in October, November, December that’s much stronger than that and usually we’re going to have a three months lag to result on that.

So that's by the first thing that we look at.

The second part is really the yield locked that pipeline and as we were pushing up against some pricing pressure, you could see where your yield in markets were might have a few branches that are still really bringing confidence to value versus other areas in the company where we’re really bringing the true value proposition, we’re running that.

So that’s another part that gives me confidence. The other thing that I would say is we have looked at that build throughout time, it’s going to kind of ebb and flow a little bit and it’s going to be somewhat cyclical.

So you’re going to have branches where maybe they’ve grown, they’ve grown pretty fast and then they’re going to peak out a little bit and you got to reset and we may have seen that a little bit some of our larger branches.

So we’re going through a process right now of resetting and just kind of pulling back some of our larger branches and looking at where they are at and so there is a lot of good things going on that gives us confidence from what we’re seeing in the pipeline there.

One we will be able to increase our yields, two that there should be consistency behind that pipeline, one more micro example would be we have a branch that historically has received about 30 or about 22%, 23% of their business through customer referrals.

This quarter it jumped through almost 35%, and the nth degree in our model the more we can get from customer referrals to better and overtime that's what sustains growth against large numbers..

And then my last question, can you provide some perspective on various cycles in the California comp market over history and how long they take and then where do we think we are using based analogy in the cycle in California today?.

Yes, that's a good question, that’s difficult to answer because it’s a unique market now. If you just look at the insurance market in general, 2017 was the worst catastrophic loss in history and really insurance pricing is based upon capital and how much capitals in the market, so there's still a lot of capital in the market.

The difficulty of where we are in the market is you have capital in the market but you have still low interest rates and the question really becomes with low interest rates as they start to rise with offset by how are we going to have more favorable tax income tax from the Tax Cut and Job Act.

It's really unique time in the market when you listen and follow it it's because of the low rates and because of the caps you're seeing broad base higher rates going up, so companies are charging more in order to make up for that but really what we're seeing in California is the reform has been favorable and its shown in the losses.

So California has been the last two years under 100% combined ratio which is the first time has done that and over ten years. So a long answer to a difficult question but typically I'm going to say that we're getting down to the point of rates, I’d say the seventh inning for when rates are going to have to start to push up..

[Operator Instructions] Our next question comes from Bill Dezellem from Tieton Capital Management. Please go ahead..

Gary, I'd actually like a follow up on your last comment to begin with, so what do you see will happen than with your new customer win process that's and pricing if the workers comp rates do start to rise or when they do start to arise in California?.

Our theory is we don't want to be the best, we don't want to be the most expensive. We just want to be consistent for our client’s right, so consistency is key. We look at these as long term partnerships. The way we do our fixed pricing, the way that we do our long term contracts.

We think this is long term partnerships and we're going to - we will have to ebb and flow with the market but ultimately we're not going to vary that much. We're going to try to stay in our sweet spot which is where we're at now..

And I would add to that, one of the things that I've watched over the many years that's always been a challenge in doing business in California is the predictability and consistency of your cost structure.

So as we built our model, it's really been about running a value-add risk mitigation, help you to run a better business while at the same time bringing stability to your cost structure. So for the same reason that we don't follow prices down, we're not going to chase them up if it gets too crazy because we want our customers to be successful.

Bill straight a long time ago that you can place your client to bankruptcy and I never want to find ourselves being there or capitalizing so much on the opportunity on the upside that we're actually hurting our clients at the same time and I think that's where the long term, we build our brand and we become that trusted partner in all markets which ultimately will win in the end..

Does that also imply that your ability to win new business will become greater - careful to say this but easier because your pricing is - would be than more competitive?.

Good clients are always going to be a scarce commodity that we've got to make sure that we're hunting all the time force. So, I would never say it's going to get easier and we won't let it be easier.

The difference will be is that will have in our pools we put ourselves - well we remain in that spot we’re making the choice that who we do business with.

We’ll probably may have an impact is that where you've got companies that really want to do well and run and have good cultures and hirer good people they’ll win the battle because those are the ones that will work with and then those that are just chasing price will probably not be of interest to us..

Couple more questions please, first of all relative to worker's comp since it was down at that 4.9%.

Is that a function of having better claims experience or is this really more a function of now that you are doing your quarterly reevaluation with the actuaries that you just simply have this pool better dialed in than you ever have before?.

So the prior accident year or I’ll say the change in estimate for prior years was pretty much flat right it was $6,500 good guy. So what you're seeing in the operations for the quarter is a true reflection of the operations in the quarter.

A large part of the worker's comp expense is our estimate and I’ll say that our estimate is pretty much fixed for the year. I mean we look at it on a quarterly basis, but you know what we’re going to estimate is our estimated loss ratio on this book it’s pretty much fixed for the year.

We’ll obviously evaluate depending upon frequency, depending upon severity if need to change that. And then in that, that comp expense we also have a fair amount of other expenses regarding the administration. In the administration is where we have really tried to focus in on as well to try to remove as much friction out of the models possible..

I would add to as - when you kind of look at the number quarter to quarter and it really is a product of a longer term trend.

It’s not really a quarter to quarter number it’s more probably a three-year rolling of where you’re landing and I think that that's where we begin to see more stability in the model to as we look at the work we’ve got done over the last few years.

We’ve taken a lot, a lot of measures and those measures are now given us better predictability and consistency with how are worker’s comp expense is running..

And then relative to your referral channels I think multiple times on this call each of you have made reference to some strength or robustness with the referral channels, Were you quantify or can you quantify in some ways your success with the referral channels?.

The ones though I guess the one and I’ll let Kramer to follow up here as the data point on this but one of things that we seen out of business that we’re adding today we’re seeing that business come from a larger source of channel.

Where if we went back a year ago we were receiving business from call it 500 individual - like in single quarter may be 500 individual resources or channel partners. Today it might be closer to 700. So we’re getting a wider base of referrals coming from a wider base of referral partners in given period which I see a strength.

So we’ve got a lot of I call it raw material to work with it we just have to be better been able to tap that D&A that we’re building and even within that I think there is evolving understanding and belief in the overall offering of what we’re doing it extends well beyond payroll, worker’s comp even just HR that’s more of our partners are really understanding the value we really bringing to customers..

I don’t think we’ll get into a position where we’ll give status or things of that nature but the practice that we have is go make more friends right. When you have more friends and then you got a if you have those friends you got to get deeper into their client base.

So we try to build with and then once we have a new friend then we try to do more business with our friends. So there is continual effort of keep trying to bring on more referral partners..

And then lastly I have historically thought about the first quarter as you grow losing more money than prior year and that’s consider a good things because the business is larger. But given that you saw that reverse this quarter and you saw growth.

It makes me wonder are you reaching some of level of scale where at some point the first quarter may be actually breakeven or how should we be thinking about this longer term not next year but longer term?.

Yes, I mean we are seeing there is a couple of things that go into call how we’re getting to the first quarter. What we're seeing especially on the payroll tax side is states are not raising their limits.

So you’re having wage inflation but the cap limits are staying the same, so we’re hitting the caps quicker which is when we - that’s why we have our loss in the first quarter but what happens is we’re hitting that quicker which means we’re getting more profitability or more margin that’s coming in March and that's going to continue throughout the year.

So it’s part of our pricing, I have to model out and we have modeled out and I can tell you in our model first quarter will be a loss for the foreseeable years..

I would say that's probably a little - more unknowns in that equation but as Kramer mentioned it’s as you see your average wage by six, seven years ago move from say 20 bucks an hour to close to 25, 26 bucks an hour, your average persons reaching your $8,000 cap for food and suit are quicker and that is on a state to state basis.

And so that’s happening your tax, you’re moving through what that top tax obligation is quicker because of just your wage base but it’s - I don’t know what your leverage fee get to zero but I do think you could see it normalize to slightly improve year-over-year..

And if so I’m interpreting your comments correctly for Q2 of this year and beyond, that does give some indication of the strength that we could be seeing in earnings through the rest of this year than if I heard comments right..

Yes, we’re comfortable with our 445 earnings guide. We think that’s a fair reasonable number that we have a higher degree of confidence that we’re going to achieve..

Our next question comes from Kevin Casey from Casey Capital. Please go ahead..

Yes, couple of questions, one trying to understand the price pressures just on workers comp and then can you talk about the advantages, risk, margins of workers comp, customer versus the non-workers comp customer and like how do you view one better than the other or same?.

I’ll start off and as we look at the customer we don’t look at it as, we look at them same because when we price we look at - we have a - we take payroll, we mark up for tax, then we mark up for a bucket that’s allocated completely for workers comp in our modeling based on the C-Code that they’re doing work under and then we allocate X percent for our margin which is tied back or paid to that basis of about 1000 bucks ahead per person.

So when we look at a client without workers' comp, we just peel out the workers’ comp portion and then we remain with our margin. So that customer now doesn’t look any different from a margin standpoint, but one place you’ll see is that, yes we won’t have the risk.

We don't have the risk working with that individual customer but one of the things you will see is because we might have carved out called 5%, 6% of the workers’ comp amount but you're going to build that plant less and - but you'll actually charge them the same amount for the margin that you would have otherwise..

And then have you gone back and looked back when you had some of these workers’ comp hick ups was it large customers, was it small coverage or was it a broad mix?.

It’s a broad mix. I mean when you get to be our size, it really becomes about the portfolio when you get to that level and it's - if we have a client that unprofitable than the branches try to work with that client to make them profitable.

If we can make them profitable, then we will move them out and not take the comp but when you get to a portfolio of our size, it's really not in count or it's not a specific loss, it's just how the portfolio in the trend going..

Yes, I would only add to that the sometimes when we see larger clients that though as they get let’s get into 200 going to 300 employees but typically you might have in that last 100 employees, you might have a lower wage base and the more of a flex work force and both from a standpoint of recession that would be the workforce that would go the quickest because they're the easiest to let go and easiest to bring back in and then that group also tends to probably carry the bulk of more the frequency in potential for risk as well.

So it's not the big clients bring more risk, you're charging for that but when we watch it through cycles, you have more stability in the smaller client versus the larger client..

I was actually asking bigger clients probably have more business chasing them then you might have the same risk with lower margin..

Yes, I mean especially if we're talking specifically to workers' comp, larger accounts are going to draw more competition right in. That's the business that we're not going to chase..

At this time this concludes our question-and-answer session. I'd like to turn the call back to Mr. Elich for closing remarks..

Appreciate everybody joining us this morning. Again, I feel really good about the quarter, feel good about where we're at. We're playing a long game and looking forward to staying in touch. So thank you. Speak to you in a few months..

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