Barrett Business Services, Inc. (BBSI) Q4 2019 Earnings Report, Transcript and Summary

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, 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'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 call will include forward-looking statements. These statements, along with other information presented that does not reflect historical fact are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements. Please refer to the company's recent earnings release, 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 March 26, 2020, starting at 3 p.m. Eastern this afternoon. A webcast replay will also be available via the link provided in today's press release as well as available on the company's website at www.mybbsi.com. Now I'd like to turn the call over to the Chief Financial Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead. Gary Kramer;Chief Financial Officer: Thank you, Robert. Depending upon where you're dialing in from, good morning or good afternoon, everyone. We had a very strong year that resulted in record earnings. In the fourth quarter, we reported diluted income per share of $1.51 compared to $2.21 in Q4 of '18. Gross billings of $1.59 billion grew 5% over the same period. PEO gross billings increased 6% to $1.56 billion compared to the fourth quarter last year. Gross billings for the year were about 3% less than we expected and was primarily related to same-customer sales. In our plan, we estimated that same-customer sales would be about 6% for the year versus an actual of about 4%. This decrease is primarily related to our clients with slower growth in adding additional employees due to a tight labor market. Gross billings grew by 3% in California versus 14% in all other combined geographies. Same-customer sales were 5.4% compared to 6.3% in Q4 of '18. In comparing December of 2019 versus December of 2018, we saw that our clients' hours worked decreased, which we attribute to how the holiday season fell. We continued to increase our client base with a gross addition of 373 clients or 134, net of runoff, in the quarter. The 373 gross additions are a record number in any fourth quarter in our history. Net revenue of $245.2 million increased 3% compared to $237.8 million in Q4 of '18 and reflected the continued build of our PEO clients, which was slightly offset by weaker staffing revenue, which decreased 10% to $33.1 million compared to Q4 of '18. The decrease in staffing revenue was a direct result of the continued tight labor market, and we anticipate that staffing will remain a slight headwind to near-term revenue growth. Workers' compensation expense as a percentage of gross billings was 4.2% this quarter, which is below our expected range of 4.3% to 4.5%. This compares to 4.8% in the fourth quarter of 2018. The improvement was due to the independent actuarial evaluation, resulting in a reduction of prior year estimated liabilities of $3.1 million. Also, as previously discussed, we restructured our arrangement with Chubb to reduce frictional costs, and our entire portfolio of policies is now on a more efficient structure. 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 decreased 15% compared to the fourth quarter of 2018. All in, we are very pleased with the way our workers' compensation portfolio is performing. We have taken many steps and actions, which are yielding positive results. We are conservative and deliberate, and this strict focus and attention has resulted in redundancy in the portfolio 9 quarters in a row and is why our expense continues to come in lower than our range. Payroll as a percentage of gross billings is increasing as other components of gross margin decrease. This is related to an increase in PEO business mix and continued expansion outside of California, where many states have lower payroll tax and workers' compensation ratios. SG&A in the fourth quarter was $40.4 million, which is 8% lower than the prior year quarter. We experienced some onetime expenses in Q4 of '18 that did not repeat, which makes this quarter seem artificially better. For the full year, our SG&A was in line with our plan and grew at 6%. We continue to be mindful and diligent about balancing spend against growth while investing in the business for the future. The provision for income taxes in the fourth quarter was $3.7 million. As mentioned in prior quarters, we increased our full effective tax rate estimate from 18% to 22% this year. Moving to the balance sheet. Our unrestricted cash and investments were $127 million at 12/31/19, which is $90 million greater than 12/31/18. The restricted cash and investments, which is primarily comprised of the Chubb trust, was $444 million at 12/31/19. The $571 million combined unrestricted and restricted cash and investments will continue to be invested in a balance of cash and investment-grade fixed income. At 12/31/19, the average quality of the invested portfolios was AA, and no investment was greater than 4% of the portfolio. In the quarter, we earned $3 million of investment income. We continue to invest in our IT organization and our client-facing technology. And as a result, our fixed assets grew by $6.9 million over the prior year to $31.7 million. On the liability side of the balance sheet, we have no material updates. We had no borrowings under our credit line as of 12/31/19, and we continue to be debt-free except for the $4 million mortgage on our corporate headquarters in Vancouver, Washington. In summary for the year, we faced slight headwinds to revenue growth for both staffing and PEO due to challenging hiring conditions. However, we continue to focus on the things in our control like widening our client base. In return, we added over 800 net new clients for the year. Our workers' compensation portfolio developed favorably and is a direct result of the various steps and actions we have taken. This resulted in record EPS in 2019 of $6.27, which exceeded our initial guidance by 16% and was 26% better than the prior year. We also returned dividends to shareholders in the amount of $8.2 million. Our balance sheet has made the turn and we have built a financial moat to support the company. We invested in the business and future growth while being mindful of expenses and looking for savings and efficiencies in everything we do. As we mentioned last quarter, we invested in and introduced a new website, mybbsi.com. This was the first move to more accurately represent our value proposition to the market. The next step of the rollout is our new customer portal, which we expect to come online during the second quarter of 2020. Speaking of 2020, our pipeline remains strong and we continue to build our base of net new clients. Our referral relationships and distribution channels continue to widen. For the full year 2020, we expect diluted earnings per share to be $5.05. We expect gross billings to increase approximately 7% for the next rolling 12-month period. This contemplates continuing deceleration in staffing revenue of about 10% and same-customer sales growth for PEO to be similar to what we've experienced in 2019 or about 5%. We now expect the range for workers' compensation expense as a percentage of gross billings to be 4.2% to 4.4%. This estimate does not include any change in estimate for prior year's workers' compensation liability, but as we've highlighted in the past, it has trended favorably over the past 9 quarters. This includes an increase in SG&A of $5.5 million or $0.56 per share for the launch of our new and improved customer portal. It is important to note that we have estimated a minimal amount of revenue increase in 2020 as it relates to the portal, due mostly to conservatism around the migration of our customers onto the new platform, but we expect increased revenue growth and expense synergies in 2021 as it relates to the system being perfected and online for a full year. We also expect the effective tax rate to be approximately 20%. 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 fourth quarter as well as our operational outlook for 2020. Mike? Michael Elich;President and CEO: 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 start off by thanking the BBSI teams and partners that allow us to support our clients to the betterment of our shareholders. We had a solid year. While top line remains softer than historical levels, we feel good about record earnings and our ability to create shareholder value. The fundamentals of the business remain strong, and we are seeing continued support of our value proposition in the market. Looking back to 2019, it was a year where we introduced mybbsi.com, our new website, the first in a series of moves to tell our story more consistently and to set the foundation for a more meaningful systems engagement with our clients. We also undertook a technology initiative, investing in our system with a focus on removing friction and further integrating with our client companies. The investment we made in technology and systems in 2019 will reshape how we apply technology to our offering over time. Also in the year, we added 3 branches in Lehigh Valley, Pennsylvania; Grand Junction, Colorado; and Roseville, California. We also added 8 business teams to our existing footprint. We added more than 800 net new clients, and we continue to spend time in the field with referral partners and business owners, working to understand what they may be seeing in their markets. In the quarter, we added 373 new PEO clients. We experienced attrition of 239 clients, 6 due to accounts receivable, 2 for lack of tier progression, 9 due to risk profile, 17 businesses closed, 51 businesses -- excuse me, 17 businesses sold, 51 businesses closed and 134 left to pricing competition or companies that have moved away from the outsourced model. This represents an approximate build in the quarter of 134 net new clients. We generally see an uptick in runoff in the fourth quarter as it is a cleaner time for companies to move away from a co-employment relationship. Also in the quarter, we took time to pull 856 of our existing clients to better understand what they may be seeing. In speaking with these clients, the majority are profitable and continue to see relevance in their offering. Despite runway and opportunity, lack of skilled labor continues to be the limitation to growth, and there continue to be an uncertainty related to a variety of macro issues. In general, the business owners we spoke to expressed optimism, but they're not able to find the talent they need to grow, which is why we believe we are seeing softness in same-customer sales. Given the sample of 2,000 clients interviewed in 2019, we have seen very little shift in business owner sentiment or confidence. 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 future growth, scale into new markets and invest in support of our product offering. In the quarter, we opened a new branch in the Lehigh Valley of Pennsylvania. Also in the quarter, we added 4 business teams, bringing us to 118 business teams across 64 branch locations. Related to branch stratification, we have 18 mature 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 pipeline. Related to systems, in 2019, we undertook a meaningful technology initiative, a client-facing portal, MyBBSI. We chose this name to extend the personal relationship we have with our clients to our digital interactions. This effort had 4 goals: to own our destiny, to deliver a user experience that complements our teams' high-touch interface, to enhance our clients' experience and remove friction from our teams and our clients and to set a foundation for future innovation. Most notable about the development of our client-facing portal is architecture that supports consistency -- consistent user experience while providing seamless access to a variety of back-end tools. The portal MyBBSI delivers enhanced functionality, usability and flexibility for the user. It reduces friction and puts control in the hands of the business owner. Additionally, the system's architecture affords us the ability to think more broadly about the way in which we can use technology to support the needs of our business owner over time. By late second quarter, all new clients will be onboarded to MyBBSI. We expect that by the end of 2020, all clients will be converted to the system. 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 received from our clients and referral partners supports 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 the 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. We built an enterprise platform where we own the code, we own our user experience, we own the interface, and it allows us to -- the flexibility to innovate into the future. Our foundation is very strong. We know where we need to focus our energy and we are executing to our plan. With that, I'll open it up to questions.

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

Just in terms of the goal, maybe I missed it, for net client adds in 2020, could you talk about that? Gary Kramer;Chief Financial Officer: Sure. We don't give numbers for client counts or what's baked into our plan. But if you look at the year that we've had so far this year, we've had a record year of adds almost every quarter. We expect that trend to continue into 2020. Our expectation is we'll probably get to a net client count of over 1,000 in 2020. And then when we think about kind of the puts and takes and the things that we have happening, we'll talk more about technology, I'm assuming in the Q&A part, but we really think that having this new technology is really going to help us retain business and make business stickier. Michael Elich;President and CEO: Yes, Chris, I would also add to that is that in the environment we're in, one of the things that we know is that we can't control how large our clients are. We are working on retention of some of our larger clients, but at the same time, we can't control how many we do business with. So our focus has been and always will be that we just continue to build with. And the size will normalize to the mean at some point, and then that's where we see that uptick and go from there.

Is it your expectation that the new portal will help in -- specifically in terms of retention of larger clients? Michael Elich;President and CEO: That's what our belief is, yes.

Got it. Just in terms of kind of looking at the 2019 versus 2020 in terms of the cadence, obviously, third quarter is typically where it's strongest. Any reason to think, from where you're sitting today, that 2020 will look much different than 2019 from that pace? Gary Kramer;Chief Financial Officer: Do you mean regarding distribution of revenue and earnings?

Exactly. Gary Kramer;Chief Financial Officer: It's -- 2020 is going to have the same distribution pattern as 2019. So the only -- let me just kind of jump in and talk about technology, if we can, right? So -- because it's going to have an effect on the financials, too. So we're building out an enterprise platform where we own the code, where we own the interface, where we own the client experience, where we really own our technology destiny. And this becomes a platform that we can then use to add on to additional innovation in the future, right? So this is going to be much more than just a payroll site. This is going to be an enterprise that we get to use and communicate and work with all of our different clients. And this technology is going to help us with larger accounts. It's going to help us with tech-savvy accounts. It's going to help us open new markets where we currently aren't. So when we think about where this is going to take us, it's going to open up a lot of doors for us, and it's going to help us retain a lot of business. So in 2019, we tracked when accounts run off. And in 2019, we had $74 million of revenue leave us because of technology. And we're thinking that this is going to make that business stickier. It's going to make that business stay and it's going to help with our renewal retention. It's going to help with our renewal dollars. So if I -- we gave the guide for what the cost is going to be for the year for 2020. If you just kind of think about the way this rolls, we're going to have expenses in Q1 and Q2 that associate with it, right? So it's going to be cloud-based. We got to pay for the server space. We got to pay for all those things and that's an expense that's going to be in every quarter. In Q3, we will start to depreciate the asset and as the system comes online, so our expense will go up, our SG&A will go up in Q3 and Q4. So when I think about 2020, it's more of a conversion year. And then 2021, the only additional expense we're going to have, if you just think of it simply, is you're going to have that depreciation expense in Q1 and Q2 of 2021. So it's not going to be -- the incremental expense is probably going to be $1 million in '21 over '20. But we really think that this is going to accelerate our net revenue and our gross billings growth. Michael Elich;President and CEO: Yes. And I would say, Chris, to that is that if you were looking at '19 over '20, you could use '19 as a good baseline. And then from there, we expect a lot of the initiatives outside of even technology that we're working on right now to be additive. But we're still just working forward. So...

Our next question comes from Josh Vogel with Sidoti & Company.

I guess my first question, when we think about the technology investments or system upgrades that you completed in 2019, what was the incremental expenses tied to that? Gary Kramer;Chief Financial Officer: In '19, it wasn't a lot of incremental expense because if you think about as we're building it, we're putting it up on the balance sheet. So really, the expense comes once you deploy the asset and start depreciating the asset.

Okay, understood. And then, Gary, you did touch on it but when we think about the $5.6 million in incremental SG&A this year, the bulk of that is going to hit up in Qs 1 and 2? Gary Kramer;Chief Financial Officer: The bulk is going to be in Q3 and 4, but we're going to have some increase in SG&A in Q -- there are certain things that you can't capitalize, and they're going to have expenses for those in Q1 and Q2 and Q3 and Q4 as well. But really, the -- I'll say we'll get to a normalized run rate as far as our SG&A in Q3 and Q4. So that's when the system's online, and that's where we're going to have the full expense in the SG&A.

Got you, okay. And then when we think about your comments around that and the incremental SG&A uptick, did you build in any buffer when we think about -- is there any concern or risk that the portal can't seamlessly be implemented or you have issues with client migration that could lead to some short-term hiccups or -- and ultimately higher expenses on your end? Gary Kramer;Chief Financial Officer: So we -- we're very confident in where we are now, which is why we're kind of putting the line in the sand. So we have -- I'll say, the Ferrari's out of the garage and being driven now. And our clients are testing it. Our clients are excited. Our teams are super excited. We're -- by the end of March, we're going to have our client testing done. And then when we get into April is when we start to get into how we deploy. So we feel like we're far enough along that we have a real good clarity of the plan. And I can say that the obstacles that could be there we thought through, and we feel good with -- given the date now. Michael Elich;President and CEO: Yes, I'd say, too, Josh, on that is that we have -- if we looked at just the project itself, it has brought to us a rigor of discipline about how we go and build and run projects. One of the things that I think is to our advantage is even culturally, who we are as an organization and how we run and lead the organization through our mentor platform. So we've got very strong communication channels that allow us to deploy ideas effectively into the organization. I would say that when I look at what I've heard, what I've seen as a product, it takes us a long -- it's a big leap forward for us. And looking at that, it's intuitive enough that it should be adopted fairly well. The feedback that we've had, both internally and externally, so far, has been extremely positive. And even as far as just the testing that we've done, we've actually run a pretty good rigor of testing, and we're in the middle of our pre-alpha right now, which is a set of sprints that will really take roughly 100 clients through this process. And in doing that, we're testing both internally and externally for bugs and things that might become a headwind or could be something that we would have otherwise discovered as we try to launch. But again, you have plans in place, you have -- you're executing to a plan. There's always the unknown, but right now, we feel pretty good about where we're positioned.

Okay. Great. Obviously, undergoing a lot of these technology initiatives, so when we think about beyond 2020, are there any other pilots you're working on and anything you are potentially looking to roll out in 2021? Michael Elich;President and CEO: This is Phase 1 of what we view to be a several-step process. I think one of the real things that we buy in this whole process is a foundation that allows us to build on it. The portal itself allows us to have, call it, our front door and then now we can build inside the house and be more effective at bringing a similar look to our client base with -- while at the same time, we can innovate behind the screen a little bit. And that is a big step forward. Yes, we have a pipeline of ideas and of what they are, which we're going to kind of keep to ourselves relative to being proprietary at this point. But there are phased builds and ways that we're looking at how to evolve the product and how to evolve our offering. One of the things that I get excited about is that we've spent many years in building an organization that can apply a high-touch model to a local market, interfacing with clients and having real conversations. What we're doing with technology now is being able to mirror or match up the quality of conversations with the quality of technology that allows us now to take that relationship and make it more sticky and evolve it in time. The challenge would have always been if you had technology, first, to be able to teach an organization and help us to really go out and have those conversations. By being in reverse, I think it's a real niche for us over time in that it will be tough to compete with us when you take a technology platform that is, I'll say, catching up, and then will eventually become state-of-the-art. And then eventually, two, when you look at your teams and when you remove friction for where they're living, I think it puts us in a really good spot to, one, capture more market share, be able to work in more verticals than we can today and continue to elevate the trajectory that we've been on over the last several years. Gary Kramer;Chief Financial Officer: Yes, Josh, and just to kind of get -- go to where you were getting at is the, I'll say, the Phase 1, to try to quantify, is going to be the more expensive of any of the phases. And then as you get into Phase 2, 3, 4, 5, 6, they're going to be more bolt-ons and less expensive, but that's where it allows us the opportunity to innovate.

All right. That's helpful. Just shifting gears. Obviously, the balance sheet is very healthy. And we know that you've been taking excess capital to reinvest in the business and the branches, business teams, technology initiatives. But at this point, what could investors expect? You aren't acquisitive. You do pay a dividend. I know you have a share buyback plan in place, but would a dividend increase or even a special dividend be on the table at this point? Gary Kramer;Chief Financial Officer: So when we look at -- good question, right? So we always are going to look to invest in the company, first and foremost, because that's where we're going to get a greater return. But after we've gone through these different analysis, the idea of extra capital, we are an opportunistic buyer of our stock as part of our stock buyback plan. And candidly, the stock's on sale so I feel like we will be an active buyer in this quarter.

And when are you free to buy? Gary Kramer;Chief Financial Officer: We're in the blackout now so once the blackout lifts.

Our next question comes from Jeff Martin with Roth Capital Partners.

Kramer, I just wanted to verify the way I'm looking at this because if you back out the benefit from the prior year claims for 2019, you kind of get a pro forma number of $4.90 EPS, and then your guidance of $5.05 in 2020 has $0.56 of additional SG&A tied to the technology investment. When you look at it as kind of a 15% EPS growth in an all-things-equal comparison, is that the way you look at it? Gary Kramer;Chief Financial Officer: Yes, that's the way I look at it. So $4.90 and then $5.05 rolled to $5 -- $5.50, $5.61 and get you to that 15% return. And that's typically the target we seek for over a cycle is a 15% return.

Okay. And then just to clarify, you don't have anything embedded in your guidance for additional adjustments to prior year workers' comp claims? Gary Kramer;Chief Financial Officer: Correct. There is -- in our guide of $5.05, that does not contemplate any change in estimate for prior workers' comp. If that were to happen, that would obviously be above and beyond the $5.05. And then if you just -- we're -- we set ourselves up in a conservative position, right? We don't ever want to be in a position where it goes the other way. So if you just look at the trend over the last 9, 10 quarters, you can see the trend is -- has been going in a favorable direction.

Right, right. Okay. Then a couple of questions on the technology portal. What is the CapEx budget for that? Gary Kramer;Chief Financial Officer: For 2020, our CapEx budget is going to be around $5 million.

Okay. And then how much of that -- is the bulk of that tied to the portal? Gary Kramer;Chief Financial Officer: The lion's share of that is going to be tied to the portal.

Okay. And then once that's up and running and you're migrating clients over, I know the hope is to improve retention, but does that open up a larger addressable market? Traditionally, you've been blue and gray collar small business. Does it open up the middle market more? Does it open up white collar? Help us to understand how you're thinking about how that might change the market opportunity. Michael Elich;President and CEO: Yes, Jeff, I would say, yes, that is -- we anticipate that. One of the things that we've run into over years is that our interface has not been as strong as maybe others in the market, and we feel like that we caught up with the portal there. I think that what it does is it puts us on par with others that might compete in, call it, more of a white-collar space. It also gives us the more ease of use for user interface both at the client level, the employee level, where we can actually bring and create more of a clear interface to those audiences to self-manage things that really shouldn't require us to have hand-holding. So that's a big turn. And typically, when you get into white collar, I'll call it, you're working with more highly compensated people, and they expect that. And so this is a little bit of a catch-up for us. And I think once we've got it online, we -- it opens up 2 things for us, probably a broader network on the referral channel base. And then also, it allows us to be competitive in a market environment that requires stronger technology.

Okay. And then I was wondering if you could speak to the cadence of quarterly gross billings growth. With the stepdown in Q4, the runoff of 134 that left due to pricing competition, I'm curious if the average size of those clients is larger than the average of the book and if you expect to see gross billings growth slower in the first part of the year and accelerate throughout the year. Just any guidance there would be helpful. Gary Kramer;Chief Financial Officer: Sure. So the -- I would say that the runoff we had in Q4, when we look at it for the total portfolio, is healthy. It's a number that doesn't -- if you don't have any clients leaving, that means you're not charging enough, right? So we're kind of comfortable with having clients leave due to price. And then if you look at how that's going to affect the year, Q -- just to kind of get your head around Q1, Q1 is going to be our biggest growth quarter. So Q1 is going against a very soft comp of Q1 of '19, which is one piece. And then the second piece is, there's an extra day due to leap year. So you're going to have an extra day in the quarter, and you're going to have -- going against softer comps. So that's going to be the higher of all of the quarters as far as gross billings growth quarter-over-quarter over the prior year. So Q1 will be the highest, and then it kind of will get down to a more normalized as far as quarterly growth in Q2, 3 and 4.

Okay. And then in terms of not modeling contributions or incremental business tied to the portal this year, I mean, is it unreasonable to hope that you might see some billing -- gross billings acceleration in the back half of the year? Michael Elich;President and CEO: Yes. Jeff, it's one of those environments that we've been in for probably the last couple of years, and it's hard to model anything that would be different or a shift from where we've been, call it, the last year, especially as it relates to same-customer billings. Right now, there's enough going on in the overall macro environment that you're always watching for your headwinds. I would say for us, as we look at opportunity, it's one to maintain a consistent pipeline and maintain build around that. It's about retaining maybe some of the larger clients that maybe we've lost in the past and bring in more of a parity between clients that are coming on and clients that are leaving. That's the real work. And then over time, you're building a wider base and a stronger base. But as you look even later in the year, we're going to continue to be consistent around our build. We're going to continue to mature our offering and make sure that we're getting in front of any kind of runoff that is working against us that we shouldn't be losing. And then from there, you've got to let the modeling kind of take its place. But for the most part, in looking at the modeling, it's a -- we use the basis of '19 related to same-customer sales. We know that our stack needs to perform at a level that allows us to build over and above that. And then so that's how we get to where we're at. Gary Kramer;Chief Financial Officer: I just want to put one point, it's going to take us some time to convert all of the clients over to the new portal. But the point I really just want to make is that come end of Q2, every new client we bring on is going to be on the new technology.

Our next question comes from Vincent Colicchio with Barrington Research.

Yes. Gary, could you break down the same-store sales by headcount, hours worked, et cetera, wage inflation? Gary Kramer;Chief Financial Officer: So I'll break it down for quarter and then kind of do a comparison for you. Hold on, I got to find my sheet though. For the quarter, it's about 1.5% for headcount, and then the difference is for wage inflation, which gets you up to that 5, 4. The one difference we saw comparing '19 to '18 is the hours worked really went down in '19 versus '18. And the reason is, if you look at the way Christmas and New Year's fell, we had a lot of hourly holiday hours and vacation hours being taken, which meant that people weren't working overtime and things of that nature. They were getting their straight 8 as opposed to more hours. So our hours worked in the quarter compared to the prior quarter was down by about 100 basis points.

And do you have the prior year's workers' comp claims adjustment for 2018 and 2019 so I could adjust those EPS numbers? Gary Kramer;Chief Financial Officer: Sure. 4Q '18 was, I'll say, a unique quarter because our SG&A, we had some nonrepeatable expenses. Our payroll tax, we had a payroll tax benefit for a change in estimate. And then the workers' comp in fourth quarter of '18, the change in estimate was $1.5 million.

No, I'm asking for the change, the total change for 2018 full year and then what it was for '19 full year. Gary Kramer;Chief Financial Officer: All right. Give me one second. For '18, for the full year, it was about $4 million. And for '19 for the full year, it was a little over $13 million.

Okay. And the portal project, when did you guys start working on that? Has that been in the works for a few months, a year? What does that look like? Gary Kramer;Chief Financial Officer: We've been working towards it for probably the last 18 months. A bulk of the work happened in 2019. [indiscernible] requirements -- well, requirements and planning and things that were happening were at the beginning, and that's not a lot of bodies and resources. When you get into the bodies and the resources and the spend, our spend has really been in the last 2 quarters.

And was there an acceleration of how the prior approach was hurting you in recent years? How does that look? Gary Kramer;Chief Financial Officer: I mentioned earlier for 2019 that for clients that leave us, we always capture why they leave, right? We look at them as a future client and we want to understand why they left and what we need to do better. That's part of our discipline. In 2019, we had $74 million of revenue leave because of technology. Michael Elich;President and CEO: Yes. And Vince, I would say, too, is we would go back, probably the last 2 or 3 years. As you grow up as a company, you keep layering in the system, that system, that system and they all have to talk to each other. And so the big dig is we had to step back and build a unified platform that allowed us to be able to go-to-market eventually and have a similar -- a single phase where we could be more nimble on a go-forward basis than how we were using our technology to support our clients and support our look towards the market through our user interface. And so we had to take that step to actually step back to step forward, and that was the nature of the project to position us now for -- to bring ourselves to market parity there and then ultimately, to give us the ability to innovate and build into the back end of the portal of ideas and -- that are around supporting the client life cycle and the customer at a different level.

Our next question comes from Bill Dezellem with Tieton Capital Management.

I have a group of questions. Can we start with the system? I'll row with the same route everyone else has here. Two questions. Do you believe that you -- well, maybe just discuss the business that you think you have not won in the past because your technology was not what was expected. Michael Elich;President and CEO: I would say that as we -- we run perfect payroll. We do a great job of making sure that we get what we need to get done for our clients. Probably the gap for us was that if we were potentially using a foot phone to get that done, today, we're using an iPhone with the new platform. So that was a jump. So when you consider going to a market where it's more of a blue-collar environment, that doesn't matter as much to you. But when you start to walk into a company that builds technology, I'll call it, and they're a tech company or they're a doctor's office or whatever, that becomes more important to them. They want to get the iPhone. And so for us, the transition has been that we've been able to be good enough in the field for our people to show up and capture a lot of that business. But we've done it really in spite of the technology that we had. What I see in this transition is that 2 things will happen: one is, is that we bring ourselves to a level of parity with market and have a better interface for the client and a better view to what we can bring to them through just a better user interface. Beyond that, I think we believe that it will open up markets over time, and it will give referral partners and referral channels more confidence in bringing us a different type of business that I think that we get pigeonholed a little bit because of the deficiency. And I think when we open that up, it will widen our referral channel.

And not having seen the technology, admittedly, I don't understand it very well yet. So will this allow you to win business in geographies you don't even have a branch today, likely for smaller customers but where you're almost a payroll-in-a-box? And would you even want to do that? Michael Elich;President and CEO: I don't think we really want to go there. I mean, we can sell payroll. That's really not the essence of the model itself. I think it's -- we want to be able to work with our clients to support their interest and helping them navigate growth and mature their organizations so they're running a better company. And so that will always be our premise. And so I do think that as we go into new markets, if we're able to take some of the friction away from how we look, how we feel through our user interface, I think we'll be accepted into new markets more readily compared to where we've been. Today, we just have real strong people that can go in and bust down the doors. Today, hopefully, we're going to give them a little bit of help because I think that we've been working from a little bit of a deficit position there.

And just to be clear, is that consultative -- that component that you're talking about, is -- that's done on a human level, not with technology? Michael Elich;President and CEO: Correct. No, we build teams to support the interface with our client. We use technology to enable those great teams.

Excellent. And then, Gary, a couple for you. How much of the safety incentive still remains? I believe it was $5 million or so at the end of Q3. Gary Kramer;Chief Financial Officer: Good question. I don't have that answer with me.

No worries. And then thinking about what you all have said that you're looking for the Q1 to have the highest gross billings for the year and that your goal is for 7% gross billings through the full year, the next -- the rolling 12 months, that would be calendar '20, and that you're more than halfway through the first quarter, would it be correct for us on the outside to infer that the first quarter, you have pretty good confidence will be in excess of 7%? Gary Kramer;Chief Financial Officer: Yes.

And when was the last time gross billings were in excess of 7% -- gross billing growth, I should say? Gary Kramer;Chief Financial Officer: Q1 of '18. Michael Elich;President and CEO: Bill, what I'll add to that, not to tear down the answer at all but it's -- we're up against smaller comps there in the quarter, and the extra day is helping. So I don't want us to -- but directionally, yes, we feel like that was -- we're moving in the right direction.

[Operator Instructions] Our next question comes from Richard Glass with Glass Capital. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: Just a couple of quick ones after people have used up most of the good ones. The first one, what should this look like on the MyBBSI spend in 2021? Is that $0.46 hit an ongoing expense? Does it grow as you transition people? Do you get leverage? Is it -- what are you spending on? Is there some leverage that should take place there? Does it go in half because most of the people are transitioned? How should we think about that running forward? Gary Kramer;Chief Financial Officer: Sure. So the -- if you think of the cost that we're going to have this year, say, it's $5.5 million. What's going to happen is in 2021, it will be a full year and it's only going to be an incremental growth of, call it, another $1 million on top of that. So it's not an additional $5 million on $5 million. It will be $1 million on $5.5 million is where we would land for 2021. But what this gives us is this system not only is a benefit to our clients, it also benefits our teams. So it allows our teams to be more efficient at what they do, which ultimately, we think, can lead to some efficiencies on our side, but we haven't gone through or made any quantifications of what we think that would be it. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: Okay. So people can come out as functions get redefined when everyone gets towards more being fully online is what you seem to be saying? Gary Kramer;Chief Financial Officer: Or maybe we can -- I'll say it the other way, I think we'll be -- our people will be able to do more, which will be to service the client better rather than just doing some payroll functions. Michael Elich;President and CEO: Yes, we look at it potentially adding to capacity utilization of our teams because we really are removing some friction of where -- just for instance, where we do some functions that might be a 6- or 7-step process. We can -- we're reducing that to maybe a 1 or 2 or -- where technology is taking care of some of the functions or processes that we're using. And that's just internally. That itself is going to open up capacity for the organization and capacity utilization. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: How many of your teams are maxed out, would you say, at this point, if you have 118 at this point? Michael Elich;President and CEO: I -- that -- it stratifies itself. When we look at our full capacity utilization today, we're running right around 64%. So you've got the build branches where you're coming up and the build teams where you're running on, building up and then you've got those that are -- I wouldn't say that today, more than maybe 20% are maxed out. But I would say that even in development, where we look at the queue of the 80% that are up and coming, we'll get more runway out of them than we might have otherwise. And I think, too, it also enhances the quality of the product. To Gary's point, when we don't have somebody even just doing a renewal running 20 reports to try to get to an answer, and they can go 1 spot, kind of click on a button and get the information in a minute, and we know that, that's been a drain on the capacity of the organization. And so what it does is, if nothing else, it takes us away from the real work we should be doing and that puts us into an administrative role. And if we can eliminate that, that high-touch model becomes much, much more effective. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: Right. But theoretically, it's arguably your best teams that are getting freed up in terms of capacity if they're the ones that are maxed out, all else equal. Michael Elich;President and CEO: Yes. And the ones coming up will be better and smarter at the way that we do it. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: Right. And just to clarify, it was a $50 million buyback, is that the right number? Gary Kramer;Chief Financial Officer: $50 million over 3 years. Richard Glass;Glass Capital Management;Founder, CEO and Portfolio Manager: Right. But obviously, that -- there's no given time frame within those 3 years. Is the blackout a few days? A week? What's the time frame for that for you guys at this point? Gary Kramer;Chief Financial Officer: I got to be careful what rabbit hole I go down here, but it's -- so we have covenants with Wells Fargo, where we have authority of $50 million a year. So we have $50 million a year, which we expect over 3 years.

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. Michael Elich;President and CEO: Again, I'd like to thank all of you for joining us today. I look forward to catching up with you next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.