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Barrett Business Services Inc (NASDAQ:BBSI)
Q2 2019 Earnings Call
Aug 7, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and thank you for participating in today's teleconference call to discuss BBSI's Financial Results for the Second Quarter ended June 30, 2019.

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

Before we go further, please take note of the Company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995. The statement provides important cautions regarding forward-looking statements. The Company's remarks during today's conference call will include forward-looking statements. These statements, along with other information presented that does not reflect historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements. Please refer to the Company's recent earnings release and to the Company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about 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 September 7, 2019, starting at 3:00 PM Eastern Time this afternoon. A webcast replay will also be available via the link provided in today's press release, as well as available on the Company's website at www.barrettbusiness.com.

Now, I would like to turn the call over to Chief Financial Officer of BBSI, Mr. Gary Kramer. Please go ahead, sir.

Gary Kramer -- Chief Financial Officer

Thank you, Sharon. Depending upon where you're dialing in from, good morning or good afternoon, everyone. The operations of the Company remained strong in the second quarter. Diluted income per share increased 24% to $1.81 compared to a $1.46 in Q2 of '18. Gross billings of $1.46 billion grew 6% over the same period. PEO gross billings increased 7% to $1.44 billion compared to the second quarter last year. Gross billings grew by 4% in California versus 13% in all other combined geographies. Same customer sales were 4% compared to 5.7% in Q2 of '18, and was about 150 basis points softer than our expectations. Continuing to increase our client base with the gross addition of 419 clients or 228 net of run-off in the quarter. This is the second quarter in a row that we have crested the 400 client mark for adds in a quarter, and both our client adds and run-off are in line with our expectations.

Net revenue of $231 million decreased slightly compared to $231.6 million in Q2 of '18, and reflected weaker staffing revenue, which decreased 19% to $28 million compared to Q2 of '18. The decrease in staffing revenue is a direct result of the continued tight labor market, we anticipate that staffing will continue to be a slight headwind to near-term revenue growth.

Gross margin outpaced gross billings growth and increased 14% to $55 million compared to $48 million at Q2 of '18. Gross payroll taxes and benefits as a percentage of gross billings was 6.9% in Q2 of '19 or 7.1% in Q2 of '18. Workers' compensation expense as a percentage of gross billings was 4.2% this quarter, which is below our expected range of 4.6% to 4.8%. This compares to 4.8% of gross billing in the second quarter of 2018. The quarterly independent actuarial valuation resulted in a reduction of prior year estimated liability of $3 million. Also as previously discussed, we restructured our arrangement with Chubb to reduce frictional costs and we are seeing a larger benefit this quarter.

Our workers' compensation claims frequency continues to trend favorably. In the quarter, we saw trailing 12 month relative frequency of claims as a percentage of payroll decreased 12% compared to the second quarter of 2018. All-in, we are very pleased with the way our workers' compensation portfolio is performing. We have taken many steps and actions which are yielding positive results. This strict focus and attention has resulted in a redundancy in the portfolio four quarters in a row and is why our expense is coming in lower than our range.

Payroll as a percentage of gross billings is increasing and other components of gross margin decrease. This is related to an increase in PEO business mix and continued expansion outside of California where many states have lower payroll taxes and workers' compensation ratios. SG&A in the second quarter was $39 million or 2.7% of gross billings, compared to $35.6 million or 2.6% in the prior year quarter. SG&A growth in the quarter slowed compared to the growth in Q1 of '19 as our profit share normalized, and is in line with our internal annual plan. We continue to be mindful and diligent about balancing spend against growth while investing in the business for the future.

Provision for income taxes in the second quarter was $4.1 million. Our annual effective tax rate estimate is increasing 400 basis points to 22% due to a change in our capital allocation strategy plus changes in state allocations and a decrease in federal tax credits. We estimate this will result in additional tax expense of $2.9 million for the year versus our original estimate at an 18% tax rate.

Moving to the balance sheet, we are very pleased to report that we continue to advance our long-term objective of maximizing the effectiveness of our workers' compensation program. We successfully renewed our program with Chubb on 7/1/19. This was a significant renewal, because we have moved closer together with Chubb on our respective view of the actuarial with closer parity on loss rates. This will result in accelerating growth of our unrestricted cash balance and our free cash flow. We view this as the last turn in our remediation journey. We executed to our long-term plan, which is brought consistency and predictability to our workers' compensation program. And Chubb has recognized our efforts. I will discuss our view on capital allocation later.

On the asset side of the balance sheet, our unrestricted cash and investments were $101 million at 6/30/19, which is $62 million greater than 3/31/19. The restricted cash and investments, which are primarily comprised of the Chubb trust were $444 million at 6/30/19, which decreased $54 million over 3/31/19. The shift from restricted to unrestricted is related to the Chubb renewal, which I previously mentioned.

Both the restricted and unrestricted cash and investments will continue to be invested in the manner consistent with our previous disclosures. We continue to stay conservatively invested in shorter duration securities in the near term due to a flattening yield curve. We continue to target a cash balance of $150 million with one of our banks, where we will earn a spread of 25 basis points over the three-month treasury.

At 6/30/19, we had $160 million in cash that returned in annual crediting rate of 269 basis points. At June 30, the book yield for the invested portfolio was 258 basis points with a duration of 1.91 years. At 6/30/19, the average quality of the invested portfolio was AA, and no investment was greater than 4% of the portfolio. In the quarter, we earned $3.3 million of investment income.

On the liability side of the balance sheet, we have no material updates. We had no outstanding borrowings under our credit line as of 6/30/19, and we continued to be debt free except for the $4.1 million mortgage on our corporate headquarters in Vancouver, Washington.

Turning to capital allocation. We announced yesterday that our Board of Directors approved a 20% dividend increase to a $1.20 per share annually as well as a $50 million stock repurchase plan over the next three years. We believe we have built a financial note around the Company and we will continue to be diligent and mindful regarding balancing investment in the Company, while returning capital to shareholders. As part of our capital allocation strategy, we also renegotiated the credit agreement with our primary bank to extend the credit line from a two year to a three year commitment, increased the line capacity by $5 million and also removed some other covenants like dividend increase restrictions.

In summary for the quarter, our branches are continuing to meet or exceed expectations regarding the controllables for gross and net client adds. We continue to experience, margin expansion through product relevance while reducing costs in our model. Our gross billings are up from last quarter's trough as we anticipated, even with softness of the uncontrollable same customer sales. We continued to invest in the business and future growth while being mindful of expenses and looking for savings and efficiencies in everything we do.

Our balance sheet has significantly strengthened which is allowing us to return capital to shareholders. Regarding our outlook for the remainder of the year, our pipeline remains strong and we continue to build our base of net new clients. Our referral relationships are deep and our distribution channel continues to widen. We continue to expect gross billings growth for the next rolling 12-month period to be approximately 8%. This contemplates continuing deceleration in staffing revenue and same customer sales growth for PEO to be similar to what we have experienced in the first half of 2019.

For the full year 2019, we continue to expect diluted earnings per share to be approximately $5.40. This assumes an increase in the effective tax rate to approximately 22%. We estimate this escalation will have an impact to earnings for the year of approximately $0.38 per share. However, we expect this to be offset by the favorable experience we have had thus far in 2019, regarding our workers' compensation expense, and now expect the range for workers' compensation expense as a percentage of gross billings to decreased 200 basis points to 4.4% to 4.6%.

Now, I'd like to turn the call over to the President and CEO of BBSI, Mike Ellich, who will comment further on the recently completed second quarter as well as our operational outlook for 2019. Mike?

Michael L. Elich -- President and Chief Executive Officer

Hello, and thank you for taking time to be on the call. For my view of the business, we continue to execute to our plan in support of our fundamentals and the value proposition we bring to market. As Gary mentioned, we are seeing results from various structural moves we have been working on over the past several years. We feel very good about our visibility looking forward and our ability to create shareholder value over time.

In the quarter, we continue to spend time in the field with our teams, with referral partners and with business owners working to understand what they may be seeing in their market. This disciplined provides the means of understanding how we may evolve our offering over time to address challenges business owners face. In the quarter, we added 419 new PEO clients. We experienced attrition of 191 clients, 10 due to accounts receivable, seven for a lack of tier progression, six due to risk profile, 24 businesses sold, 48 businesses closed, 96 left due to pricing competition or companies that moved away from the outsource model. This represents an approximate build in the quarter of 228 net new clients.

Also in the quarter, we took time to pull 725 of our existing clients to better understand what they may be seeing. And speaking with these clients, the majority are profitable and continue to see relevance in their offering.

Despite running -- runway and opportunity, lack of skilled labor continues to be a limit to growth. And there continues to be more uncertainty related to a variety of macro issues. In general, business owners we spoke to expressed optimism, but are not able to find the talent they need to grow, which is why we believe we are seeing softness in same customer sales.

Related to pipeline, we continue to see strong client adds in the quarter and we believe this is a result of our referral partners understanding and recommending BBSI. We continue to evolve our ability to scale from a model based on individual market contributors to a systemic approach for developing referral channels on a national basis. Today, we are seeing development of new referral channels in all markets which support strong pipeline growth, as evidenced by continued new client adds.

Related to organizational structure, we continue to build the field organization to support future growth, scale into new markets and invest in support of our product offering. Also in the quarter, we added one business team bringing us to 113 business teams across 63 branch locations. Related to branch stratification, we have 18 mature branches with run rates in excess of $100 million. This is a measure, we used to indicate a branche's ability to increase leverage. In the quarter, we saw one branch from Oregon send from the emerging category to mature. We have 20 emerging branches running between $30 million and $100 million. We regularly reinvest back into these teams to support capacity as they grow.

Finally, we have 25 branches we consider developing with run rates of up to $30 million. In these branches, we invest to support consistency of pipeline while maintaining integrity of product as they scale. We continue to evaluate the build of new branch locations and business teams and with predictability of our pipeline.

Looking forward, fundamentals of the business are strong. We remain focused on bringing predictability and value to the business over the long term. Feedback I have received from our clients, and referral partners support relevance of our product as we look at the next five years. Having spent a great deal of time in the field, my confidence in our ability to execute comes from the strength of our organization's leadership, the maturity of our teams and a structure that allows us to stay nimble.

We continue to invest in infrastructure that supports both product, evolution and our ability to scale into new markets with the predictable outcomes. We are at a point where our foundation is very strong. We know where we need to focus our energy and we are executing to our plan.

With that, I'll open up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Chris Moore with CJS Securities. Please proceed with your question.

Christopher Moore -- CJS Securities -- Analyst

Thanks for taking a few questions. Maybe we could start on the workers' comp, just can you remind me what percentage of your clients at this point have workers -- get their workers' comp through BBSI?

Gary Kramer -- Chief Financial Officer

Hey, Chris, it's Kramer.

Christopher Moore -- CJS Securities -- Analyst

Roughly, I'm just trying to get a sense, is it increasing, decreasing?

Gary Kramer -- Chief Financial Officer

in the quarter -- I'm trying to pull up my stat here. But in the quarter for the clients we added -- I want to say, it was about 8% did not have workers' comp attached to them. That's for the clients that we added in the quarter. If we look at for the portfolio, it's going to be a higher -- a larger amount of our clients will have workers' comp attached to them, just as -- that's the way our product has developed and matured over all the years. So we have a lot of clients who've been with us for many, many years, some 10 years plus. And with that is -- we've had their workers' comp for that time as well.

Christopher Moore -- CJS Securities -- Analyst

Got it. So -- I mean my understanding is that workers' comp is priced to be relatively profit neutral when that expense ratio is between 4.9% and 5.1% of gross revenue. Given the new Chubb agreement, all the procedures and processes put in place, obviously that ratio is significantly below that. Has the pricing changed to reflect that or is just workers' comp that much more profitable these days?

Gary Kramer -- Chief Financial Officer

So the -- I'll say the profitability we're seeing on the workers' comp is twofold, one is all the work we've been doing to try to remove all the frictional cost. And this is the last quarter where we have a mix of the old program and the new program. Next quarter, we'll be strictly on the new program, and that's where we're going to see more of a pure quarter for that savings.

The second thing is, we've done a ton of work from how we bring a client on, from how we approach the business owner, from how we align with the business owner, and that really is showing up in I'll say our frequency metrics, right. So we're better aligned with our clients. We're working all with our clients, that's driving frequency down. And then the results of that is the less claims you have, the less expense you have.

Michael L. Elich -- President and Chief Executive Officer

Yes, Chris. And I would add to that as we have worked through a rate shift environment over the last couple of years, we've held rates pretty constant. And as we found efficiencies what it's done for us that's given us the opportunity to not lose opportunity. But we're pretty selective there and we've -- for the most part held rates to our original pick, for the most part, for the reasons of not chasing markets and making sure that we're -- we continue to maintain a good position from where we built to.

Christopher Moore -- CJS Securities -- Analyst

Got it. I mean, because there was the betas [Phonetic] on some of these costs a little while back in terms of there'll be less earnings risk if there was less worker's comp. But it just seems like given what you're doing, I mean the workers' comp is just a significantly important driver of the profitability here. So that that conversation seems like -- plus the fact that most of your clients want to bundle workers' comp with payroll anyway. So I just want to make sure I was looking at that correctly.

Gary Kramer -- Chief Financial Officer

Yes. Chris, just to interject there if you don't mind. The profitability on workers' comp that we're seeing now is mainly related to the prior years. So we set our reserves and as the claims have come in and we start to move to the development of what the actual claims experience is, is where we're seeing the favorability in the workers' comp. So the -- I think of it this way. The '18, '17, '16 years and prior is where we're seeing the favorability, and that's where we get to the $3 million of the change in estimate in the current period.

Christopher Moore -- CJS Securities -- Analyst

Right.

Gary Kramer -- Chief Financial Officer

So we had -- you think of the last, if you go back and look at our change in estimate for the last eight quarters, it's been pretty much favorable. [Speech Overlap] And that honestly has to tie with all the work we're doing, and then the conservatism that we put into our processes.

Christopher Moore -- CJS Securities -- Analyst

Awesome. Thank you so much. I'll jump back in line. Appreciate it.

Operator

Our next question is from Jeff Martin with ROTH Capital Partners. Please proceed with your question.

Jeff Martin -- ROTH Capital Partners -- Analyst

Thanks. Good morning, Mike and Gary.

Michael L. Elich -- President and Chief Executive Officer

Good morning, Joe.

Gary Kramer -- Chief Financial Officer

Yes. [Phonetic]

Jeff Martin -- ROTH Capital Partners -- Analyst

I was wondering if you could break down the same-store sales result in the quarter, how that breaks out by billable hours, bill rates and the like?

Gary Kramer -- Chief Financial Officer

So it's not -- as far as the percentages, what we saw for same customer sales was, it was 4% for the company. The way that, that kind of vary by geography, Southern Cal is still the softness. Southern Cal was a sub-4%, Northern Cal was a sub-4%, and then when we get into the other geographies, they were basically around a 5% to 6%. So really we're continuing to see the softness in growth in Southern California.

And then when we look at how -- where that growth came as far as the buckets, as far as headcount, wage inflation and then hours worked, it's free consistent with what we saw last quarter. The only thing I would say is that our average wage is consistent with what we saw last quarter. But really just a small shift is the headcount is decreasing even more. It was 1% last quarter. It's now like 0.7% as far as the growth. And then we had a little bit of a shift into hours worked. Hours are -- hours worked was up a little bit over last quarter.

So relatively not a lot of change quarter-over-quarter. We're just seeing that -- when we talk to our business owners and what we are experiencing on the market is that it's difficult to hire. And we're seeing that now in the tightness of the growth in headcounts.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay, great. And then wanted to dive a little bit further into the California market in general, typically have been a high growth market for you. Wondering what you attribute the slower growth to. You've alluded to a little bit on the same-store sales analysis, but do you think it's more from the rate environment on workers' comp in California? Do you think it's partly due to change in tax code that is causing a migration of small business out of California? Curious if there's other factors that you might be seeing.

Michael L. Elich -- President and Chief Executive Officer

Yes. Hi, Jeff. I'd say -- I would not not say it's the anything to do with workers' comp at this point. Our adds right now are pretty consistent across the board. So when I look at the addition of new clients, it's been very strong and it's across most all markets. When I look at the impact to same customer growth, that's where we probably see your biggest headwind. And I think that Southern California in particular is a big important state, import region with the Port of Long Beach, and there is a lot of logistics work. There's a lot of manufacturing in that, that are all tied toward some of the import-export market.

So I think there has been a little bit of a tap on the brakes because of a lot of the tariff conversations over the last couple of years in those markets. And just in general, in the West Coast, -- to me, it's just -- it's as much a whether it's a mid-cycle correction or whether it's just a -- where we're kind of seeing that growth has capped out a little bit in those markets until it resets itself. It seems that business owners in general are -- there's still a ton of business there. There is -- that's not an issue. But business owners that we speak with are just -- they're just less inclined to take risk right now. And that's we're getting too aggressive about how they want to go and grow their business that they had more -- most of them are saying, if they had more visibility to the next few years, they'd probably be more aggressive. But right now, they're just -- they're not being extremely aggressive

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. That's helpful. Wanted to [Speech Overlap]

Michael L. Elich -- President and Chief Executive Officer

Hey, Jeff, if I can. You had asked -- you asked a question before on a prior call about what inning we think we are in the workers comp cycle. And I forget what quarter was, but I said we are in about seventh inning. We're further along now in this cycle. I would say we're top at the ninth. We're seeing the rate decreases pretty much slow. And I've seen some companies with their filings and certain things say that they're actually raising rates now. So it's always hard to call a bottom, but I'm pretty confident that we're closer to the bottom now than we were -- I think it was six quarters ago.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. And then the 12% decline in frequency that you've seen trailing 12 months, do you feel that sustainable? Is there anything in particular that's driving that in terms of client mix? Or is that just -- it's going to fluctuate from quarter-to-quarter?

Michael L. Elich -- President and Chief Executive Officer

It's -- I mean we've consistently had our frequency down over the last four or five years. So that's a discipline that we're not going to shake where it's always going to stay core to our DNA. We're pretty diligent that if a client having frequency and then there is something wrong there, and they're probably not a good partner for us. So we'll shed that client, and then we're really good at how we spend our time aligning with the clients on the front end. Really the front end on how we onboard is a real important part of the process, because we got to make sure that our interests are aligned and they are going to follow the BBSI way, and help them with their company and their culture, which is ultimately going to eliminate any worker's comp defect that may come out of it.

Gary Kramer -- Chief Financial Officer

Yes. Jeff, I think that the real work we're doing to align with our clients today is starting to have that impact. I think the consistency that we've seen over many quarters now with a reduction in frequency is a trend. It's not -- we haven't really seen a lot of fluctuation in that. It continues to -- the rate of frequency reduction continues to be very strong. And I think it's just -- it relates to a lot of the work we're getting done in the field, how we're aligning with our clients, and how our systemic approach toward how we approach things is working to mitigate risk from all ends.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. And then last question is on capital allocation, $50 million share repurchase plan authorized, surprised [Indecipherable] not reacting more favorably to that this morning. But curious how you weigh the decision in that versus investing back in the business, and perhaps opening up additional branches, and pursuing other markets, curious to get your thoughts there.

Michael L. Elich -- President and Chief Executive Officer

So as we look at our plan to add branches to add capacity to continue to bolster our pipelines, all of that is already baked into the plan. There is really not an effective use of cash that would accelerate that. And we're just going to continue to be very methodical about how we're continuing to build our footprint and then how we're matching that to the pipeline that we're building. So it's really not a -- growth is not constrained by our balance sheet. It's just that our balance sheet is strong enough now that we feel that we could make different decisions about how we build shareholder value.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. And then when does that become effective after your quiet period ends?

Gary Kramer -- Chief Financial Officer

Yes. We're going to -- August 15, is when it opens up for us. I mean the point I want to make a finer point on because I just want to make sure you can see it when you're looking through the financials is, the renewal with Chubb for 7/1 was on -- I'll call it a milestone for us, right. We have typically had a difference in our view of what the expected losses would be. And this renewal the Chubb and BBSI got pretty close to what we think our view of the losses are, right. And with that, it resulted in, we were collateralized and arguably over collateralized, and that over collateralization meet its way back onto the balance sheet. And when you're looking on the assets of the balance sheet, you're going to see in investments there is $27 million, that $77 million is unrestricted cash available to the Company.

So those cash and the investments are going to continue to grow over the next foreseeable future. And really the -- I'll say the milestone is that by getting parity with Chubb, we get a balance sheet pickup in the quarter. And then when we look at cash flows going forward or cash flows, we're going to have more cash available to us as a company, because we're not going to be funding that over our collateralization.

Michael L. Elich -- President and Chief Executive Officer

Yes. And I'll make one more point to that is that we've been working with Chubb a lot of years now, and that partnership is really strengthened. But this move actually to is a level of confidence that we're all on the same page, we're all in the same direction. And that makes me feel pretty good to about everything that we've gotten and done.

Jeff Martin -- ROTH Capital Partners -- Analyst

Great. Well, thanks, guys. Appreciate it.

Operator

Our next question is from Josh Vogel with Sidoti and Company. Please proceed.

Josh Vogel -- Sidoti & Company -- Analyst

Thank you. Good morning, Mike and Gary.

Michael L. Elich -- President and Chief Executive Officer

Good morning, Josh.

Gary Kramer -- Chief Financial Officer

Hi, Josh.

Josh Vogel -- Sidoti & Company -- Analyst

I guess just first, the Chubb renewal is just going to be an annual event every July 1, or is there a multi-year agreement that you would may want to put in place at some point?

Michael L. Elich -- President and Chief Executive Officer

Hey, Josh, it's a good question. Typically are -- when you're growing the way that we grow and we are going into new states and you're doing the different things, and you're a growth company the way we are, it's your profile can change on a year-to-year basis. So based upon that it's -- I don't foresee us doing a multi-year anywhere in the near future. I mean, Chubb is a very good partner of ours. Chubb wants to renew our business. I'm not concerned about any chinks in the armor of the partnership.

Josh Vogel -- Sidoti & Company -- Analyst

Okay, great. I was wondering if we could maybe just dive a little deeper into the buckets of growth across the same customer base. I'm just curious how wage inflation was trending across your geographies, mainly California versus everyone else, and then how that compares to the national average of I think 3%, that the Labor Department recently reported.

Michael L. Elich -- President and Chief Executive Officer

Yes. We are not -- I will say, wage inflation by geography is pretty consistent. And what we are seeing locally is what is being seen nationally. So there is -- as far as wage inflation, it's hanging in and around that to depending upon the quarter, the 2.7% to the 3.4% [Phonetic] range. And we're seeing that pretty much in all geographies. There is no there outlier I will say for hyper wage inflation.

Josh Vogel -- Sidoti & Company -- Analyst

Okay. And, Gary, can you confirm again, the third quarter includes an extra billing day, right?

Gary Kramer -- Chief Financial Officer

Yes.

Josh Vogel -- Sidoti & Company -- Analyst

Okay. So when we look at your rolling 12 month guidance that the optically Q3 is going to be stronger than the following three quarters, is that a fair way to think about that?

Gary Kramer -- Chief Financial Officer

Q3 will be stronger than Q4 for the year as far as revenue because of that extra day.

Josh Vogel -- Sidoti & Company -- Analyst

Okay. And I guess, can you just give a little bit more commentary around what you said, with the 150 basis point shortfall in same customer sales growth versus your expectations, and did that influence you're not making any changes to that 8% rolling 12 month guidance?

Gary Kramer -- Chief Financial Officer

So the 150 basis point was to call it our internal model. So when we are modeling 2019, our expectation, because the employment market and the economy in the macro, there really wasn't much of a change between '18 and '19. And we thought that, that '19 was going to behave like '18 did. But what we're seeing is a little bit of aggression in same customer sales where '19 is behaving softer than '18. So that happened in the first quarter. First quarter, we -- it wasn't as bigger a concern or not a concern now, but in first quarter, what we had was we beat our plan for adds and run off, which combated that same customer sales. And then the good about that as you get those -- if your stack figure in Q1, you get that benefit in Q2, Q3 and Q4. But in Q2, what we saw was we hit our stack, but same customer sales was a little softer. So we think that our stack is in a good spot, and our stacks is really going to be I'll say a tipping point to where the stacks is going to add more of the growth in the same customer sales.

Michael L. Elich -- President and Chief Executive Officer

Yes. We saw in the late part of the quarter, Josh, kind of a term -- kind of if you would say we troughed and the trend start reversing. And that's what gives us confidence, plus we're going against lighter comps as we come into the third and fourth quarter, and beginning of next year. Okay. Q1 of '19 is going to be a soft, or Q1 of '20 will be a -- an easy comp compared to Q1 of '19, because Q1 in '19 was the low -- was the trough we're calling it.

Josh Vogel -- Sidoti & Company -- Analyst

Right. Okay, great. That's all I have now. Thanks, guys.

Operator

[Operator Instructions] Our next question is from Bill Dezellem with Tieton Capital Management. Please proceed.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. A group of questions, first of all, relative to California, you had mentioned that the gross billings were up less than 4%. Would you please kind of give us the last four quarters of California gross billings? Actually, I think I said less than four [Phonetic] -- you said that at 4%. So we have that comparison right down in front of us?

Gary Kramer -- Chief Financial Officer

I don't have that in front of me, Bill. I can take that offline.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay, no problem. And then just to make sure that we are clear the $77 million or so million of cash that showed up on the balance sheet, and seems to had some corresponding decreases in the restricted cash. I think it's the investment line item specifically that it's called, that's all as a result of the Chubb renewal, correct?

Gary Kramer -- Chief Financial Officer

Primarily. It's the line share there is. So what happens is the restricted account goes down and then the unrestricted goes up. And you're really seeing that pop in, in the investment line. And then the way that we think about capital as we think of you got to take the cash and you got to take the unrestricted cash and the unrestricted investments. And when we look at those two, that's what we consider the moat that we're going to have around the Company. And then we'll have an amount bigger than that moat is when we would look at returning additional capital to shareholders.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. And then would you circle back to the increase in tax rate that you now guided for and what's leading to that?

Gary Kramer -- Chief Financial Officer

Sure. I'm going to try to keep this mid-level as opposed to trying to go real low here. So as part of the capital strategy, you have to move money between entities, which attracts an income tax as well. So that's one piece of it. And then the other pieces are just minor shifts in where our state taxes are and then where our federal tax credits are, a little less than what we thought. So when you take all that up, it gets you to the 22% for the year.

The new normal I would say for us would be if I'm thinking about 2020, I think it's going to be based upon the facts I know now, I think it will be somewhere around 20%. So if you're going to model this out, I wouldn't model it at 20 -- I wouldn't model it at 22%. I'd model it at a 20% for our 2020 and beyond.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay. So a couple of follow-ups here. First of all, the increase in the tax rate, you said is a $0.38 impact on '19. So in essence, that's a de facto raise in your guidance since you're holding guidance constant. Where is that being made up relative to what you were originally thinking?

Gary Kramer -- Chief Financial Officer

So when we look at the -- when we looked at the favorability that we had in workers' comp in Q1 and Q2, so the sum of those two was, call it $4.5 million. So you had a good guy on workers' comp, a bad guy on tax. And then we were -- when we looked at the rest of the year, we still felt very comfortable with our $5.40 [Phonetic] guide.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay. And then additionally, these were voluntary changes that you made, is that led to the increased tax rate? Are we interpreting that right?

Gary Kramer -- Chief Financial Officer

I would say about half of it was self-inflicted.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay. And so where I'm going with this is clearly, you're not going to do something that will have a net drain on the business if you have a choice, and so that's voluntary. Then the the extra tax rate or extra taxes that you're paying is being offset with even more income elsewhere, would be my interpretation of how you would think about this. If that's correct, can you dive a little further into the weeds to help us understand where you're making it up on the other side?

Gary Kramer -- Chief Financial Officer

Yes. I mean we're -- I'm -- we're very mindful of the income taxes, right. Nobody is looking to pay any additional taxes than they're required to. And we have a pretty much two teams of partners that we use of -- think of experts in the space that help us with this. And we're very mindful of capital, we're very mindful of structure, we're very mindful of how our legal entities and our credits and certain things work. So we are very cognizant and aware that tax is an important line. The lower the tax, the more money sticks to your ribs, right. So we are very mindful of it.

So -- and then the next piece if I'm understanding Bill is, if you're -- really what I have -- at the $5.40 [Phonetic] guide, I'm going to go back to what I said earlier, for the $5.40, [Phonetic] we had a good guy for workers' comp, and we had a bad guy for income taxes. And then when we look at where we are through the year versus where we're going to go for the next few quarters, we are very comfortable with the $5.40. [Phonetic]

Josh Vogel -- Sidoti & Company -- Analyst

Okay. I totally following that. I'm actually taking this one step further. That if you're going to pay extra tax -- a $1 of extra tax, I suspect you're making more than a $1 of extra income to make that to have made the shifts that you did. And I'm hoping that you can help us understand what those shifts were, and if you want to quantify the benefit there, that would be great also.

Gary Kramer -- Chief Financial Officer

Sorry, Bill. That's getting a little really weedy for me. I'm going to stay mid-level on this one. And just kind of stay with the idea of 200 of the basis points give or take was for something that was self-inflicted which had to do with our capital strategy in the way the income moves through the different entities. So that's about as low as I'm going to go.

Bill Dezellem -- Tieton Capital Management -- Analyst

Okay, great. Thank you. And congratulations on a real solid quarter, and the extra capital to get back to shareholders

Gary Kramer -- Chief Financial Officer

Thanks, Bill.

Michael L. Elich -- President and Chief Executive Officer

Thank you.

Operator

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

Michael L. Elich -- President and Chief Executive Officer

Again, thank you for staying tuned in. We feel really good about where we're at as an organization, feel very good about the results and what we're getting done in 2019, and how we're setting ourselves up for the next few years. Talk to you next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Gary Kramer -- Chief Financial Officer

Michael L. Elich -- President and Chief Executive Officer

Christopher Moore -- CJS Securities -- Analyst

Jeff Martin -- ROTH Capital Partners -- Analyst

Josh Vogel -- Sidoti & Company -- Analyst

Bill Dezellem -- Tieton Capital Management -- Analyst

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