Barrett Business Services Inc (BBSI) 2008 Q3 法說會逐字稿

Good afternoon. My name is Jennifer and I will be your conference operator today. At this time, I would like to welcome everyone to the Barrett Business Services third quarter conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Mr. Miller, you may begin your conference.

Thank you. Good morning. This is Jim Miller with Bill Sherertz and Mike Elich. Today we will provide you with our comments regarding the Company's operating results for the third quarter ended September 30 and our outlook for the fourth quarter of 2008. At the conclusion of our comments, we will respond to your questions.

Our remarks during today's conference call may include forward-looking statements. These statements, along with other information presented that are not historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by the forward-looking statements. Please refer to our recent earnings release and to our 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.

Page 1 of yesterday's earnings release reflecting our operating results summarizes the Company's revenues and cost of revenues on a net revenue basis as required by generally accepted accounting principles. Most of our comments today, however, will be based upon gross revenues and various relationships to gross revenues because management believes such information is; one, more informative as to the level of our business activities; two, more useful in managing and analyzing our operations; and three, adds more transparency to the trends within our business. Comments related to gross revenues as compared to a net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses, or net income.

Turning now to the third quarter results. As reported yesterday, the Company earned $0.06 per diluted share in the third quarter as compared to $0.54 for the third quarter of 2007. The decline in earnings on a quarter-over-quarter basis was primarily due to three factors. First, the impairment charge of $3.5 million or $0.32 per share taken on foreclosed and bond fund investments; two, a 2.8% decline in gross revenues; and three, a $3.9 million decline in gross margin dollars. Total gross revenues for the third quarter of $288.4 million decreased $8.4 million from the 2007 third quarter. Excluding the benefit from the Company's two acquisitions made since third quarter of 2007, the internal growth rate for the Company on a quarter-over-quarter basis represented a decline of 3.6%, which continues to reflect the overall economic conditions in our market.

California, which comprised approximately 75% of our overall third quarter gross revenues declined 4.4% owing to small declines in both staffing and PEO revenues. Staffing revenues for the third quarter of 2008 increased 1.3% over the third quarter of 2007, owing primarily to the Phillips Temp and First Employm;ent Services acquisitions made since December 2007. On an internal growth or comparable branch office spaces, staffing revenues declined about 3.9%. PEO gross revenues declined 3.5% on a quarter-over-quarter basis, as the two acquisitions made since December 2007 were exclusively staffing. These acquisitions had no effect on the PEO rate of change.

Gross margin percent on a gross revenue basis for the 2008 third quarter declined from 6.3% to 5.2% from the prior year. Direct payroll costs increased 51 basis points over the 2007 third quarter, primarily due to a decrease in the overall markup on our PEO payroll. And this is in part -- or largely due, to slightly lower billing markups related to our workers' comp component of that overall markup. Payroll taxes and benefits for the 2008 third quarter as a percentage of gross revenues remain nearly the same at 7.35% as compared to 2007. That is simply due to similar effective payroll taxes for the third quarters of both years. Workers' compensation expense for the third quarter of 2008 increased over the same 2007 quarter in terms of total dollars and as a percentage of gross revenues from 2.76% to 3.43%. This increase was primarily due to higher estimates for new claim costs and to increases in estimates for existing claims in states where the Company is self-insured.

2008 third quarter SG&A expenses of $10 million increased $477,000 or 5% over the 2007 third quarter. The increase was primarily due to incremental SG&A expenses of the noncomparable branch offices from the two acquisitions completed since December of 2007. On a comparable branch office basis, SG&A expenses for the 2008 third quarter experienced an increase of 1.9% as compared to the 2007 third quarter. The income tax rate for the 2008 third quarter was 56.6%, which increased from the 2008 second quarter rate of 36.2% as a result of the Company's nontax affected impairment charge to its investments, offset in part by some one-time state tax benefits attributable to Ace, our wholly owned capital insurance companies, recognized upon completion of filing our 2007 income tax returns during the third quarter of 2008.

Turning now to the balance sheet at September 30. Cash and current marketable securities totaled $51.3 million at September 30 compared to $60.1 million at December 31, 2007. The decrease was primarily due to $6.4 million used to repurchase 514,000 shares of the Company's common stock, $3.8 million used for the First Employment Services acquisition and $2.6 million used to pay quarterly cash dividends, partially offset by net income of $4 million for the nine months of 2008. Trade accounts receivable at September 30 of $47.9 million were up $11.2 million over December 31, 2007 due in part to an increase in day sales outstanding and accounts receivable or DSO, from 12 to 15 days and also to an increasing amount of accrued receivables at September 30 quarter end compared to December 31, 2007.

We continue to closely monitor collections and credit terms in light of the continued challenging economic environment. The increase in goodwill of $5.8 million at September 30, 2008 represents a $3.8 million used to acquire First Employment Services in February and the $2.0 million of contingent considerations paid in September 2008 to the selling shareholders of Strategic Staffing, which represented the final payment of the purchase price on this acquisition made in July 2007.

Turning now to our outlook for the 2008 fourth quarter, as reported yesterday, we are expecting gross revenues to range from $274 million to $278 million for the fourth quarter. This projection represents a likely midpoint decline of 6.1% from the $293.8 million in fourth quarter 2007 gross revenues. The projected decline of 2008 fourth quarter revenues is based upon our October revenue trends and largely reflects the continued difficult economic climate.

Based upon the foregoing estimates for gross revenues, we anticipate diluted earnings per share for the 2008 fourth quarter to range from $0.30 to $0.34, as compared to $0.34 per share for the 2007 fourth quarter. At this time, Bill Sherertz and Mike Elich will comment further on the recently completed third quarter and our outlook for the fourth quarter. We will then open the call up for questions. Bill?

Thanks, Jim. This is Bill Sherertz. I am alive and I think, well. I haven't worked much during the quarter as far as being in the office due to the operation I had, but I think I'm on the path to recover and plan on spending more time this week and more time as I continue to get better.

I'm very pleased with the Company without me being there, has run extremely well. Very challenging time period, as I'm sure you're all aware with the market generating 800, 900 and 500 points a day, and people guessing at whether or not we're in a recession, a depression, or somewhere in between. My best call is that while we are probably in a recession and have been for a longer period of time than the markets we're in and the rest of the country, we're stable. We're not seeing any cliffs and we haven't experienced sharp decline in our customer base and/or their revenues. They still tend to be very tentative and certainly has an effect on us because the less people to work, the less revenue we get.

During the quarter, we signed 89 new PEO customers, which again, is very strong for that quarter in particular. During the same quarter, we had 50 cancels, which is certainly more than I would like, but that breaks down as 22 were sold or closed, 4 were canceled for IAR, 9 were canceled as a result of AR issues, and 15 decided to leave on their own. I thought I would break out why people leave on their own, because it's an open category.

11 of the 15 took it back in-house to try to save money. One started a captive. One couldn't live with our social security verification policy, which means they wanted to use illegals. And two said our pricing was too high.

Overall when I look at the performance of the Company in terms of how we're managing and keeping our customers, I, again, am very pleased with knowing that we're in very difficult economic times and that if we maintain this when the business turns the other way -- the economic climate turns the other way, we should do really well. During the quarter -- well, for the year, we've been working on being self-insured in Colorado. Mike, when do you think that will --

We should -- we're actually scheduled to be effective November 1.

November 1, we have a new state and I think that will really give us a spark plug on our PEO business in Colorado. We also have -- are well on our way to being -- of forming an insurance subsidiary in Arizona, as it was extremely difficult and we didn't have the background in Arizona to become self-insured. We decided to form our own workman's comp subsidiary company.

And again, I think we're looking at a January 1 kickoff date for us to be our own insurance company in the state of Arizona which will have longer term impact, I believe, on the Company and give us greater flexibility in states where certainly the insurance part of the world having to do with comp can very, very honorous. Mike? I'll turn it over to Mike if you have -- Mike has a few comments and then we'll open it up for questions. Thank you.

Thanks, Bill. I would add that overall, we continue to run very solid as a company. All of our operations are running very well. Currently all of our managers are in place. We don't see on the horizon where really there's a need to change much, and we are focused on building width in our client base.

Going back to just a few of our markets, we have seen in California where the base is -- seems to be flat. As we add business, we are back filling either clients that are laying off employees or going out of business, as indicated from Bill. But for the most part, we seem to be back filling at a positive rate. Ultimately we seem to be gaining ground and feel that we might be further through the carnage that you're hearing about on CNN, at least in California, than one would indicate. But we have seen though -- that as California has begun to heal, that other states to the East have maybe picked up a little bit more of the bug.

Arizona seems to be getting hit a little bit harder, but at the same time, we continue to backfill business which is offsetting what is declining. And, again, the difference between Phoenix as a market and Tucson -- in Tucson, we see a seasonality where business is now coming back. Where in Phoenix where you have much more manufacturing going on, that's where you're seeing a bit of a decline. Utah, as a state, seems to be very resilient. It seems that as one week you you might see business drop off a tiny bit. The next week, it seems to recover.

It could be due to a little bit of our diversification away from mainstream manufacturing and we do a lot of work in the vitamin manufacturing and food processing side which seems to be offsetting any declines. Equally on the East Coast, as we would expect from everything that's gone on to see a decline; we really are not. We continue to see new clients in our pipeline and an opportunity to grow there.

Good. Why don't we open it up for questions and see what's on your mind this quarter.

(OPERATOR INSTRUCTIONS). Your first question comes from Toby Sommer.

Thank you. Wanted to -- Bill, get your perspective on workers' comp looking out into 2009 and '10, and maybe get your perspective on how you see the market hardening and when that may start to act, you think, as a stimulant to sales. Thanks.

California's going to raise their recommended rates by 5% January 1. There was a lot of talk of 16% and 17% increases, but the final guru down there limited to 5. They are holding back the flood gates a little bit. We've seen claim costs start to move higher and other insurers now are starting to see a pinch.

I doubt that they will follow the recommendations. They don't have to follow these recommendations. We don't. We use them as a benchmark on pricing, but we typically are lagging those rates unless they are favorable to us. Toby, I think you're going to see over the next few years, maybe not in the range that they once were of up 25%, but you're going to see a creep in certainly California. And other states as recessions and the unemployment rate goes higher, more people file claims, but because that's the way they survive. It's going to be to our advantage, I believe. It will be a -- it won't be a strong wind, but it will be a wind that will be at our back instead of at our face for awhile.

Okay. Thank you. And then I apologize if I missed this detail on the call. Of the million share repurchase authorization you previously had, how much have you executed and specifically what did you execute in the quarter? Just trying to get at what the new authorization implies for the remaining bit.

I think we've used -- Jim can give you the real numbers here, but we've used about $800,000. Right, Jim?

Yes. We've used about $800,000 over the two-year period that the program's been in place. Third quarter specifically we bought back 178,000 shares. With the $2 million increase, we have about $2.2 million now available.

Perfect. I wanted to just see how are you treating -- how's your experience in the captive and how are you treating that relative to guidance? Is that something we're still waiting for your experience to develop and we'll hear about it in February when you report the fourth quarter?

Well, it's -- we're -- as you noticed the comp numbers were up percentage wise and that's where it's at. I doubt that we'll see any big benefit in the fourth quarter from the captive, but we don't have any claims in it either. I don't think it's prudent at this point in time to be pulling that money back down if we don't have to.

Right. The guidance itself does not contemplate any benefit from that, I should say.

That's correct, Toby. That's just straight operation comparable year-over-year.

Okay, great. I'll get back in the queue. Thank you.

Thank you.

Your next question comes from Tim Brown.

Yes. Hi. Good morning, guys.

Good morning.

Bill, just a quick follow-up on the workers' comp costs rising. How much do you think you'll be able to push up rates for BBSI in '09?

These contracts expire on January 1.

Right.

It's a rolling deal, but it certainly takes the pressure off of lowering rates. I think we'll get lion's share of it, 3% or 4% by the time the year's out and then it pertains -- good things for '10 and we'll see which way those rates go. Same way a rate decrease doesn't impact us on January 1, but it does have a longer term as you've seen in our payroll percentage where it shows up -- the decrease in comp rates. Now, with the increase, it won't be dramatic, but it will be -- slowly but surely, we should see our numbers start to improve.

Okay. The costs, do you expect those to continue to move upward?

I would say yes. This quarter, probably not for this quarter. We were -- we've been pretty conservative all year long on the comp side of the world. But there is pressure underneath from lawyers. A lot more of our claims are going to litigate than we've seen. I think we're pretty representative of what's going on in the real world out there. The pressure on rates, again, not going to be that dramatic. But if it was the original recommendation were 16% and 17% and they did 5, the next go-around will be higher, I would think.

In terms of the costs rising, is that really -- because the cost per claim is rising or is it off the number of the incident rate is going up as well?

It's the cost of the claims are going higher. Not so much frequency. Although you get some of that, but what you probably see if you looked at the state numbers would be the frequency on an absolute basis would be the same, but as a percentage of payrolls or a percentage of hours worked would be going up some.

Okay.

Again, not real dramatic, but the pressure is there.

Got you. And then in terms of insurance players in the market. Specifically, we heard that AIG is obviously having issues. Are you seeing some benefit just in terms of pipeline because of the other issues?

Yes. There have been a couple PEOs that have pulled out and several insurance companies that are -- and these rate increases may bring them back. But some have just flat pulled out of California because the rates were too low for the risks involved.

Okay.

Which means that they are blindly signing customers, is all that means.

Yes.

If you go out and cherry pick and take good customers at decent rates, you can do just fine. Because in California, it's open rating. You can charge whatever you want. It's whether or not someone will pay it.

Okay. Then just on the guidance for Q4, I think at the midpoint, it implies about a $12 million decrease in revenues from Q3. I'm just curious. I know certainly staffing is seasonal, expect $6 million or $7 million down there. But it seems like it implies that the PEO business will be down sequentially, too. I was just wondering if you could give us some color on that.

It should. The whole fourth quarter is a guessing game. It will depend on how many new customers we sign during the quarter. We took -- on October, first couple weeks and ran it out. Does that imply the number that you are seeing?

It seems low to me, to be real frank about it. I won't be a bit surprised if we aren't towards the higher end by by the end of the fourth quarter. But staffing business particularly -- our agricultural business simply goes away. And staffing, I must say, has held up extremely well in this downturn compared to what I have seen in past recessions. For us to be down 4%, 5%, 6% in staffing is really a positive for me.

Yes. The other question, just in terms of -- I don't know, obviously you don't have a lot of -- still a lot of uncertainty in 2009. But are you seeing this most recent credit market issues start to flow through your customers?

No question, number one issue facing us -- that we've got -- we have a full-time credit manager and have had for a long time. Greg Vaughan, who is the VP with the Company, is -- and me, too, we're watching it very carefully because credit has been a difficult issue for a lot of our small business customers where they simply cannot get loans to maintain their business. The good news is that our customer base, because of the way we operate, is financially very strong or -- they have to be because they can't -- nobody's willing to loan money.

I was trying to say that is it accelerating now -- the credit issues or is it flat?

No, actually, I feel like it may be waning a bit. Not as bad as I've seen it in the first two quarters.

Okay. Well, that's good to hear.

Yes, it is. There's a lot of -- Mike would tell you -- Mike Elich is the road warrior. We were talking before the call and he feels like maybe that California's turned the corner. I don't know what you're seeing down there, but it's the little anecdotal stuff. That's all you can pick up on. You don't see it necessarily in the numbers yet, but -- I think California led us into this thing and I think California will lead us out of it . That would be my call. You guys are always a little bit ahead of the

Okay. Thanks, Bill.

Thank you.

Your next question comes from Kevin Wong.

Good morning, guys.

Good morning.

How are you doing, Bill? I'm glad to hear you on the call here, feeling healthier.

I'm glad to be on the call, as opposed to the alternative.

A few things. First, talking about the environment -- interesting when I'm looking at the unemployment rate at where your offices are. July and August seemed to have -- marked uptick from second quarter levels. Is there something you guys are doing different that you're experiencing more of a stable environment in California? Or is it maybe just the California numbers have something to be questioned as far as how accurate they have been?

Mike's in those offices a lot. I'll let him answer that question as to what he sees.

I would say that if we're fighting the trend of that would be two-fold. One would be because of the clients that we have -- we have a pretty solid base of clients. As you see, especially on the PEO side, you start running into a tougher economy. You have a drawdown in your overall client base, but it goes -- or employment base, but it reaches a floor at some point. I think that in most of our markets, and in most of our current clients, that that floor we hope has been met.

One of the things that we've noticed in the last five weeks with the credit crunch is that where projects were on -- ready to get going actually -- that they have been pulled back or held off for a period of time. We actually have seen where a lot of our clients were beginning to hire new employees. That has been interrupted a little bit, but we're still -- and then secondly, I think with the addition of new clients, we're really working with the best of the best in many cases. Good companies are going to get the business first and good companies are going to recover first. And that seems to be the offset of what might be happening in the data.

Got you. That's clearly good. Workers' comp experience, curious. First, as far as your own specific experience, sounds like you're talking a little bit that things might be picking up. Is there any marked change or is it just really subtle -- slight thing and really no particular difference as far as your own workers' comp experience?

Claims remain exceptionally low, but the cost of claims have some creep in them.

Is that simply because of legal changes that have allowed more lawsuits, et cetera?

Yes. Remember I said a lot more go and litigate it which will drive your costs up fairly quickly. I would think our legal bills in terms of comp year-over-year, I don't really track it that specific. But I would think they are up 10% to 15% on relatively the same number of claims -- on more claims that we've sent to them. Our attorneys have more claims than they've ever had. It's a minimum. Every time you send a claim over to them, it's going to be $2500 to $5000. That's what we're seeing. Not a lot more claims, but those that we do have tend to be more towards the litigated side of the world.

Got you. Given that, one of the things you had done fourth quarter last year was -- did a catchup on the workers' comp in order to essentially fill up the captive, right, and expense levels as a percent of payroll has also been higher at the 3.1% to 3.4% level. Is there a sense that that should simply stay where it is rather than having the bathtub filled up and being able to turn off the spigot or reduce the amount that you're saving there?

I think we'll -- it will stay where it's at.

Got you.

I learned my lesson last year. The bond funds taught me a $3.5 million lesson. I've been investing in the market for 40 years and I've never seen a diversified AA-bond fund of hundreds and hundreds of issues simply disappear. In the comp -- it's always been the bug a boo's always been that you don't have a enough.

You don't have to pull money out of that. I know AIG -- not AIG, but admin staff and -- played that game for a long time. I think it's very dangerous. We choose to be a lot closer to what we think the real numbers are and obviously last year we missed it. We won't make that same mistake this year.

Got you. No, I love the conservatism that you guys have, so that's great. One last one. As far as staffing having held up better than you have in past down cycles, similar thing. Is there a particular thing that you're doing that's different that's holding that up? Is there any risk that maybe things have held up and you might come to a down draft there? Or is something markedly changed?

Again, I'm going to defer that to Mike. A lot of our -- certainly our big staffing's in Utah.

Yes, I would say it's two-fold. This is a little bit of a reach. But one of the things we found or that we're seeing a lot of is that -- and we do a lot of work in the food industry. But at the moment, ConAgra -- I know Treetops just did a big acquisition -- they are going up. The better, bigger companies of which we do a lot of business with, are acquiring a lot of the smaller, maybe not as well run companies. I think that that's where we've been positioned to be in front of success.

Got you. It's good to be on the good side of the acquisitions or the right side. Perfect. Thanks, guys. I appreciate it.

Thank you.

Your next question comes from Ruthanne Roussel.

Good morning, everyone. Bill, it's great to hear you recovering your health. Our thoughts have been with you.

Thank you.

I have a housekeeping question and then a bigger picture question. We have four clients canceled this quarter for non-AR reasons. Is that the same as risk management reasons as has been in the past?

Yes.

Okay. That was quick. The second one is a longer-term thought. I would just like to hear your thoughts, Bill, on what might happen to BBSI in a hypothetical environment that might be a few years down the road, where employee health insurance is decoupled to some extent from employment and employers are not as required to provide it as they were. It was a scenario that came up somewhat during the elections at one point. While it doesn't look like anything is going to happen in the next year or two, it's something that I believe people may be thinking about.

As you may or may not know, we don't, quote, unquote, sponsor plans. We take them out and get the best plan for them in the market. And then we administer it. Really our role in the medical side of the world is more of an administrator paying the bills, giving them choices as to good plans.

We almost act -- we do act like a broker and advise our clients on what we think would fit their situation. If the government were to nationalize medical healthcare, I don't think it would have any significant impact on us unless there was a way that they carved us out somehow. But I don't see any impact coming from a big change in medical healthcare.

All right. You don't see the fees that you received for administering it or the benefit that's provided to the small company, especially employer by taking the administration off their hands as being be-all and end-all of your business?

No, no, I don't. Our fees are not a per-item breakout to a customer. Some of our -- most of our customers have group health insurance. Some don't. But they don't necessarily get a break. We simply allocate the dollars that we would have spent there on some other part of HR.

Okay. Thank you. That's food for thought. No other questions.

All right.

Your next question comes from Bill [Esco].

Bill, I second and third, great to hear your voice and we wish you the best.

I'm getting better.

Good. Business wise here, what do you -- what's your biggest concern here going forward here over this next year, year and two months, whatever?

When people throw around the 10% unemployment number, that makes me squirm a little bit. I don't see that, but certainly if we get there, we're closer to a depression than a recession. I think -- and I worry about what the government's doing. They are mettling in the business world and not allowing a lot of people to go out of business that maybe should. That's more of a political statement than it is anything else, but I think those are the issues.

In terms of the Company itself, I really like where we're at. We've got some great players and we're executing extremely well. We just need an environment to take advantage of it and the environment so far is okay. I'm not very interested in seeing 10% higher unemployment.

Okay. Thanks.

Yes.

Your next question comes from [Bill Russo].

Good morning. My question was answered earlier. Bill, I'm glad you're feeling better. Thank you.

Thank you very much.

You do have a follow-up question from Toby Sommer.

Thanks. I was hoping to see if you could give us any color on changes in the demographics of your new customers or perceivable trends that you had on the customers that are leaving you. Maybe by size or geography or anything that stands out.

The customers in general, Toby, are smaller. Certainly the ones that are leaving us -- of the 50, I would think that more than 45 of them -- and this is just a guess, do less than a million dollars in payroll. The ones we're signing, we do have some pretty good size stuff that we're looking at. But in general, you're talking about the average new customer being in that million to $1.5 million, $2 million range. We still -- while we do sign smaller ones, generally that's not where our time is spent and on trying to get new business. We're getting good results where we're putting our efforts.

Thanks. This is a challenging time and you're going to be buying back some of your stock, but you will have additional cash beyond that most likely. Could you tell us what the acquisition environment is like? Have private multiples tracked at all to the public ones? I know that would be a challenging concept for a lot of private owners, but wanted to get your perspective.

I don't think the multiples have gotten smaller, but the size has gotten smaller. Given that we're going to be self-insured in Colorado, forming the insurance company in Arizona, priority-wise, acquisitions are going to have to be pretty outstanding for us to make a move. We're still seeing a few, but most of them are not very good. In fact, all of them are not very good or we would be moving on those fronts.

We don't have anything keyed up at the moment and I would tell you if we did. We're in the markets we want to be in. We would love to find something in Nevada and New Mexico. We certainly have accomplished getting our footprint in the right places over the last couple of years and now we're going to try and develop those opportunities into something much, much, much larger. While we're there with a footprint, it's a baby footprint and we would like our footprint to be much bigger.

Thank you very much.

Yes.

Your next question comes from Jerry [Heferness].

Good afternoon. Bill, very good to hear your voice.

Thank you.

If we could, you mentioned this a little bit in the last question. I apologize for being repetitive. I just wanted to be a little bit more clear. Of the 90 new PEO customers, over the last several quarters has the size of the PEO new account -- has that been stable? Has the type of business that those accounts represent, is that stable? Are the new companies that you're picking up as customers, is this all relatively the same or are we seeing any shift in that?

I would say it's pretty much business as usual. There's nothing that stands out to me. In the beginning, the loss of new customers certainly related to construction. We still sign new construction people, but they tend to be smaller. By small, I would mean 15 people, 20 people, those kinds of things.

In general, though, we're still looking for good companies. We don't really target industries. I have a list here in front of me of new customers. Let me see. I'll just read you a few and you can figure it out. What they do -- custom interiors, senior care, lawn care, wine and spirits, closets, boats -- they build boats, espresso shop, market and deli, foot clinic, property management company, couple more doctors. You heard the small construction company. Looks like they do about $1.5 million. Does that give you some idea?

Yes. That's good.

I think that's very typical of -- they all tend to be blue, gray collar, if you will, not heavy construction. Certainly, we haven't signed any truck drivers in quite a while and that's fine with me. If we can get a good one, that's great. But they tend to be sometimes more trouble than they are worth.

Okay.

But it's really -- we're just across the board.

If you take how long we live -- at least in California, go back even a year to 18 months, a lot of the clients that are leaving are the ones that have really found their way down another road. They are not going to make it. They haven't made it. Clients that we're bringing on today, we are putting them through a pretty rigid scrutiny before they are coming on. They are much healthier and probably have a much more upside and they are more than likely at their lowest point.

A little bit of a study in Darwinism?

Yes.

Okay. I'm looking at notes of last quarter. You had mentioned that seeing some insurers in workers' comp leaving California -- believe the trend will be to leave. And mentioned Berkshire Hathaway, workers' comp carrier has announced they will be out of the market and cancelling all policies in August.

Yes.

We still look at that as a positive event for Barrett, correct?

Yes. It causes people to look at alternatives. They don't run out -- lot of those people -- because I think Berkshire had about 10,000 customers. That's what I was told. The name of their insurance subsidiary was Redwood -- one of them and applied was another one. But a lot of them are going to go more towards the traditional insurer. I'm sure that the insurance companies have referrals to other insurance companies. But a lot of them are willing to take a look at alternatives which is us and others. Net-net-net, it's a positive for us, yes.

Okay, and--

As long as we don't get caught up in what's caused them to leave, which is excessive claims and bad customers.

Right, right, absolutely. I'm sorry, this is a bit of a housekeeping question. I must have some poor notes here. The total amount of shares that you have purchased year-to-date and the amount that you purchased in the quarter? I know that you said that already, but I see two different things I've written down and so obviously I've goofed up.

Yes. On a year-to-date basis through a couple of days ago, we had repurchased about 646,000 shares for about $7.8 million. In the third quarter alone, we had repurchases of 178,000 shares at a little over $2 million.

Okay. Going back to last quarter and certainly we were at a much different level there, but we were -- asking about how aggressive do you want to be in buying back the shares. You thought that you had seen a little bit of stability in the market at that time. The question, how aggressive do you want to be in this?

And it was -- you know what, we're not going to go in debt to buy back shares. Certainly the price per share is significantly lower today. You are still having a -- showing a nice stability if you will in your business and you announced the $2 million share repurchase now. Is it just as simple as, hey, at this price we should be more aggressive? Additionally, we have the Colorado workers' comp -- the Arizona workers' comp, those set up so the acquisitions, we're taking a different view on that?

There's only so much we can do unless we -- I suppose we could do a Dutch auction or something, but we're in the market every day. We're in there on the bid side of the market, subject to the rules of repurchasing our shares. We're willing to buy block and so we're happy to sit here and generate cash flow to buy our shares back. I think our cash flow probably is greater than the shares we bought back so far and I look at that on a long-term basis.

If the stock stays where it's at, we'll be happy to sit here for the next few years and take them back. We'll end up with just me standing here, I guess. By default, I'm not selling -- that's how it works out. I think we have enough flexibility at the 51 million which is of a net-net number to both buy back our shares and do acquisitions should they come along. We certainly have bank lines of credit if we needed them. We can extend those out as opposed to using very current assets to make acquisitions. However, I'm certainly happy to be in the position we're in of cash in a very significant downturn.

Great. Thank you very much. Again, good to hear you, Bill. Thank you.

Your next question comes from Tim Brown.

Just a quick follow-up question. On the Colorado and Arizona -- now that you're going to be self-insured here pretty soon, can you just give us an idea what business you think you can do on the PEO side say, maybe in 2009 and then maybe longer-term, too? Is it $100 million in '09? Maybe just a little color?

That would be fun. I'll let Mike answer that question. I'm starting to run out of voice.

We built our performance relatively conservative. We have three locations in Colorado, Grand Junction, Denver, and Colorado Springs -- all very, very solid markets for us. Within Colorado, it's hard to speculate how much momentum we'll get out of the gate because we are going to take it slow. Even within a few of the clients that we already have, we're going to be careful as to how we bring them into self-insurance because we want to make sure that they are as clean as we need them to be.

But just out of the gate in Grand Junction, we're adding three clients just to get started. We recognize that the rates that are being charged in California -- excuse me, Colorado, are very comparable to what are being charged in California. The claims don't seem to be -- at least at this point, to be -- the cost to run the program doesn't seem to be out of whack. I would suspect that we're going to have very strong competitive advantage. Most the market in Colorado is owned by Pinnacle. Feedback in the market is if people had an option, they would take it.

As far as Arizona, that will be a little slower go. We're going to take it careful -- we're going to be careful as we get things rolling. Again, we're going to support our existing base of business and then we'll expand it as the market is there and good companies see the advantage.

And I would -- it's not so much the volume. It's the amount of new customers. Let's just say that we did 20 new customers which is not unrealistic expectation in Colorado next year. That should mean $30 million or so. You can factor it out of three offices as each office is picking up seven new customers. That doesn't seem very insurmountable to me.

I would expect that each of those offices should be able to pick up somewhere between 10 and 20 new customers and -- which would put us up in the $60 million, $70 million range in '09. Again, assuming the economy is relatively -- as compared to down, down, down, down every day. That would be -- I think that's the pro forma, Tim, that I would look at. Let's just hope it's that way.

Part of it is that we have a good infrastructure in Colorado. We don't have the infrastructure totally built in Arizona yet. That's something -- given when people ask me about acquisitions -- we have internal stuff that we're working on that isn't complete. But once it's complete, we should do really well with it.

Okay, great. Thanks, guys.

Yes.

There are no further questions.

Good. Thank you for participating. We continue to operate very effectively in the Company. Those of you who can stand the price long enough to stick around long enough, that you'll be well-rewarded because the Company is in a great position. The only thing that we need is -- to really rock and roll is going to be a little help from the economy overall. Actually being home for quite a bit and getting to listen to the talking heads on CNBC, it appears that maybe we're not headed for a depression -- that we may be somewhere near a bottom both in terms of the stock market and in terms of the economy. That -- very good things. I'm very positive. Let's see how it all works out and we'll talk to you next quarter. Thank you very much.

This concludes today's conference call. You may now disconnect.