Barrett Business Services Inc (BBSI) 2011 Q2 法說會逐字稿

Good morning. My name is Anissa and I will be your conference operator today. At this time I would like to welcome everyone to the investor 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) Thank you. Mr. Miller you may begin your conference.

Thank you. Good morning this is Jim Miller with Mike Elich. Today we will provide you with our comments regarding the Company's operating results for the recently completed second quarter ended June 30 and our outlook for the third quarter of 2011.

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 these 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 7 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 1, more informative as to the level of our business activity; 2, more useful in managing and analyzing our operations; and 3, 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 second quarter results, total gross revenues of $366.9 million increased $69.8 million or 23.5% over the 2010 second quarter. California, which comprised approximately 83% of our overall second quarter gross revenues increased 28.1% from continued growth in new PEO business. PEO gross revenues increased $71.3 million or 26.9% on a quarter-over-quarter basis primarily due to the addition of new customers. Our PEO revenues from existing customers experienced an increase of $8.6 million or 3.6% on a quarter-over-quarter basis. The increase in PEO revenues from existing customers represents the fifth consecutive quarter of existing customer growth.

Staffing revenues for the second quarter of 2011 decreased $1.5 million or 4.6% from the second quarter of 2010 primarily due to lost business from several customers in that nutraceutical our vitamin industry. Staffing revenues have also been affected by a delay in the agricultural industry in the Northwest as a result from cooler than normal weather in the region. Gross margin dollars for the 2011 second quarter of $13.3 million increased approximately $1.5 million over the 2010 quarter primarily due to the increase in revenues. Gross margin percent on a gross revenue basis was 3.6% for the second quarter of 2011 compared to 3.9% from the quarter a year ago primarily due to increases in each of the cost of revenue components as a percentage of revenues.

Direct payroll cost increased by 8 basis points over the 2010 second quarter primarily attributable to an increase in our mix of PEO services, which typically have a much higher payroll cost component and gapping services. Payroll taxes and benefits for the 2011 second quarter as a percentage of gross revenues was 7.9% versus 7.7% for the same quarter a year ago due to higher state unemployment taxes and the majority of states the Company operates in.

Workers compensation expense for the 2011 second quarter increased $2.6 million over the 2010 second quarter. Workers compensation expense as a percentage of gross revenues was 3.4%, which is up slightly from 3.3% for the same quarter a year ago primarily due to an increase in the estimate for claim costs. Selling general and administrative expenses were $8.9 million, and increased approximately $464,000 or 5.5% over the 2010 second quarter. This increase was primarily due to increases in management payroll, legal fees, and stock option compensation expenses.

Other income net for the 2011 second quarter totaled $266,000 primarily attributable to investment income earned on the Company's cash and marketable securities. This compares to other income for the 2010 second quarter of $380,000, which included approximately $200,000 in gains recognized on the sale of certain marketable securities. The income tax rate for the second quarter of 2011 was 20.6%, which included a favorable benefit from the effect of the $10 million life insurance proceeds on the annual effective tax rate for the Company. As most of you are aware, the life insurance proceeds were realized during the first quarter of 2011 from the passing of Bill Sherertz, the Company's President and CEO. We expect that effective tax rate of approximately 20% to continue through the third and fourth quarters of 2011, and we anticipate our overall tax rate to return to the low to mid-30% range for the third quarter of 2012.

As reported the Company earned $0.34 per diluted share in the 2011 second quarter as compared to $0.22 per diluted share for the 2010 second quarter. Without the benefit of the payroll income tax rate, the Company earned $0.28 per diluted share for the 2011 second quarter. Turning now to the balance sheet at June 30. Cash and current marketable securities totaled $60.2 million at June 30 as compared to $55.4 million at December 31, 2010. This increase was primarily due to the receipt of the life insurance proceeds and operating income for the first month -- first 6 months of 2011 partially offset by an increase in long-term marketable securities, payment of quarterly cash dividends, and share repurchases during the first 6 months of 2011.

Trade Accounts Receivable at June 30 of $59.7 million increased $22.1 million over December 31, 2010, primarily due to increases in revenues and accrued revenue at June 30, 2011. The Days Sales Outstanding in Accounts Receivable or DSO of 14 days increased over December 2010 of approximately 10 days primarily due to seasonality and is more consistent with a DSO of 15 days at June 30, 2010. Accrued payroll taxes and related benefits increased $22.8 million over December 31, 2010, to $60.3 million due to increases in accrued payroll and second quarter payroll taxes, which are higher during the second quarter of the year compared to the fourth quarter as taxable unemployment wage ceilings are reset each January 1.

Stockholders equity increased approximately $6.5 million over December 31, 2010, to $101.8 million primarily due to net income of $9 million for 2011 partially offset by cash dividends paid of $1.8 million and share repurchases of $923,000. Looking now at our outlook for 2011 third quarter, as reported yesterday we are expecting gross revenues to range from $392 million to $397 million for the third quarter of 2011. This projection represents a likely mid-point increase of 18.5% over the $332.9 million in third-quarter 2010 gross revenues. The projected increase of 2011 third-quarter gross revenue is based upon our recent revenue trends.

Based upon the foregoing estimates for gross revenues, we anticipate diluted earnings per share for the 2011 third quarter on a GAAP basis to range from $0.46 to $0.50 per share as compared to diluted earnings per share of $0.36 for the 2010 third quarter. The $0.46 to $0.50 range includes the favorable benefit from the effective life insurance proceeds resulting in an effective annual tax rate of approximately 20%. Using a more normalized income tax rate, we estimate diluted earnings-per-share from the third quarter of 2011 to range from $0.38 to $0.42. At this time, Mike Elich will comment further on the recently completed second quarter and our outlook for the third quarter of 2011. Mike?

Good morning. Overall, I consider it a very good quarter. A few key measurables that we look at is one, that we are seeing a much more stable base in our existing clients. They -- that we continue to build with in our client base, which ultimately is supporting our growth.

And we are seeing the quality of our new and existing clients continuing to improve, both as they operate and as they might look coming in from a financial side, can they make payroll, can they -- their balance sheet, the quality from a risk standpoint, the cultural side of their business. In the quarter we added 151 new clients. We lost 33. In the mix that we lost, 3 of them were due to AR issues, 6 of them were non-AR issues, or work comp or other reasons. 14 of those clients sold, 6 of them were left due to pricing or taking payroll in-house, and 4 left to competitors. That was a net gain of 118 new clients.

Overall, the Company continues to run very well. We continue to align our internal organizational structure to support the growth we are seeing. One of the things that we are noticing from our pipelines and where our new growth is coming is that it is much more broad-based than it has been over the last year. We are seeing more growth coming from all branches and all regions as opposed to being concentrated in specific areas.

Client growth, something I look at, and I look at continuously is that our net gain of 118 clients for the quarter and our overall growth year-over-year was 23%, although we only recognized 4% of that from being same-store sales. What that means to me is that the hours -- and what we see is that the hours worked for existing clients is very stable, but hiring has been flat to nonexistent and in some ways that we see as the client adds an employee on one end, another client is laying off somebody on the other end. So we are staying pretty much neutral there, to up slightly.

By region, we continue to see strong growth -- strong double-digit growth in Southern California. We continue to see the same double-digit growth in Northern California. For the Northwest, we see strong PEO growth with staffing being somewhat flat. The mountain states, we see PEO growth but staffing is -- was down in the quarter. On the East Coast we see growth on the PEO side with staffing flat.

Tail winds that we see is we see strong pipelines, we are receiving more referrals from existing referral networks as well as client referrals than we have ever seen. People ask a lot of times do we see a double-dip or is this a soft patch just because we are a leading indicator? From my opinion it is much more of a soft patch than a double-dip. The reason being is that we have gone through and watched weaker companies be shaken out. The base that we see at least in our client base is much more stable today. They are looking to be more opportunistic to either add to their business, not necessarily at headcount but they are growing their business and/or acquiring other companies.

Headwinds that we see, we continue to see consolidation in clients. As we saw in the quarter, we had 14 clients be sold, but equally, our existing clients continue to grow as well, by consolidating or buying other companies, so that is another area of growth that we are experiencing. Moving forward, we are going to continue to look internally at our infrastructure to support the growth that we are seeing and we will continue to explore opportunities to expand our branch operations into new regions and/or expand on existing regions. With that I will open it up for questions.

(Operator Instructions)

Josh Vogel, Sidoti & Company.

Thank you. Good morning, Mike and Jim. Mike, you were just talking about infrastructure a little bit and I was just curious about existing capacity right now. Given the robust growth you're seeing on the PEO front, are you getting a little constrained in some markets or regions?

Not really, we feel that we are staying far enough out in front of it that we recognize that some branches are going where they have not been before and that we have some branches in Southern California in particular that are continuing to set new records. But, we have spent a great deal of energy in the last few months really looking at the alignment of how we do business and how we expand existing operations internally to ensure that we have a degree of scalability within existing branches and it is working very effectively for us.

Okay, great. Jim, maybe you could help me. Is there any way to quantify maybe over the second half of 2011 for Q3 and Q4, the [draving] that you expect to see in the payroll tax and benefits line just from higher state unemployment taxes?

Well, as we saw in 2Q, the higher unemployment taxes were about 0.2% higher from 7.7% to 7.9%; and for Q3 and Q4, that difference may narrow a little bit as the wage ceilings are reached, but likely will remain a bit higher for 2011 in comparison to last year.

Okay, great. And how much -- what is the net cash that is available to shareholders?

In looking at or sort of backing out the cash required for our captive insurance company and ECOL, our fully fledged insurance company, we are looking at probably in the neighborhood of about $30 million to $35 million of totally free cash.

Okay, great. And, lastly, I'm sure you guys continue to get a lot of questions as do I, I was just curious if you had an update on what Bill's estate was looking to do with the shares?

It continues to be a process that they are working through. We do have an ongoing dialogue with Kim and the estate, and as we know more we will let you know. I know that there has been some shares sold, which has not adversely affected us; and, we will continue to be there to offer up support in any way we can as we represent you -- all the shareholders in that process. But, it is a slow process and it continues to move forward.

Okay, great. Thanks. I will jump back in the queue.

Thank you.

Jeff Martin, ROTH Capital.

Good morning, guys. This is [Omeed] calling in for Jeff. Mike, you touched on a strength with the pipeline currently. How would you say this compares to 3 and 6 months ago?

Well, the one thing I see is that we have reached -- in some markets we've reached a bit of a tipping point with -- we get a lot of our clients from referrals of existing clients and also broker networks and referral networks that we build. One of those things that we found is that we're building -- as we build and continue to support a wider base of clients, the pipelines are starting to grow and remain more robust, based on the fact that we continue to deliver on a good product. And so, I would say that they are stronger than they have been, and also I would add that we are starting to see where those pipelines are more broad-based.

Where we are seeing more markets with strong -- I could talk about Southern California all day long, but the real strength is, how well are we doing in [moses] like Washington? How well are we doing in Phoenix, Arizona, where in the past we haven't been able to lean on that -- those markets for growth? We are seeing where there is opportunity and our pipelines are starting to broaden more.

Okay, great. And then, has there been any noticeable change in the employment environment within your client base or trends in payroll characteristics from April to June and perhaps July?

Not really. One of the things that I think I mentioned on the last call was that, with all the up evil that was going on in February, that it would be interesting to see how clients responded -- how our clients or employers responded to that as to whether or not they would add people, whether or not they would contract and lay off people.

One of the things that we have seen is pretty strong stability in that overall base, which has allowed us to go and add new clients and that is what is attributing to the majority of our growth; but, for the most part, I would say it is stable. We are working with very well run companies and they are figuring out how to do more with less before they have to add people. And we encourage that.

And then, along those same lines, how would you characterize the outlook for the employment environment just based on what your clients are telling you?

You don't see anybody saying that they are going to contract and I see companies continuing to be optimistic about where things are going, at least in their local markets. I see that, in time, there will be enough pent-up demand that they will be putting in a position where they have to hire people.

No owner sits out there and says I want to go hire a bunch of people. They are trying to do as much with as little as they can. But, the reality of it is, as they become more successful and, as well as the market continues to consolidate or shakeout, there's fewer suppliers to match the demand of the market; and therefore, they are being put in a position to add.

We are hearing talks with different companies where they see where they are going to be expanding, and we see one company will be expanding where other companies are either flat or maybe pulling back a little bit. And that is similar to what we see going on right now. And we've seen a 4% uptick in same-store sales, but nothing that is blowing the doors off.

Okay. And then, what are the recent trends in workers compensation, and how might these might affect your business near term and longer term?

It is the same old story, we tend to -- we continue to fight what is going on currently and try to be more effective at that. And then we are always kind of hit with that tale that continues to roll in. We still continue to run off the model that we brought in a couple years ago; and running off that, one of the things that we are doing is taking some of the charge that we are taking to us to the increased growth even though we haven't recognized claims in that area yet. So, if we are in line, we are charging ourselves in line with the growth. So, a percentage of what we are making from the new growth will continue to go back into work comp, which hopefully will fund -- keep us out in front of that curve.

Great. And then, last question, Mike, in your commentary you mentioned investment in infrastructure. Could you elaborate on this a little bit?

In the quarter, one of the things with the passing of Bill is that we've had to, from a corporate standpoint, is shift some responsibilities, obviously. And, with the growth on top of that, we've made a conscious effort to look at our structure and figure out how we need to be able to step back enough to see the bigger picture. And in that process, we have added a Director of Risk Management in the quarter and then also a Director of IT. Both of which are designed to help us work on that focus being a year to 18 months out. So it pulls both Greg Vaughn, Jim Miller, and myself back a little bit so we can be looking a little further out than that.

All right. That sounds good. Thank you.

(Operator Instructions)

Michael Prouting, 10K Capital.

Yes. Hi. Good morning. Thanks for taking my questions. I apologize if this question was already asked, I missed a couple minutes of the call. The weakness that you saw in the staffing business, do you see that coming back at some point or is this what you're thinking there?

I think it will come back. I think that what we have seen is -- we do a great -- we do a large amount of work in the food processing and that is all supported by agriculture. And one of the things with the weather in the Northwest, in particular in June, is that everything got pushed off roughly a month. We know of a couple of markets where the crop that normally we would be supporting today and would've been supporting in June have been pushed off as far as 5 months.

Now, we don't know what that will look like when it finally comes through if we'll get the same volume that we might have got if it was on time; but, at the same time, we know those customers aren't going anywhere, they will be around next year, they'll be around -- we have been working with many of them for many, many, many, years. But, it has just been a weird season from that standpoint. The other side of it is, we saw a little bit of softness in our Salt Lake market. And Salt Lake is a very robust, very adaptive market, but we had some concentration in a certain sector of business climate -- clients and they just took the hit in the last 6 months and we felt that a little bit.

Okay. On the Salt Lake side, are you seeing any of that come back in the comp quarter?

Yes, I think we are finding some stability now. The one thing about -- staffing can be up, can be down, and one of the things we like about the PEO blended with staffing is it creates stability for us and we are starting to build on the PEO front in the Salt Lake market, which will help us a great deal.

But, on the staffing side, we have a very strong presence there. We have a lot of great width in our client base; and, at the same time, like I said, it is a very adaptive market. It will come back.

Okay, I'm just wondering, given what you said about the agricultural side of things, I'm just wondering what your guidance for the third quarter assumes? Either as far as staffing is concerned or as far as the mix between staffing and the PEO business?

When we guide, we really don't look at it that way. We roll it up and we look at where our trend is week to week. I would say, at worst, it will be flat from where we are at today.

So, you are not assuming essentially then any kind of recapture of that timing difference on the staffing side in the third quarter it sounds like, at least as far as your guidance is concerned?

Not from a guidance standpoint. I would say that it would be too early to tell. I would assume that we would recapture some of it and it is just -- it is really an anomalous year. I have been working around that sector for about 15 years, and I have not seen it be this much delayed. So, it is always hard to tell when it is delayed this much how much of it will come back.

That's helpful. I just wanted to essentially understand what was the assumption as far as the guidance was concerned. And then, just turning to the cash balance. It is a little frustrating, given how well you guys are executing against admittedly a pretty challenging macro backdrop.

It continues to be somewhat frustrating the valuation is where it is. And, frankly, if the market cap is not a whole lot more than the cash and receivables on the balance sheet; and, given that this is a recurring revenue business, it's disappointing the multiple that the market is putting on the Company at this point. It sounds like you did buy back some stock in the quarter. Would you anticipate putting some more resources behind that going forward from this point?

Yes, one of the things we are doing is -- we have been through -- the last 6 months has been a, we'll call it a significant transition. We have done -- I would say, we have executed extremely well, maybe even off the charts. We are continuing to step back and build the infrastructure for a much larger, much -- for a successful Company. We are continuing to play off a great legacy that was left for us as well, and those pieces take time.

Today, though, we are engaged with a company that is helping us take a more proactive look at investor relations, and also how our story is told to the market, which I think will help us. We continue to be in the market to buy back shares as it might be necessary, and we continue to look to our cash as a tool to help us expand our market, once we know that what we have in place is working and running very well.

Okay, and it sounds like -- going back a couple of quarters here, it sounds like there were some potential acquisitions that you had been looking at and maybe, to some extent, they got put on hold in part because of some of the transitional issues you mentioned. Just wondering to get an update on that front?

I wouldn't say that they really were ever put on hold. One of the things that we have discovered in our model is that for the opportunity of acquisition, we could go out by a company today, but I am really not interested in buying somebody that is broken. I am more interested in looking at maybe larger organizations that have the infrastructure, and we continue to foster and build relationships with those organizations. And when it makes sense, we will possibly pull something together.

Okay, okay. And then, to state the obvious, it's great that you have the cash that you have; but, if the valuation of the stock more -- at least in our view -- adequately reflected the value of the business, that would give you another currency with which to make acquisitions.

We recognize that one as well.

Okay. And I know this question was asked -- but, to ask a slightly different way and then I will get off the call -- any thoughts on the timing as far as the trust making its decision in terms of what it is going to do with its stock or how much they are going to sell, how much they are going to keep, et cetera, et cetera?

As I mentioned, it is an ongoing process and there is a lot of variables involved in the process; and, as the trust is able to sort out their most optimum options, we'll be available to do what we can do to support the process. But it really -- it comes down to the trust being able to sort out what is going to be, long term, in the best interest of the trust. And, we are trying to be there to support anyway we can.

All right. Fair enough. Thanks for taking all of my questions.

Bill Nasgovitz, Heartland Funds.

Good morning.

Good morning, Bill

Congratulations on a successful transition and a terrific first half.

Thank you.

How much stock did you repurchase during the quarter?

We repurchased about 61,000 shares during the second quarter.

Okay. And what is the -- what's your policy, what's your program going forward?

Well, from a pricing standpoint, what we are currently looking at is, we are in the market when the price drops below the $14.50.

What is the authorization?

The authorization remaining is about -- a little less than $1.5 million, so we have quite a bit of room.

Okay, and where did you come up with the $14.50 price? I don't know if you should be telling the marketplace that, by the way. But, how did you come up with the price?

Bill, at the beginning of our -- when we went into our quiet period, we had to file a plan and then that will be updated as now we've released earnings because we were locked down to some degree.

But, how did you come up with the $14.50 price?

You know, at the time -- I can't remember at the time where we were at.

Okay, well, net of cash it seems to be -- in today's interest rate environment -- low interest rate environment, net of cash it seems to be a pretty favorable alternative for all holders, for all investors who remain with the Company. In terms of what -- on the downside, what are you most concerned with going forward here?

That's a good question, Bill. I think in the last 6 months my biggest concern has been that we would become distracted by the noise of stuff. On a go-forward basis, I think that it -- we've got a well-run Company. And one of the things that Bill Sherertz was always about was building a well-run Company. And if you run a well-run Company eventually the value will be there, and we've got to maintain our focus there. I think from an organizational standpoint we are very solid.

I think we are out in front of the curve far enough. I think that our product is being well received by the client market, so that is where our growth is coming from. We can't become distracted, and I think that if we can maintain our -- keep our eye on the ball, and that starts with me and then it rolls down in the organization, we will do well and continue to have the support of the Board, which has been a very, very key element through the transition.

Okay. Well, thank you for that. Much success in continuing in that process. Thank you.

Thank you, Bill.

Michael Prouting, 10K Capital.

Sorry, I lied, I had one other minor question. Just in terms of cash flow from operations, if we wanted to normalize the number from the first quarter, I'm wondering do you just take out the $10 million gross insurance proceeds or should we tax adjust that in some kind of way?

You would pretty much just take out the $10 million in total as given our tax -- projected taxable income for the entire year being what it is. The $10 million should be totally tax-free.

Okay, All right. Great. And, I don't suppose it would be possible in the future to release the cash flow statement when you announce earnings, by any chance, would it?

Usually at the time of the earnings release, we are still working through the actual formal cash flow statement.

Okay, all right, thanks.

(Operator Instructions)

Shawn Willard, Orca Investment Management.

Good morning. I just wanted to follow-up on a couple of questions when I was taking notes, I want to make sure that I got this right. Mike, one of the comments you made when one of the people asked about the staffing revenue and his question was, do you see that being roughly flat or up? Part of the way through there I wasn't sure, were you talking about quarter to quarter or year over year sort of the worst case being flat? Because last year in the fourth quarter -- or in the third quarter, you did just under $34 million; and, obviously, in the June quarter you did $30.5 million so there is a --?

Yes, I would say, probably, quarter to quarter at this point, Shawn.

Okay. For those that are not here in the Northwest, we haven't been much over 60 yet this summer. I sympathize with trying to do that business that you normally have here.

One good example is, let's just take cherries. Typically, cherries are harvested and the run starts June 4 and it is done by June 28. This year it was ramping on July 7, so 5 weeks late. So, what you don't know is what will really come out of that. That is just one example that is a ripple effect into a number of different industries. So, we don't know what the potato market, the apple market, all those other sectors are going to look like, which really won't come on board until mid-August, typically.

Right. I feel bad for people like Bill Nasgovitz that are in the Midwest in 100 degrees and we are trying to break 70 here. One of the questions that was asked on the last conference call that I thought was pretty good, and I just was curious for a follow-up on it, was there had been some manager turnover. I think you said you had 3 or 4 branches that you were looking to replace people, you thought you were pretty close to filling some of those positions.

Normal turnover type events, but where do you sit on that today? I mean, have those been filled? Are you still looking? And what is your net position on openings at the branch level?

Actually, our base has been very stable. So, from a net turnover basis, if I go back where we were last quarter, we had open Portland, Idaho Falls, and Denver. Today, Idaho Falls and Portland are filled, and then we had 2 managers have to leave just for personal reasons that had been around for a while. One moved back to the East Coast to follow her husband, and that was Medford. She left July 1, that has already been backfilled. That person starts on Monday.

And then we had another person in Northern California that had some personal reasons that he had to leave after taking a Family Leave Act -- family leave, and then he finally decided to leave, but we are in the process there. But, other than that, once that one is backfilled we will -- we are still working on Denver. Denver has just been one, I haven't been able to find a person that is better than who we have in place.

Okay. One of the other things that I noted, your SG&A as a percentage of revenue hit an all-time low this quarter of 2.5%. Historically, that was normally well above 3% even if you go back to the '06,'07 timeframe when everything was running well in the economy. It seems to be -- let me not put words in your mouth, how much of that drop in SG&A as a percentage of revenue is cost controls and how much of it is a revenue shift more heavily skewed towards PEOs as a larger makeup of the mix?

Well, we are always trying to be fiscally responsible, but one of the things that you balance and try not to do is starve off growth. So we are continuing to make investments back into our infrastructure. I would say the majority of it to be the latter, would be the dilution based on the increase in PEO revenue.

Okay. And then, my last question is -- and this goes back to the '06-'07 timeframe -- particularly in California you had a lot of exposure both directly and indirectly to the residential and commercial building market places. Has that pretty much all been replaced at this point? I think that is sort of lost in the big picture of everything that has been going on is that I know a lot of that business went away and yet you were able to replace it with new business all the way along.

Is that process pretty much finished at this point? And so, the net new additions of clients and revenue should continue to start to accelerate the growth? Or is there still a legacy business there that is large enough and flat enough that it is going to continue to have an impact?

No, I would say that if we went back to those years you mentioned, '06,'07, we probably had -- and we'll just talk about PEO for a minute -- we had roughly 1,000 clients that we were working with at the time. Today -- and if you figure maybe a third or a third to 40% of that was wiped out during the recession and the shakeout from 2006 to 2009, so it might have brought us down to 600 or so -- today we are sitting on over 1,700 clients. So, I would say that what the mix looks like -- the mix is much cleaner today than it was then, and I would say that it is much more diversified and it is just so much broader that we are not even the same Company that we were then.

Okay, great, thanks a lot.

At this time there no further questions.

Thank you for your participation. We look forward to talking to you again in October. Thank you.

Thank you. This concludes today's conference call, you may now disconnect.