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, 2019. .

Joining us today are BBSI's President and CEO, Mr. Michael Elich; and the company's CFO, Mr. Gary Kramer. Following their remarks, we will open the call for your questions. .

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

These statements, along with other information presented that does not reflect 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 will be available for replay through June 1, 2019, starting at 3:00 p.m. Eastern Time this afternoon. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.barrettbusiness.com. .

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

Thank you, Brenda. Depending upon where you're dialing in from, good morning or good afternoon, everyone. The operations of the company continued to be strong in the first quarter. Diluted loss per share for the quarter improved 75% to a $0.31 loss compared to $1.25 loss in Q1 of '18.

Please recall that we historically incur a loss in the first quarter due to higher effective payroll taxes at the beginning of each year. .

Gross billings of $1.4 billion grew 3% over the same period. PEO gross billings increased 4% to $1.3 billion compared to the first quarter last year. The first quarter of 2019 had one less work day when compared to the first quarter of 2018.

When adjusting for the one-day difference, our gross revenue increased by approximately 5% over the prior year period. Gross billings grew by 1% in California and rose 12% in all other combined geographies. Same-customer sales were 1.3% compared to 6.3% in Q1 of '18.

However, adjusting for the one-day difference, same-customer sales would've been approximately 3% and is slightly lower than our internal plan. .

We continue to increase our client base with a gross addition of 403 clients or 230 net of runoff in the quarter. This was the first time we crossed through the 400 client mark for adds in a quarter. Both the gross and net additions exceeded our internal plan and gives us renewed confidence in our annual gross billings estimate.

The performance in net adds made up for the shortfall in same-customer sales and our gross billings was in line with our internal plan for the quarter. .

Net revenue of $218.2 million decreased 3% compared to Q1 of '18 and reflected weaker staffing revenue, which decreased 21% to $28 million compared to Q1 of '18. This was a slightly greater decrease than we expected and is 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 have the demand and orders from our clients, but it is challenging to fulfill orders without compromising our hiring standards.

As such, we anticipate that staffing will continue to be a slight headwind to near-term revenue growth. Adjusted for the one-day difference, net revenue would've been approximately $221.6 million or a 1% decrease compared to Q1 of '18. .

Gross profit increased 74% to $28 million compared to $16 million at Q1 of '18 and was slightly better than our internal plan. We have been reducing cost from our model and have been holding pricing firm, which resulted in this margin expansion. Gross payroll taxes and benefits as a percentage of payroll was 8.4% in Q1 of '19 versus 9.4% in Q1 of '18.

This decrease is largely attributable to rate changes, wage caps not keeping pace with wage inflation and our various state allocations. .

Workers' compensation expense as a percentage of gross billings was 4.5% in the quarter, which is below our expected range of 4.6% to 4.8%. This compares to 4.9% of gross billings in the first quarter of 2018. The quarterly independent actuarial valuation resulted in a reduction of prior year estimated liability of $1.7 million.

Also, as previously discussed, we restructured our arrangement with Chubb to reduce frictional costs and we're seeing a larger benefit this quarter. .

Our workers' compensation claims frequency continues to trend favorably. In the quarter, we saw trailing 12-month relative frequency of claims as a percentage of payroll decrease 7% compared to the first quarter of 2018. All in, we are very pleased with the way our workers' compensation portfolio is performing.

We have taken many steps to reduce frequency, minimize severity, reduce frictional costs and wrap the program with best-in-class people, processes and procedures. This strict focus and attention has resulted in a redundancy in the portfolio 5 quarters in a row and why our expense is coming in below our range. .

SG&A in the first quarter was $33.2 million or 2.4% of gross billings compared to $29.4 million or 2.2% in the prior year quarter.

SG&A is in line with our internal annual plan and outpaced revenue growth in the quarter due to continued investment in future growth as well as a shift in the timing of profit share to earlier in the year for certain branches due to favorable margin expansion.

On an annualized basis, we continue to expect SG&A to grow at approximately our gross billings growth rate. We continue to be mindful and diligent about balancing spend against growth while investing in the business for the future. .

Moving to the balance sheet. We had no borrowings under our credit line as of 3/31/19 and we continue to be debt-free except for the $4.1 million mortgage on our corporate headquarters in Vancouver, Washington. As part of our fronted workers' compensation insurance program with Chubb, we established and funded trust accounts called the Chubb trust.

On the balance sheet, the Chubb trust are included in restricted cash and investments. The balance in the Chubb trust were $462 million at 3/31/19 and $393 million at 3/31/18.

We discussed in previous quarters that we shifted our asset liability matching investment strategy slightly due to a flattening yield curve, and made the decision to stay shorter in duration for the near term. .

We have renegotiated an investment vehicle with one of our banks where we will target a cash balance of $150 million that will earn spread of 25 basis points over the 3-month Treasury. At 3/31/19, we had $133 million in cash that returned an annual crediting rate of 267 basis points.

At March 31, the book yield for the portfolio was 244 basis points with a duration of 2.14 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 3/31/19, the average quality of the portfolio was AA and no investment was greater than 4% of the portfolio. In the quarter, we earned $3.1 million of investment income from the trust. As part of our new structure with Chubb, we were required to provide additional collateral in the form of an unsecured letter of credit from our primary bank.

As part of the terms of the agreement, we will be reducing the unsecured amount over time and made our first payment of $16 million in the quarter for the 2018 year. This $16 million is on our balance sheet and is reflected in restricted cash and investments.

The balance sheet also reflects the recognition of lease assets and lease liabilities in accordance with the adoption of ASU 842. This accounting change will be immaterial to our income statement but does slightly alter the composition of our balance sheet. .

In summary for the quarter, we exceeded our internal plan for both gross and net client additions. We continue to expand margin by maintaining pricing discipline while reducing frictional costs in our model. We believe that our revenue has troughed and we will see greater growth in Q2 and throughout the remainder of the year as planned.

We continue to invest in the business and future growth while being mindful of expenses and looking for savings and efficiencies in everything we do. Our workers' compensation portfolio developed favorably and is a direct result of the various steps and actions we have taken. .

Regarding our outlook for the remainder of the year, 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 billings growth for the next rolling 12-month period to be approximately 8%.

This assumes a continuing decrease in staffing revenue and same-customer sales growth for PEO to be similar to 2018. .

For the full year 2019, we continue to expect diluted earnings per share to be approximately $5.40. This assumes an effective tax rate of approximately 18%. We also continue to expect the range for workers' compensation expense as a percentage of gross billings to be 4.6% to 4.8%. .

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 first quarter as well as our operational outlook for 2019.

Mike?.

Hello, and thank you for taking time to be on the call. For my review of the business, we built a strong foundation and the fundamentals of the business remains strong and we are seeing continued support of our value proposition in the market.

Top line growth is in line with expectations and we feel very good about our ability to create shareholder value. .

In the first few months of 2019, we spent time -- a great deal of time in the field aligning vision which reinforces confidence in the maturity of the organization.

We also continue to spend time with referral partners, broadening and strengthening our referral channel and continue to spend time with business owners working to understand what they may be seeing in their markets.

This discipline provides the means of understanding how we may evolve our offering over time to address challenges business owners face. .

In the quarter, we added 403 new PEO clients. We experienced attrition of 173 clients, 6 due to accounts receivable, 4 for lack of tier progression, 12 due to risk profile, 20 businesses sold, 32 businesses closed, 99 left due to pricing competition or companies that have moved away from the outsource model.

This represents an approximate build in the quarter of 230 net new clients. .

Also in the quarter, once again, we took time to poll our existing clients to better understand what they are seeing. In speaking with our clients, most are cautiously optimistic. We also heard that there is runway and opportunity for expansion, but in the short -- but the shortage of skilled labor continues to be the #1 limitation to growth.

There is also general uncertainty related to a variety of macro issues. In general, the business owners we spoke to expressed optimism but are not able to find the talent they need to grow, which is why we believe we are seeing softness in same-customer sales. .

Related to pipeline, we continue to see strong client adds in the quarter and we believe this is a result of our referral partners understanding and recommending BBSI. We continue to evolve our ability to scale from a model based on individual market contributors to a systemic approach for developing referral channels on a national basis.

Today, we are seeing development of new referral channels in all markets which support strong pipeline growth, as evidenced by continued new client adds. .

Related to organizational structure, we continue to build the field organization to support growth, scale into new markets and invest in support of our product offering. In the quarter, we opened 2 branches, one in Grand Junction, Colorado, the other in Roseville, California.

Also in the quarter, we added 2 business teams, bringing us to 112 business teams across 63 branch locations. .

Related to branch stratification, we have 17 branches with run rates in excess of $100 million. This is a measure we use to indicate a branch's ability to increase leverage. We have 20 emerging branches running between $30 million and $100 million. We regularly reinvest back into these teams to support capacity as they grow.

Finally, we have 26 branches we consider developing with run rates of up to $30 million. In these branches, we invest to support consistency of pipeline while maintaining integrity of product as they scale. We continue to evaluate the build of new branch locations and business teams in line with predictability of our pipelines. .

Looking forward, the fundamentals of the business are strong. We remain focused on bringing predictability and value to the business over the long term. Feedback I've received from our clients and referral partners support relevance of our product as we look at the next 5 years.

Having spent a great deal of time in the field, my confidence in our ability to execute comes from the strength of our organization's leadership, the maturity of our teams and the structure that allows us to stay nimble.

We continue to invest in infrastructure that supports both product evolution and our ability to scale into new markets with predictable outcomes. .

In conjunction with our long-term growth strategy, our goal is to add 18 new business teams and 4 physical locations in 2019. At the end of 2019, we anticipate having more than 128 business teams housed in 65 physical locations.

We are at a point where our foundation is strong, we know where we need to focus our energy and we are executing to our plan. .

With that, I'll open it up for questions. .

[Operator Instructions] The first question is from the line of Josh Vogel with Sidoti. .

I guess to start, here we are, a month into Q2. And then when we look at Q1 and the prior quarters, several quarters in a row where you've benefited from a favorable one-time adjustment of the prior accident year liability.

I'm just curious, what kind of visibility do you have into future adjustments like this? And what, if so, is built into your guidance over the balance of the year?.

Josh, it's Kramer. So I'll take the last part first. When we give our guide, we don't factor in any change in estimate for the prior. So when we give our $5.40, that's a, call it, a pure number for the 2019 year.

And then as far as visibility, you're seeing trends and we're seeing those trends too, right? So this is 5 quarters in a row where we've had favorable change in estimate.

A lot of that has to do with the work we're doing at the branches, the work we're doing with our clients and then the controls that we have and the precision we have over our workers' comp now. So we can't predict the future for how that's going to continue to go. But if you're looking at the trend, the trends look favorable. .

Yes, Josh, I'd add too, it took us a long time to put ourselves above the line as it would be. And as we found ourselves there, we're just going to continue to take a conservative approach in how we look at the whole comp, workers' comp modeling. The -- we know that trends take a long time to build.

And once you're on a good trend, you continue to work towards maintaining your position there. And -- but I think that we're very careful not to get out over the tips. .

Okay, great. And I guess I just want to get a little bit better sense around the lag here.

With regard to when -- like can you discuss basically what period or years that these adjustments are coming from? And maybe is it broad-based across the client base or only from a few specific clients or industries or geographies, even though I assume it's all mostly coming from California?.

Yes, it's pretty broad-based as far as by state. And then it's also pretty broad-based as far as the way the years are working. If you think about 2018, 2018 is still a green year and we're going to be slow to react to anything in '18. But really, when you're seeing this change in estimate, it's going to be for the '17, '16 years and prior. .

Okay. And shifting gears a little bit, and I don't want to get too granular, but I guess when we normalize Q1 for the extra billing day, you saw about 5% annual growth.

And Mike, I'm curious if you have any commentary around how much of this was new business and/or headcount additions versus increase in hours worked or wage increases within the existing base?.

Yes, this quarter, I'll say we made our numbers the hard way, right? So we made our numbers by going out there and getting business and going out there and keeping the business we have. So when I think about our revenue growth in the quarter, our revenue growth in the quarter was mainly from our organic.

If you look at the same-customer sales, the same-customer sales was pretty much the weakest we've had over the last 5 years. And that weakness was primarily due to hours worked. So our same-customer sales was weaker, our additions and our retentions were stronger, which gets us to the number that was in line with our plan.

And then when I think about how that goes forward, I view that as very positive, right? Because if you add -- if you have a strong stack add in Q1, that's going to pay you revenue dollars in Q2, 3 and 4.

So I'd rather beat or meet my -- meet or beat my revenue based upon the client stack than same-customer sales, because same-customer sales is a -- it's really a one-time shot in that quarter as opposed to building the stack that's going to perpetuate revenue. .

Yes. And Josh, so the way I look at it is there's controllables and non-controllables.

They -- we have some control over the quality of our clients and their ability to grow, but we don't control how they take risks and how they want to go to market and how they are ultimately growing their business other than supporting them and running a better company.

So those factors are the ones that would contribute to the same-customer sales growth. But the one we do have control over is how many clients we can do business with. And we've -- we're in a good spot right now. I think that we're running well in how we're bringing new business in.

We're in line with what we recognize as attrition off our broader base of business. And when we consider a positive stack, a net positive stack quarter over quarter over quarter, eventually, all tides rise. .

So the way I look at it, we're executing very well right now in the field. We've got really, I think, a lot of traction relative to our build in new business and new companies added.

The one other trap that I don't want to get put in is how do you determine how big a client would be and -- which becomes a little bit of the work site employee conversation. So when we go out to market, we go to market and we're looking for well-run, good companies. And how big their workforce is, is not our target.

Recognizing that over time, if we have enough well-run, good businesses in our portfolio, they're all going to grow. And as they grow, we grow. .

there was 73 in Q3, 112 in Q4, 99 in Q1. Is this mainly based still in some headwinds you're seeing in Southern California? And also, you've done a tremendous job staying disciplined with regard to pricing.

But are you at all willing to make any concessions in the markets where you continue to see slower sales?.

I think where we look at it is we're in a really good spot today that we can be as competitive as we want to be and as we need to be, but we're not going to chase markets. Our teams are very disciplined about how they go to market and how we're taking care of our clients.

And to us, there's kind of -- there are certain rules that you look at around pricing. And it says if you're getting 100%, you're probably underpriced. And you're not losing any business to pricing, you're probably underpriced. So I think there's a positive pressure there.

And if you add up just the trend that you've mentioned and you divide that over our overall base, it's in line with the client attrition or client retention north of 95%, if you just take price as a component. .

Our next questions are from the line of Jeff Martin with Roth Capital. .

I wanted to hit on your client adds. If I look at the last 4 quarters, you added 885 net new clients. If I take that on a base of probably around 6,000 clients this point last year, that would imply north of 15% growth.

Are we, by structure of the client adds last 12 months, looking at some revenue growth acceleration, just on client adds alone?.

Yes, I mean, that's what we're seeing. Our revenue growth in the quarter was primarily from the add of the customer stack. And when we think about how our clients -- what's the shape of our curve for adds and for retention, we crested the 400 mark for adds this quarter and I think that's a mark we're going to trend at for a bit.

And I think our adds and our retention are going to be -- are going to grow and they're going to be similar to the curve of 2018. So when we think about how that's going to affect revenue, we're going to be up in Q2, we're going to be up in Q3 compared to prior year quarters. Obviously, up in Q4, but not as much in Q3.

And Q3 is where we have that extra day, which will get us -- which will give us that pop, which will get us normalized on an annualized basis. .

Yes, Jeff, and I would say, too, relative to the stack, what we saw probably in 2017 and '18 was that as we were stacking, we were stacking clients that were pulling our average employee sites down a little bit. And that's due to geography and markets.

As we go to different markets, we're going to see clients that are of different size and we feel like we somewhat normalized that a little bit.

So if you figure our width is growing, and you've seen this before, if you go back even to both '11 or '12, that when our base is wider and everybody then turns the corner and starts hiring again, you're hiring off a broader base and that's what creates a little bit of the push up.

So we're -- again, we're just sticking to our own discipline of working with really good clients, adding good clients, retaining good clients and delivering a good product. And the revenue growth will take care of itself on the back end of it. .

Okay. And Kramer, on the payroll taxes and benefits. How should we think about that going forward? It was down materially year-over-year the last 2 quarters as a percentage of gross billings.

Are we at a new norm, that we're going to be down 100 basis points year-over-year for a few more quarters?.

When you look at -- when the delta in Q2 is going to be a less of a delta -- the delta from Q2 '19 to Q2 '18 is going to be less of a delta than we had in Q1. So you're going to see that revert more to a normal trend in Q2 and Q3. .

Okay.

Was there anything particular in the last 2 quarters on the payroll taxes that made that number so low as a percentage of gross billing?.

No, I mean it's -- the idea here is we're continuing to hold our pricing firm, which is when we reduced those frictional cost out of the equation, which is how we get the margin expansion.

But really, for payroll taxes, it's the -- you're seeing certain states that are lowering rates, you're seeing certain states where they're not increasing the caps and you have wage inflation and it's not keeping up. And that's the 2 parts of it.

And then the third part is as we grow outside of California, it is a -- there are states that have less payroll taxes, less worker's comp and that starts to bring those ratios down. .

One other factor, too, is we recognize compared to historical levels, as your pay rates increase, you get to your caps quicker. And that's what pops you out outside of your caps quicker. And if you're holding margin, that's where you're going to see benefit. .

Right, okay.

And then could you characterize or kind of structure the client adds, net client adds, California versus -- or maybe it's easier by gross, California versus outside of California in the quarter?.

I don't have that by geography. I can give that to you offline.

But I mean we're still big in California, right?.

Yes, it's somewhat proportionate to our geography and size of the geography. .

Okay.

And then last question, could you give us some insight into how branches opened in the past year or 2 have been performing?.

I would say that based on the maturity of the model, that the branches that we've opened in probably the last 1.5 years to 2 years are moving faster than we have seen historically. So when we take a tuck-in branch, obviously, it's going to start with new business or that's somewhat already seated.

But with that, we get momentum quicker and we're seeing where those branches are accelerating in their growth rate compared to historical levels. .

When we look at branches where we're doing a greenfield, we're also quite seeing a step-up there, simply because we're going into those markets with already a maturing pipeline. And we're spending a lot more time upfront making sure that our teams are mature outside of that branch before they're actually dropped in.

So for the most part, I would say that we're seeing acceleration in how fast our new branches are getting up to speed, which is less a drag on SG&A and overall operating margins. .

[Operator Instructions] Our next questions are from the line of Bill Dezellem with Tieton Capital. .

Congratulations on a good quarter. A couple of questions here. First one, relative to this quarter's profit sharing pace, you referenced that it's ahead of last year because the margins have expanded for a number of branches.

So would we understand correctly that if the profit sharing pace was in line with last year, proportional to last year, that your earnings would have been better this quarter than you reported?.

I'll say yes to that, but you're giving me a little bit of a brainteaser here. I'll say it this way. You saw our gross profits. This is the -- as far as first quarters go, this has been -- or as far as our gross profit, one of our most profitable over the last 5 years and that's been a lot of hard work and discipline to get to where we are.

And really, what you're seeing is that gross profit is not shared equally by all branches. So as we look at the stratifications between our different -- our 3 stratifications, you have branches that are, because of their size and scale, are cresting profitability earlier in the year.

So you have some branches that crested profitability in Q1 that are earning that profit share. And then other branches will take longer in the year. So what happens is it's accelerating how we realize that profit share expense. It doesn't really change the overall for the year.

But what it does is it shifts some from, say, fourth quarter and third quarter and accelerates it to earlier in the year. So this is a good problem to have. .

So I'll say it another way.

So if it really doesn't change that total dollar greatly, then if you're shifting profit share from Q3, Q4 here into Q1, then that implies this quarter is less than what it otherwise could have or would have been, but the quarters later in the year will have earnings higher than otherwise would have been?.

Yes, and that's how when we give our SG&A estimate for the year, we're looking at SG&A, our total growth to be around 8%. And that -- if you look at this quarter, you're going to say, well, you're up 12% this quarter. Well, the reason we're up 12% is because yes, that profit share is sliding into Q1.

So what will happen is that SG&A growth will be slower in certain quarters later in the year. .

That's been quite helpful. .

Yes, and I'd also look at it, Bill, and the way I look at it is it's much a shift in timing simply because those branches are coming into profitability faster.

The other part is that if you look at a net loss carryforward in some local branches that might lose money in the first quarter, those branches that actually made money in the first quarter will actually make more in the year because they don't have to make up for the loss they had in the first quarter.

So you get a step up in timing and then it will normalize throughout the year, but they'll also be -- we will pay more in profit sharing simply because we will be more profitable in the year than we were last year. .

Great. And then let me shift, if I may, to wage growth.

What was the wage growth number in the first quarter and how does that compare to prior quarters?.

The -- give me a second, I'm pulling it up. .

And sorry, and while you're pulling it up, if you have some qualitative perspective if wage growth seems to be accelerating, holding steady or the rate of growth is decelerating?.

So let me jump in, Mike. So when we think of the same-customer sales for Q1, I'll say the -- 2 things happened that we expected. Number one was our growth in work site employees was about where we thought it'd be. The second was the wage inflation is trending in line with where we're seeing on the macro trends and it was about 3.4%.

The one, I'll say, non-model change was for the hours worked. For hours worked, we actually saw that go negative. And when we looked at where that was, I don't want to give a weather excuse, but when we look at where it was, it was wet days in California that we think had a drag on certain industries.

So California was the wettest quarter this quarter they've had in many years and Mike's allergies are still bad from the super bloom. So it was a wet one down there. .

Yes, and I would probably add to that. The first quarter is the hardest quarter, because January, you've got, I call it the New Year's hangover a little bit, and businesses are getting back on track to trend for the next year.

And so first quarter is always the hardest one to be able to get a clear bead on if it did it last year, it's going to do it this year. And once you get into second quarter, and even into March, things start to trend a little bit better and it's like there's less noise going forward.

But January and into February tend to be a little bit disruptive sometimes. And the weather will be an effect some time. There's just indecision about it's a new year, which direction am I going? Am I excited about where I'm going or am I still tapping on the brakes? So... .

And relative to prior quarters, that 3.4% wage inflation seems like it has ticked up, like it's higher than it has been.

Is that correct or am I misremembering?.

You are correct. What you're seeing here is a little bit of a squeeze. You're having our -- the, call it, the employees headcount are growing slower. And then where the growth is accelerating is on the, call it, the hourly pay. So if you look at Q1 of '18 versus Q1 of '19, Q1 of '18, the hourly rate or, call it, wage inflation, was at 2.8%.

This quarter, we're at about 3.4%. So you're getting a little bit of a squeeze for how the same-customer sales is shifting. .

Great. And then I believe in your opening remarks, there was a reference to your thinking that the first quarter is when you will have your lowest rate of revenue growth, and after this bottoming, will then grow from here.

Can you discuss what gives you the confidence or why you believe that your revenue growth will increase from this level?.

Yes, so this business is all about your stack of clients. And if you look at our stack, it's been growing consistently and we beat our internal plan for Q1 as far as our adds and retention.

So if you think about those clients that come on in, say, February, they're going to be here for a year, which means we're going to get those revenue dollars in Q2, 3 and 4. So when we look at, call it, the projection for how the revenue is going to go, we feel really good about the work we've done and how that's going to pay in the revenue dollars. .

Great. And then finally, I'd like to talk about the final phase when you're working with a customer, which I believe you call the consulting phase, the business consulting.

How has that interaction or that work with your clients, how has that evolved over the last 2 years? I'm really trying to understand just what's -- what might be different or maybe it has not evolved at all. But I'd be interested in your feedback there, please. .

Yes, I would say, Bill, where we've made the most progress is there. And when I look at the shift in value proposition away from what would be commodity even over the last 4 years, to where we live today, we have very rigid methods by which we interface with our client.

We really do believe today that we have a true partnership with the market and the small business owner and local markets. We've got a very defined cadence by how we interface quarterly at a strategic level versus all the tactical stuff that we're doing every day to support them.

And just -- that's why I spent time in the field meeting with clients and referral channels. And watching that change has been, one, very rewarding; but two, it's moving fast. And I would say we're just starting to get to a point where we're coming into our own in local markets.

When I look at even a lot of the work we're doing on systems and processes and methods and how we go to market, the discipline of our teams and how well they are executing and interface with clients and then the backdrop of all the tools and methods that we have by which we go to market, it's -- I am very pleased with where we're at.

And I'm getting that as an echo, not from my own seat, but from the seat of the customers that I'm talking to every quarter. .

And Mike, not to ask you to divulge the secret sauce, but would you walk through as much detail as you are comfortable, kind of how that evolution has -- basically how that's -- how that consulting phase is different today versus 2 years ago?.

So one of the things that we've been able to do is if we looked at different components of how we went to market and how we execute in the local markets over the years, we've been able to draw all those methods into an in-line framework.

And from that in-line framework, we actually can go up line and know that when we're meeting with and visiting with referral partners to help them understand what we're about, where we're going, that that's really where the whole phase starts.

And then when we look at the methods by which we develop the understanding of who we are there, it echoes through in how we bring clients into our DNA and create alignment. But it's much more of a -- it's not a tactical sale today. It's very much a strategic alignment of the business owner's interest based -- with our teams.

But we start the sales cycle, if before, we could get a deal done in, call it, a week, today, it's going to take at least 6 weeks and we're probably working up-line on our overall pipeline upwards to 6 to 9 months ahead of what we're seeing. .

So as we build it correctly, we're taking a very proactive, systemic approach to bringing the client in more effectively. And then from there, we're basically teeing that client up from, I call it above the line and below the line.

About the line, we're talking to the business owner about their strategic objectives and what they're trying to get done with their business and where they want to take it and what their time horizon is for what they're trying to build. .

Below the line is where we still execute to all the things we do, whether it's how we go, how we approach HR, how we approach risk management, how we bring -- adjust our systems to play when we're taking care of data and payroll and all the backroom stuff that we do.

And then on the back end of it, the -- even below the line, where we spend a lot of our time is our resources are working to develop that next line of leadership within our clients, be it their supervisors, their #2, to help them to be in a position where they can look at structure and scale.

We've got a lot of tools right now where we can look into a business and we can actually take a very complex, I'll call it, disruptive modeling, when you look at an individual business and we can reduce the equation very quickly for that client to be able to say, "Here's where you need to put your focus in the next 30 days, here's what we're seeing and here's how we're going to help you as we're right in the sidecar with you." But it's -- you're right, though, there are some trade secrets that we're not going to talk about too much, but the way we do it is more earth and science and we're good at it.

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Thank you. This concludes our question-and-answer session. I would like to turn the floor back to Mr. Elich for closing comments. .

Again, thank you for staying in touch, and thank you for staying involved as we mature and grow as an organization. Like I think I just said, I'm extremely excited about where we're at today and I'm really looking forward to where we get to in the next few years. Thank you. .

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