Barrett Business Services Inc (BBSI) 2020 Q4 法說會逐字稿

Good afternoon, 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, 2020. Joining us today are BBSI's President and CEO, Mr. Gary Kramer; and the company's CFO, Mr. Anthony Harris. 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. This 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 and to the company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through April 3, 2021, starting at 8:00 p.m. Eastern tonight. 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.bbsi.com.

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

Thank you. Good afternoon, everyone, and thank you for joining the call. 2020 proved to be a challenging year for the world and the economy. I am extremely proud of the work that our business teams performed throughout the year. We quickly embraced working remotely, and our operations did not miss a beat as we assisted our clients with the rapidly changing economic and regulatory landscape.

Our client retention rate was the best we've experienced in years, and our client failure rate was better than expected. I'd like to attribute that to the work we do with our clients. This ultimately led to our gross revenue and profit being better than we forecasted.

We also executed on various long-term strategic initiatives, including securing a nationwide PEO license; standing up myBBSI, our state-of-the-art technology portal; and derisking the company with an alternative insurance structure. I want to again thank everyone in the BBSI family for their exceptional efforts. Plainly stated, I am proud of the actions everyone at BBSI contributed and of our financial results.

Before I step into the fourth quarter operations and the outlook for 2021, I'd like to take some time to discuss metrics that the executive team utilizes to measure and manage the operations. First, we grow by adding additional clients, maintaining good client retention and by our clients themselves growing. Our clients grow by adding more employees, which we refer to as worksite employees, by their employees working more hours and with wage inflation. Worksite employees is a key driver of our clients' businesses and are the closest metric that correlates with gross billings. Going forward, we will be reporting on and providing guidance for worksite employees and average worksite employee growth.

We will no longer be providing information regarding client counts as this may not truly reflect gross billings. The purest example of why this is important is to take a retrospective look at 2020. We started the year with 7,200 clients and 115,000 worksite employees. We finished the year with an additional 398 net new clients, but our worksite employees decreased to 109,000 or 5% as a result of the pandemic. The decrease in worksite employees for the year translates better to our gross billings decrease of 1%.

Regarding the fourth quarter operations, we exceeded our expectations in virtually every financial metric in the quarter. Our gross billings increased 0.6% over the prior year quarter and benefited from greater-than-expected bonus payments and from strong revenue per worksite employee. Our worksite employees grew an average of 1.8% during the quarter sequentially.

Regarding our new business pipeline, we added 271 new PEO clients. We have previously mentioned that we saw referral partners and business owners go into their bunker in reaction to COVID. Each month, we are seeing -- we were seeing more and more leads, and October was our busiest month since March. However, we saw our leads retrace in November and December as the shelter-in-place orders resumed in California. Our sales conversion ratio continues to be consistent with pre-COVID metrics, but simply put, there's just not as much business transacting.

Our staffing business has rebounded slightly and grew sequentially over Q3. Results vary by geography, but in the aggregate, we are seeing our staffing business pick up and are forecasting growth in staffing in 2021.

Regarding other operational updates. We have been previously communicating the softness in the workers' compensation market and that we took various steps and actions to navigate the cycle. We enacted cost reduction measures, portfolio management, reduced the safety incentive and initiated profitability management.

Regarding profitability management, our branches and underwriting teams thoroughly triaged the book, and we priced out 124 clients in the quarter because the price to risk was not adequate or the price was not commensurate to the work effort to support the worksite employees. Regarding client attrition, we lost 3 due to accounts receivable; 14 businesses sold; 41 businesses closed, including 20 due -- 22 due to COVID; 99 left due to pricing competition or companies that moved away from the outsourced model; and 124 for profitability management.

To summarize our build for the quarter, we added 271 clients, initiated intentional runoff of 127 and unintentional runoff of 154 for a net reduction of 10 clients. However, our average worksite employee stack grew 1.8% sequentially, and we finished the quarter with a stronger WSE stack than what we started with.

Regarding our branch footprint, at year-end, we had 56 total branches. We continue to be mindful of operating efficiencies and consolidated Moses Lake into Yakima, Washington; The Dalles into Portland, Oregon; and Albany into Salem, Oregon. The decision was made with the intention of continuing to grow revenue while servicing our clients but doing so in a more cost-effective manner. Our branch stratification of the 56 total branches is as follows: 20 mature branches with run rates in excess of $100 million, 20 emerging branches running between $30 million and $100 million, 16 branches we consider developing with run rates of up to $30 million. Our business unit teams totaled 110.

Next, I'm going to provide an update on other initiatives and strategies. In February, we released the third major milestone for myBBSI. This release completed the build of our portal and included upgraded electronic onboarding, improved reporting as well as other enhancements. Our big build is now complete. I am proud of our product, and I am proud of our team that brought it to market. We will continue to invest in enhancements in myBBSI but at a slower pace than in 2020.

Regarding our nationwide offering, in the quarter, we expanded relationships with 37 existing clients and successfully brought on 9 new clients that utilized this offering. When we package our new technology with our nationwide offering, we are able to pursue larger opportunities. Regarding larger clients, we added 25% more clients in the quarter with a payroll greater than $1 million versus Q3.

In 2020, we tested out a new business team structure with an eye to continue to provide the best of BBSI with a more targeted and cost-effective manner. Historically, our business teams have been structured in a team of 4, which includes a business partner, a human resource manager, a risk and safety consultant, and a payroll analyst. We were able to modify our business teams to a 6-member team consisting of: a business partner, 3 human resource managers, a risk and safety consultant, and a payroll analyst. This model allows us to service more clients with less management employees and increases our return on management payroll from 5x up to 8x when at capacity. We are applying working remote practices plus efficiencies that we gained with myBBSI, and we will grow into the new model through 2021.

When we go to market, we are offering the best of BBSI. We have various products and services consisting of strategic consulting, human resources, information technology, insurance, risk management, retirement services, staffing and recruiting. When we meet with a potential client, they may join BBSI because they have a certain pain point today, but they will stay because we deliver our whole suite of products flawlessly.

And now I'm going to turn the call over to Anthony for his prepared remarks.

Thanks, Gary. Hello, everyone. I am pleased to report that our Q4 results and our full year 2020 results were both stronger than expected despite the continued economic impacts of the COVID-19 pandemic.

Looking at the full year first. Our gross billings declined only 1% for the year to $5.9 billion, while diluted EPS was $4.39. The COVID-19 pandemic presented significant uncertainty and operational disruption throughout most of the year, but we were consistently impressed by the resilience of our small business customers and proud of the impact our teams had in working with them.

Looking at our Q4 numbers. Net income for the quarter was $7.2 million compared to $11.7 million in Q4 '19 with the reduction due primarily to lower favorable development on claims incurred in prior years and a decrease in investment income. PEO gross billings increased 1% over prior year quarter to $1.57 billion. The increase in PEO gross billings was primarily attributable to higher average payroll per WSE, including higher-than-expected client bonuses at year-end.

Staffing revenues declined 13% over the prior year to $28.9 million but did experience modest sequential growth from Q3. PEO gross billings growth by region versus the prior year fourth quarter were as follows: Mountain States grew 23%; East Coast grew 5%; Northern California grew 4%; Pacific Northwest grew 2%; and Southern California declined by 5%. For the year, all regions experienced positive growth with the exception of Southern California, where market and economic conditions affected customers to a greater extent than in other regions.

Same-customer sales for the period were up 1.4% from Q4 '19 due primarily to the increase in bonuses paid. Workers' compensation expense as a percent of gross billings was 3.7% in the fourth quarter, which is at the low end of our expected range of 3.7% to 3.9%. The continued decline is primarily attributable to actuarially determined reduction of prior year estimated liabilities of $1.2 million in the fourth quarter.

Our overall workers' compensation claims frequency continues to trend favorably. In the quarter, we saw trailing 12-month relative frequency of claims as a percentage of payroll decrease 11% compared to the fourth quarter of 2019. We reported previously we've had minimal COVID-19 claims exposure and minimal claims reported, and we continue to believe that COVID-19 claims will not materially increase our overall workers' compensation costs. However, we continue to monitor the situation, including the broader economic conditions and potential effects on our workers' compensation program.

We've discussed for several quarters now that our pricing has faced increased pressure from a competitive workers' compensation market, particularly in California. These cyclical market forces have continued to put pressure on the rates that we are able to charge our clients, and we have responded by implementing several of the strategies that Gary mentioned earlier, including cost reductions and portfolio and profitability management initiatives. We believe that workers' compensation pricing is at or near its low point and that, overall, rates should now trend flat or increase in 2021.

Looking at operating expenses. SG&A in the quarter was effectively flat from the prior year at $41 million. Cost savings in the quarter, including from structural efficiencies implemented in response to COVID-19, offset planned cost increases associated with the maintenance of the myBBSI portal.

For the year, SG&A costs were down $12 million over prior year and were approximately $22 million lower than our original plan for 2020. As we implemented several cost savings and efficiency strategies, including changes to our business team model, we finished the year with management employee headcount approximately 10% lower than at the beginning of the year.

While maintaining our focus on efficiency, our operating expenses will increase in 2021 due in part to a full year of operation amortization of the myBBSI portal versus only a half year in 2020 and continued investment in our operations and growth strategies, including planned new branch openings. Overall, 2021 SG&A costs are still expected to remain slightly below 2019 levels and well below the trend from our pre-COVID plan and cost structure.

Our investment portfolios earned $1.6 million in the fourth quarter compared to $3.2 million in the prior year. The decrease in investment income is directly attributable to the low interest rate environment compared to the prior year and is consistent with our expectations for the period. Our investments continue to be managed conservatively with an average duration of 1.4 and average quality of investment at AA. Due primarily to our variable rate holdings, our average book yield has decreased to 1.3% from 2.3% at December 2019.

Turning to the balance sheet. We had $170 million of unrestricted cash investments at December 31 compared to $148 million at September 30. We continue to be debt free at quarter end except for our $4 million mortgage on our corporate headquarters. We are proud of our results for the year. We faced significant uncertainty and planned for a wide variety of scenarios, which resulted in some tough decisions, but we always remain focused on our customers and delivering value, and we continue to improve our operations and execute on our strategy as we invested in new sales and marketing initiatives, continued enhancements to our myBBSI portal and opened new branches. We also returned capital to shareholders in the form of $9 million in dividends and $8 million of repurchased stock in the year, which includes the repurchase of an additional $2 million of stock since our last quarterly call.

Turning to the outlook for the year. With this being the first full year as a new management team, we wanted to think carefully about the key drivers of our business and ensure that we are providing the most useful metrics externally. With that in mind, we have refreshed some of the information that we will focus on and report on, including, as Gary said, an emphasis on worksite employees or WSEs. We will now report and discuss average WSEs in each period, and we'll provide an outlook with our expected growth in average WSEs for the upcoming year. As we refocus on WSEs as a primary measure of our business volume, we will also recast what was formerly described as same-customer sales to be growth in WSEs from existing customers.

Another key measure of our business is gross margin as a percent of gross billings. In addition to discussing quarterly margin results in these terms, we will also now provide an outlook of expected gross margin as a percent of gross billings for the upcoming year. We will also continue to give our expected effective tax rate for the upcoming year.

Lastly, to reflect the ongoing uncertainties of the full year ahead and to better align with industry norms, we will now provide expected ranges when discussing forward-looking metrics. We believe that these updates will provide more useful information overall and will allow better monitoring and modeling of our business performance.

2021, we expect average WSEs to increase between 1% and 3% and total gross billings to increase between 2% and 5%. We expect gross margin as a percent of gross billing to range between 2.9% and 3.1%, and we expect our effective annual tax rate to be between 21% and 23%. Our business has been resilient, we have new strategies underway, and although we remain in a period of economic uncertainty, we are optimistic about the year ahead.

I will now turn the call back to Gary for closing remarks.

Thanks, Anthony. In conclusion, 2020 was a challenging year, and the company managed to exceed expectations. Our product is strong and has never been more relevant to the business owner. We are working on the right things, and I am extremely optimistic of the future. We continue to always think of the client first and to advocate for the success of the business owner.

Now I'd like to turn the call over to the operator for questions.

(Operator Instructions) And our first question comes from Chris Moore with CJS Securities.

Maybe we could start with the gross billings growth. Just the guidance is 2% to 5%. Can you maybe talk a little bit about the puts and takes between the low and high end?

Yes. Just -- Chris, it's Kramer. Just in general, forecasting in this environment is a challenge, and we wanted to put something out there that we felt very comfortable with that we think is attainable. I'm not trying to say it's a layup but we think it's an attainable range. If you think about the shape of the curve, Q1 is going to be our hardest compare. Q2 is going to be our biggest growth. Q3 will be lower than Q2, and then Q4 will be less than Q3. But we feel comfortable with those numbers out there that -- of the 2% to 5%.

And then just in general, if you try to think of the macro assumption trend, it's that the economy kind of behaves like it is right now. And then in the back half of the year, starting in, say, third quarter is where we anticipate that, that business flow was going to pick up for our business as far as more adds.

Got you. So just in terms of -- so SG&A is going to be a little bit below fiscal '19. I haven't had a chance to put this in. So at the midpoint of gross billings growth at 3.5%, say, and gross margin at the 3% range, roughly, where does that get us EPS?

We gave you all the numbers. You got to do the math.

Fair enough. To make sure I understand that the WSE growth versus the gross billings, the delta is just the payroll growth at the WSEs?

Yes.

Yes, that's correct.

Okay. Last 1 for me is just on the 6-team approach, can you just talk to that a little bit further? It's -- so there's 3 human resource people within each team.

Yes. What we're able to do there is we picked up efficiencies with our new technology portal, which is a good thing. That helps us on both the risk and the payroll. On the risk side, there are some things that we've learned from working remotely and how to do our jobs more efficiently.

And if we think about where -- one of the strong value props of BBSI is our HR and HR consulting, so what we're able to do is kind of load that business unit up with more HR to support almost double the amount of clients to get us the return on management dollars, which is the way that we like to think about the business is it gets it from a 5x return on management dollars up to an 8x return. So we are able to service more clients with the best of BBSI but with less management payroll.

And our next question is from Jeff Martin with ROTH Capital Partners.

Sorry, I was on mute. I want to get your sense in terms of growth initiatives not necessarily this year but over a 5-year period. Are you kind of on hold with some of those or paring them back while we kind of trudge along and gradually recover here this year? And then also wanted to get a sense of your view on lead generation, if you see a shift over from the intermediate to longer term in terms of generating additional client referrals given that's one of the primary inhibitors to growth currently. And will you take a direct sales approach at some point to go after larger accounts?

So [right down on those] questions.

Yes, sorry. I think I -- you said I have 2 questions but there's like 12 in there, Jeff. So let me go with our growth plans, right? So we consolidated 3 branches in the quarter, and that's the same idea that we've done in previous quarters where we can service those branches and still grow that business. Some of those branches are less than 40 minutes from the other adjacent branch, and we're able to service them under one management team and grow the business while being, I'll say, more cost conscious.

But we are still investing. In Anthony's numbers that we have for the SG&A, that includes us adding additional branches. So we'll add anywhere from 3 to 5 branches in '21. And when we open those branches, they're going to be similar to the model that we've adopted in 2020, which is it'll be a person that is selling in that market, and then we're servicing that business out of either an adjacent market or back at corporate. And when that happens and they start to grow their book, then we'll start to hire locally to support the business. So we are continuing to invest in new branches, invest in new business units. So that hasn't changed at all.

And then if I get to the lead gen, we have initiatives and we are working on things. And we recognize that it's a little more challenging in COVID as far as business coming to us. We're not sitting back on our laurels and waiting for the business to come to us. We're going to go get it. And we've got plans and strategies for that, that we've baked into our operational plan for '21. But that's something that I'm not ready to share until we know it's successful and we know that we're going to adopt it throughout the organization. But we are being mindful in working on that as well.

Okay. And then was curious if you have a sense of, relative to the first round of PPP loans, if you're seeing significant number of clients get a second round or if they're applying for a second round.

So similar to last time, it's difficult for us to get good data on that, right? It's mostly anecdotal. But the answer is, yes, our clients are participating in that and taking advantage of that as well as the other relief that was included, the expansion of the employee retention tax credits as well as the extension of the FCRA. So those are all boon for small business, including our clients. And so we're grateful for those, and they are having an impact.

Okay. And then I know you gave guidance for gross profit as a percentage of gross billings. But within that gross profit guidance, what kind of assumption is embedded in that for workers' compensation? Is that going to stay in the 3.7% to 3.9% range that you expected for the third quarter for next year? Or is there additional benefit forthcoming?

So we introduced that workers' comp guide range at a time when our program was experiencing some uncertainty, we wanted to be able to give that transparency. And as the program has become more predictable and a pretty steady trend of favorable results, really, the more important metric, we think, is the gross margin percent, which obviously is influenced by that workers' comp number.

But we've seen the positive trends in workers' comp. We expect those to continue. We're not giving a specific guide range for workers' comp this year. But there is no evidence that the positive trend line we've seen would change.

Okay. And then final question. Overall pricing on a blended basis across the book, what's your -- what was that experience in 2020? What's your expectation in 2021? Just directionally would be helpful.

Yes. We've been mentioning for a couple of years the softness in the workers' comp market, and we've done things accordingly to react and navigate through the softness in that cycle, right, as far as portfolio management, profitability management. In the second quarter, we talked about reducing the safety incentive. So the basic idea is if we're -- we need that program to be as efficient as possible because we're not able to charge as much as we once were.

But when we look at -- when I look at where 1/1 kind of landed for the cycle, it feels like we're close to the bottom. It feels like it's turning. It feels like when we're looking at '21 that it's going to be flat to up as we get out into '21. I mean you can't have interest rates as low as they are and everything else going on and not be able to get rate on the workers' comp side. So we feel -- we're not out there pushing it, but we see our competitors starting to charge more, and we're obviously going to jump on that bandwagon when the market turns.

And our next question is from Josh Vogel with Sidoti & Company.

You were talking about profitability management, and you had priced out 124 clients in the quarter. Are you done with that? Or should we expect to see more of that at least in the early part of this year?

We -- good question, Josh. That, in general, is addition through subtraction for how we think about it. We may shed some revenue dollars, but we make them up in profit. So when we think about that strategy, that was enacted back in -- this is soft market mentality for workers' comp, right? So that was enacted back in the second quarter of '20. And it started with how our underwriters will work with our branches to try to scrub where we need to be with certain accounts and making price to risk moves.

And we saw those happening throughout the year. We saw a little more in this quarter because of how the market cycle works for year-end for 12/31, 1/1 business. So I would think in Q1, we're going to see a little more -- or I think in Q1, we'll still see some coming through, and then it'll subside after we get through Q2 and beyond. I mean it's part of our DNA that we always want to -- we like our clients and we want to make money, and we want them to make money. So we -- it's part of our DNA to -- we're going to continue to do that. But I don't think you'll see a move as big as we had in Q4.

Great. I know the pandemic makes this next question a little bit murky, but it's been about 9 months since the rollout of the portal and the big build-out you said was completed in February. But have you seen any quantifiable success here when we think about new business or opportunities in the pipeline that were driven to you because of the portal?

Yes. Good question, Josh. That's why part of when we're talking about WSEs externally, that's how we're talking about the business internally, right? And even our sales team, our sales teams has metrics, and I'll say, their goals are based upon WSEs, not on client size. And what we're seeing now is larger opportunities. So in Q3, we had more large opportunities come to us. In Q4, we closed more large opportunities. And that's why, in my remarks, I said we were up 25% in Q4 over Q3 for accounts that we landed over $1 million in payroll. And that has a strong correlation with us being able to provide the IT solutions that those larger clients look for.

I appreciate that. So your definition of a large client is north of $1 million in annual payroll. So what percent of your client base exiting the year falls under that definition?

I don't have that. But just in general, what -- when we looked at our profitability management, we looked at it 2 ways. We looked at it as what were we not making money on from an insurance perspective and then what were we not making money on from a margin to WSE perspective. So a lot of what we saw in Q4 was we were raising pricing on smaller accounts, which are the more price sensitive. But if you look at the -- for the stat I gave for what we added versus what we lost, we still had our worksite employees grow in the quarter, and that's because of losing a fair amount of smalls.

All right. Great. And I got to ask, obviously, you've done a tremendous job building up a hoard of cash. You've been investing internally on the portal, business teams. You talked about potential acquisitions in underpenetrated markets where there's a good client and culture fit. I'm just curious -- and yes, you've been buying back stock, you have a dividend in place. But what's the plan for capital deployment this year? And what's a good base number, happy amount of cash that you just want to have on the books [for clients]?

Yes. So we've said that priority 1 is maintaining that financial moat, as Gary has called it, and we have not disclosed kind of what that safety net number is that we feel comfortable with. And frankly, it is somewhat relative. I mean there's some science to it and some art. And we have a number, but we haven't disclosed that.

But as we look at excess cash, we walked through our capital philosophy last quarter, and the first area we look to is investing in the business. And that could be through M&A, which is still on the table. We're still exploring potential targets and opportunities there that are strategic, but it's also going to be through continued enhancements through IT. So we will -- we fully expect to continue to evolve and enhance our myBBSI portal and other system -- systems we're developing in the year and other initiatives. So some of these sales and marketing initiatives that Gary said as well will take some money.

Beyond that, we're obviously committed to buying back stock and the dividend. As we continue to see how the year progresses, we can update that, but currently, that's the plan we're sticking to in our philosophy.

Yes, Josh. And then on the acquisition side, we've been active in the market for the last couple of quarters, probably for the last 3 quarters. And my view on acquisitions is I'd rather not do an acquisition than do the wrong acquisition. So we will be meticulous and thoughtful about companies that we bring in under the BBSI umbrella. We are looking, but I come from the school of you got to kiss a lot of frogs when you do acquisitions, and we're not going to rush into it.

That's certainly a good strategy. Just last one, when we think about the -- your PEO platform today and clearly, there's the digitization revolution going on, seeing it in large enterprise but trickling down to the SMB space. And as everyone looks to continue to get on the cloud and further facilitate more of their back office and admin functions, how well is your PEO platform prepared to handle this and beyond the portal? And you alluded to it a little bit, Anthony. But what are the rollouts or capabilities are you potentially looking to add to the platform? And would that be done all internally and organically?

Yes. Good question, Josh. We're not ready to -- we put ourselves in an excellent position now with building out myBBSI because we have the flexibility to plug in whatever widget we want to, whatever product we want to through our portal to make it available to our clients, right? Whether we get revenue, whether we get margin, whether we get stickiness of the business is the way that we think about it.

But we weren't in that -- we didn't have that opportunity until now. And now that we literally just stood up, did the last promote 1.5 weeks ago to get to where our, call it, the -- myBBSI is completed, the next stage is we're looking at, okay, what else can we roll in to add or enhance the offering. We have things we're working on but nothing that we're ready to disclose yet.

And our next question is from Vincent Colicchio of Barrington Research.

Yes. Gary, just curious in the workers' comp market. Is it simply pricing discipline that's brought to market to a better place? Or has there been any consolidation or any other industry changes?

No, it's a function of workers' comp has been a profitable line. When there's profit, people flock to it. When they flock to it, prices go down. And we've seen year-over-year price decreases that we think are going to subside in '21.

Okay. You gave a good read on quarterly revenue outlook. I missed if you said it on Q1. How does that look sequentially?

Q1, we thought was going to be our toughest compare because we grew 6% in Q1 of '19 -- or Q1 of '20. So we thought that, that was going to be our toughest compare. And what we're seeing so far is we had a strong year-end as far as our WSE stack being up. We've had a strong selling season in the 1/1. And Q1 will be our lowest growth quarter for the year, but we feel good that we have a good base -- or we call it our stack. We feel that we have a very good stack to grow from here to get the positive growth [going for 3 years].

Okay. And curious, any feedback -- what are you hearing with the new portal in terms of how it compares to your more automated competitors?

For us, it's light years from where we were. Before, we had a payroll engine. Now we have a platform. So it's a much more user-friendly adaptable system, and we're hearing a lot of great things from our clients because of it, the ease of use, the freedom, the flexibility to perform. So we're hearing great things from the clients.

And then we -- look, we do our bake-off, right? We know what our system has versus what every competitor's system has. And we know where we think we are when we look at our technology to the industries. And I would -- pound for pound, I'd put us up there with anybody in the industry on the technology side.

(Operator Instructions) And our next question is from Bill Dezellem with Tieton Capital Management.

A couple of questions. I'm not sure if you covered this, but I'm trying to back into what's happening with wages. So you had a 6% decline in employees. With billings up 1%, does that imply that compensation on average was up 7%?

Not the 7% but you're picking at the point, which is what we saw when our clients faced tough times was that they let go their low-wage employees, which was driving up our average wage per WSE.

Okay. That's very helpful. And it actually leads into the next question I was trying to think through. So employee count is down 6%. How much of that is, to your point, cost savings where they were let go, again, to improve profitability versus COVID restrictions leading to them being furloughed or otherwise laid off? And I'm trying to really differentiate between those 2 buckets as cost savings measures versus COVID restrictions.

It's -- I'd be shooting from the hip if we gave you that. We don't -- when we receive payrolls, we run the payrolls. If people aren't on there, we don't [apply]. We can tell you that the COVID restrictions that we saw were the heaviest in Q2, and then it started to rebound. In Q3 and Q4, we got to normalcy. But we're very fortunate. We've been saying it this whole time, right?

We are not in the industries that are heavily affected. So we were very fortunate with our client base. Our clients are very resilient. Our product is very strong, and we're -- if you would have asked me in March if we would have been down 1% for the year, I would have taken the under on that 1. So we're very pleased with where we ended up for the year.

Great. And then finally, relative to Southern California, is there anything that you feel like you have in terms of levers that you can improve the revenue situation down there since it's the only region where you are seeing a decline?

The decline in revenue in Southern Cal is mainly from our clients shrinking and from the effects of COVID in Southern Cal. So we think that if -- depending upon how the economy comes back, we think that Southern Cal will get the biggest pop out of any other region, right? Our Mountain States held up pretty much resiliently through the whole thing, and they're not going to get the upward trend that, say, Southern Cal is going to get. So we're looking at -- when the economy gets back to normalcy, we're going to have a nice tailwind for us in Southern Cal.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Kramer for closing remarks.

Once again, I just wanted to thank everybody, and I want to thank all the BBSI employees for all their hard work and challenging year, get through 2020. We are very optimistic about the future. We know that we're working on the right things. We know that we have the right product, and we know that our product has the relevance. So we are excited about the future here. So with that, we're going to let it go, and thank you, everybody, for joining.