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Barrett Business Services Inc (NASDAQ:BBSI)
Q3 2019 Earnings Call
Nov 6, 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 conference call to discuss BBSI's Financial Results for the Third Quarter Ended September 30, 2019.

Joining us today are BBSIs President and CEO, Mr. Michael Elich and the Company's CFO, Mr. Gary Kramer. Following their remarks, we'll open the call up for 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 Company 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 matter of risks and uncertainties.

Actual results may differ materially from those implied by those 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 results, excuse me, that could cause actual results to differ.

I'd like to remind everyone that this call will be available for replay through December 6, 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.mybbsi.com.

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

Gary Kramer -- Chief Financial Officer

Thank you, Michelle. Depending upon where you're dialing in from, good morning or good afternoon, everyone. We had a very strong quarter that resulted in record earnings. Diluted income per share for the quarter increased 30% to $3.24 compared to $2.50 in Q3 of '18.

Gross billings of $1.55 billion grew 7% over the same period. PEO gross billings increased 8% to $1.52 billion compared to the third quarter last year. The third quarter of 2019 had one more work day when compared to the third quarter of 2018. When adjusting for the one-day difference, our gross billings increased approximately 6% over the prior year period.

Gross billings grew by 5% in California, versus 15% in all other combined geographies. Same customer sales were 5.7% compared to 4.7% in Q3 of '18. However, adjusting for the one-day difference, same customer sales would have been approximately 4.3% which was lower than Q3 of '18 and lower than our internal plan.

We continue to increase our client base with the gross addition of 386 clients or 217 net of runoff in the quarter. The 386 gross additions are a record number in any third quarter in our history.

Net revenue of $248 million reflects a slight increase compared to $247.3 million in Q3 of '18 and reflected weaker staffing revenue, which decreased 17% to $33.8 million compared to Q3 of '18.

The decrease in staffing revenue is a direct result of the continued tight labor market, and we anticipate that staffing will remain a slight headwind to near-term revenue growth. Gross profit outpaced gross billings growth and increased 19% to $70.8 million compared to $59.7 million at Q3 of '18.

Gross payroll taxes and benefits as a percentage of payroll was 6.8% in Q3 of '19 versus 6.9% in Q3 of '18. Workers' compensation expense as a percentage of gross billings was 3.6% this quarter, which is below our expected range of 4.4% to 4.6%. This compares to 4.5% of gross billings in the third quarter of 2018.

The third quarter is when we reset our triangles and bring in another year of experience. The independent actuarial valuation resulted in a reduction of prior year estimated liability of $5.6 million. Also as previously discussed, we restructured our arrangement with Chubb to reduce frictional costs and this is the first pure quarter where all policies are effective on the more efficient structure.

Our workers' compensation claims frequency continues to trend favorably. In the quarter, we saw trailing 12 month relative frequency of claims as a percentage of payroll decrease 12.9% compared to the third quarter of 2018. All in, we are very pleased with the way our workers' compensation portfolio is performing. We have taken many steps and actions which are yielding positive results. We are conservative and deliberate and this strict focus and attention has resulted in a redundancy in the portfolio, seven quarters in a row and why our expense continues to come in lower than our range.

Payroll as a percentage of gross billings is increasing as other components of gross margin decrease. This is related to an increase in PEO business mix and continued expansion outside of California where many states have lower payroll tax and workers' compensation ratios.

SG&A in the third quarter was $41.4 million which is 13% higher than the prior year quarter. This increase includes a timing portion for the extra business day plus a slight increase in profit sharing. We continue to be mindful and diligent about balancing spend against growth while investing in the business for the future.

For the full year of 2019, our SG&A is expected to be on plan.

The provision for income taxes in the third quarter was $6 million. As mentioned last quarter, we increased our annual effective tax rate estimate from 18% to 22%.

Moving to the balance sheet. We mentioned last quarter that we successfully renewed our 7/01/19 insurance program with Chubb. This was a significant renewal, because we have moved closer together with our collective view of the actuarial loss rates. This was a tipping point for the balance sheet and results in accelerated growth of our unrestricted cash balance and our free cash flow.

Accordingly, our unrestricted cash and investments were $137 million at 9/30/19 which is $36 million greater than 6/30/19 and a $100 million greater than 12/31/18. The restricted cash and investments, which are primarily comprised of the Chubb trust was $420 million at 9/30/19. The $557 million combined unrestricted and restricted cash and investments will continue to be invested in a manner consistent with our previous disclosures.

We continue to stay conservatively invested in shorter duration securities in the near term, we will [Phonetic] flattening yield curve. At 9/30/19, we had $173 million in cash that returned an annual crediting rate of 220 basis points. At September 30, the book yield for the invested portfolios was 238 basis points with a duration of 1.71 years. At 09/30/19, the average quality of the invested portfolios was AA and no investment was greater than 4% of the portfolio.

In the quarter, we earned $3.7 million of investment income. On the liability side of the balance sheet, we have no material updates. We had no borrowings on our credit line as of 9/30/19 and we continue to be debt free except for the $4 million mortgage on our corporate headquarters in Vancouver Washington.

Turning to capital allocation. 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. We have an authorized stock-repurchase plan, which is another tool to drive shareholder value but we did not buy back any stock in the quarter. We increased the dividend last quarter by 20% and have returned $6 million to shareholders so far this year.

In summary for the quarter, our branches are continuing to meet or exceed expectations regarding the control [Indecipherable] for gross and net client adds. We continue to experience margin expansion through product relevance while reducing costs in our model. Our gross billings continue to increase even with the softness of uncontrollable same customer sales. We continue to invest in the business and future growth and mindful of expenses and looking for savings and efficiencies in everything we do. Our pipeline remains strong and we continue to build our base of net new clients. Our referral relationships and distribution channels continue to widen. Our balance sheet has made the turn and we've built a financial note to support the Company but more importantly, our core earnings are strong and predictable.

Regarding our outlook for the remainder of the year, 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 thus far in 2019.

For the full year 2019, we are raising our estimate for diluted earnings per share by $0.65 to approximately $6.05. This increase reflects our core operating results, performing as planned, plus our workers' compensation portfolio performing better than expected, which is partially offset by an increase in our effective tax rate to 23% from 18%.

For the fourth quarter of 2019, we expect the range for workers' compensation expense as a percentage of gross billings to be 4.3% to 4.5%. This range can also be applied as an approximation when looking forward to 2020.

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 third quarter as well as our operational outlook for 2019. Mike?

Michael L. Elich -- President, Chief Executive Officer

Hello and thank you for taking time to be on the call. As we do each year, we spent much of September in the field reviewing progress of 2019 and looking forward to 2020. From my view of the business, the organization looks strong and we continue to execute to our plan and support of our fundamentals.

Additionally, in September we introduced a new website and a new URL mybbsi.com. This is the first step moving forward, that will make us, excuse me, this is the first move in several we will make in the coming months to more accurately represent our value proposition to the market.

Also, we continue to spend time in the field with referral partners and business owners working to understand what they may be seeing in the market. These efforts and our visibility to the business continue to support confidence in our value proposition we -- as we look at the market.

Looking forward in the quarter, we added 386 new PEO clients. We experienced attrition of 169 clients, 15 due to accounts receivable, 13 for a lack of tier progression, three due to risk profile, 20 businesses sold, 45 businesses closed and 73 left due to pricing competition and companies that have moved away from the outsource model. This represents an approximate build in the quarter of 217 net new client.

Also in the quarter, we took time to pull 10% of our existing clients to better understand what they may be seeing and speaking with these clients a majority are profitable and continue to see relevance in their offering, despite runway and opportunity, lack of skilled labor continues to be the limitation to growth and there continues to be some uncertainty related to a variety of macro issues. In general, the 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. In the quarter, we added one business team bringing us to 114 business teams across 63 branch locations. We continue to build organizational structure at all levels, to that end, in October, we announced the addition of Diane Dewbrey to our Board of Directors, bringing our total count to eight members.

Related to branch stratification, we have 18 mature branches with run rates in excess of $100 million. This is a measure we use to indicate branches ability to increase leverage. We have 20 emerging branches running between $30 million and $100 million. We regularly reinvest back into these teams to support capacity as they grow.

Finally, we have 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. As we add infrastructure to support capacity as dictated by our pipelines, we pay particular attention to our ability to add business teams in support of our growth. Looking forward, the fundamentals of the business are strong. We remain focused on bringing predictability and value to the business over the long run. Feedback I have received from our clients and referral partners supports relevance of our product as we look at the next five years.

Having spent a great deal of time in the field this year, my confidence in our ability to execute comes from the strength of our teams and the structure that allows us to stay nimble. We continue to invest in infrastructure that supports both product evolution and our ability to scale into new markets with predictable outcomes. Today, we have a foundation that is strong, we know where we need to focus our energy and we are executing to our plan.

With that, I'll turn it over for questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions]. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore -- CJS Securities -- Analyst

Hey, good morning to you guys.

Michael L. Elich -- President, Chief Executive Officer

Hey, Chris.

Chris Moore -- CJS Securities -- Analyst

Yeah, good morning. Maybe just focus a little bit on growth specifically outside California and kind of the impact that, that has kind of near and mid-term. Just start with maybe on the referral channels, so the referral channels that you have in California are well established. Can you talk a little bit about kind of how they look outside of California?

Gary Kramer -- Chief Financial Officer

Hey Chris, it's Kramer. So that's a good question and what we've really focused on is consistency in our product and consistency in how we deliver the product and how we go to market. So if you think about how we try to forge these relationships on a national basis, we've got a strategy for how we work with our referral partners in every state.

So if you're referral partner in Utah, you get treated to the same sort of service and platform as California. So it's going to vary by market, some of our markets that are more mature, like in the Mountain States versus, say, our East Coast branches that are opening up, that are going to take a little time to get those channels developed but the basic idea is, if you go in any BBSI store front, it looks the same, no matter what state you're in, and that referral partner gets treated with the same respect and service everywhere.

Michael L. Elich -- President, Chief Executive Officer

Yeah, Chris, I might add to that, one of the things that I saw probably in the reviews that we did in the third quarter, just being out in the field was, one, our bench of leadership in all markets is very consistent. And you really don't see very much a difference between, call it, California and the Mountain States of the East Coast. The other thing I would say is that as we may have had -- if we grew up on the West Coast and California with more of an insurance offering in the past, as we've evolved that brand and have shifted it, that's taken more effort and we've had to reeducate and retool a lot of our referral partners in California. As we look at other states where we probably came at, a lot of our growth through a different value proposition, we're seeing an adoption of our current value proposition in those markets and probably an acceleration through our existing pipelines in those markets where we actually see a higher effective yield coming out of the referral channels that we get in markets outside of California.

Chris Moore -- CJS Securities -- Analyst

It's interesting, I mean from a kind of customer or client size, It's -- the clients are smaller that you're -- on average that you're signing outside of California. You had kind of historically talked about a five-year timeframe for a successful branch to reach that $100 million level. Does the, kind of, starting on the smaller side, does that impact much that -- that potential progression that you see?

Michael L. Elich -- President, Chief Executive Officer

Yeah, there is a little bit more of a headwind. And what you -- there is two sides to the smaller customer. The smaller customer is a lot of times when you see a new branch coming online, there is maybe a tendency to be more comfortable adding the smaller company and as you get more traction, you'll see that average client employee size increase in all markets.

So that's kind of the standard, but then you have to take into consideration that if you look at companies in Southern California versus companies in Utah or Boise, Idaho, there tends to be just by nature of population size and market demographics, they just tend to be smaller.

So it will take a little bit longer for us to get there, but one of the things I would say to is, today in our overall model, we get there faster today because I think we're more efficient in how we're adding and building pipeline and how we're adding business, than we maybe have been go -- if you went back 10 years ago.

Chris Moore -- CJS Securities -- Analyst

Got it. That's helpful. I appreciate it. I'll jump back in line. Thanks guys.

Operator

Thank you. Our next question comes from the line of Jeff Martin with Roth Capital Partners. Please proceed with your question.

Jeff Martin -- Roth Capital Partners -- Analyst

Thanks, good morning, Mike and Kramer. How are you?

Michael L. Elich -- President, Chief Executive Officer

Good morning, Jeff.

Jeff Martin -- Roth Capital Partners -- Analyst

I was wondering if you could comment on the implied Q4 guide relative to your updated guidance of $6.05 for the year. What implied down year-over-year, I know there are some things going on with payroll taxes, but I think it'd be helpful to kind of get some insight from you in an open format here on that.

Gary Kramer -- Chief Financial Officer

Yeah. So if you think back for Q4 of '18, we have, call it, two non-recurring, so we had a change in estimate for workers' comp which was like $2.3 million. So when we're giving any forecast for the forward look, we don't forecast for any change in estimate. So that's one of the puts and then the other one was in Q4 of '18, we were estimating that we were going to have a payroll tax that was going to be due that ended up not being due. So, we took down that accrual in Q4 of '18.

So you've got, call it, two credits from '18 that don't repeat in '19. So if you normalize for those, we still are getting to earnings growth for Q4 of '19.

Jeff Martin -- Roth Capital Partners -- Analyst

Okay. And then I was wondering if you could give us an update on the progress on some of the new branches and new business units that have opened up this year.

Michael L. Elich -- President, Chief Executive Officer

So as we've added new branches in new markets, we're finding that there is two style of branches. We'll say that if we add a branch in a market adjacency, we'll call that a tuck-in, typically those branches are started with talent that's already been working in a branch, be it a current business partner that may be moves to a new branch and opens that, for example, with that you're taking experience in 10 year and you're combining that with a book of business that gets started, that might be peeled off from local branches that it makes more sense for those customers to be in the new branches.

When that happens, that branch one gets off the ground faster because of the talent, but also the momentum that's already there with the existing client and typically there is already a somewhat of a pull where you've got existing referral channels already built around that market.

So in those branches, we will find that they move pretty fast through that $20 million to $30 million to $50 million. They all have to go through a retool and a rebuild right around $60 million and we tend to get there more proactively today than we ever used to. But when I look at new branches that have ramped in the last couple of years, they're all doing very well, we don't have any branches that are stuck or needing to be retooled at this point relative to anything that's new. When we look at markets that we enter as a greenfield, we tend to take a little bit more time on the front end by having either that new manager or whoever is going to be running it sit in the wings for up to six months and really learn the business before they go out and enter those markets.

What's helping us a lot also is that our referral channels are broader and once we go into a greenfield market, we find that we're able to create pipeline a lot quicker, so the pace of a greenfield might be a little bit slower than the tuck-in, but we're also seeing where those branches are ramping faster than historically.

Gary Kramer -- Chief Financial Officer

And I would just throw some numbers on it. When we set out our plan for the beginning of the year, we had, call it, four to five new branches. So far this year we've opened three branches, two in California and one in Colorado and we're in the process of signing the lease to open a location for another one in the Allentown area.

So we're, call it, hitting our number for the branches, and then when we think about the business units, business units were a little behind for our plan for where we thought we'd be. I think for the year, we're going to be slightly below it, and that's really just a function of timing more than anything else, more than change of strategy, it's just the timing on when you have to find the people, get them in and get them operationalized.

Michael L. Elich -- President, Chief Executive Officer

Yeah. We're looking at where we optimize the efficiency of capacity utilization against where we need to be to make sure we don't stall pipeline or anything. And our cap view has come up. If it was running closer to 58%, 59%, call it, at the beginning of the year, today, we're clustered about 64%, but we feel like we still have good runway to build capacity as necessary to business units, but we are kind of seeing where we are gaining more efficiencies through our teams and we're getting more done as well, so.

Jeff Martin -- Roth Capital Partners -- Analyst

Okay. And then with the additional build on the balance sheet in terms of unrestricted cash. How are you looking at investments for growth versus share repurchases at this point?

Gary Kramer -- Chief Financial Officer

Yeah, I mean first and foremost, when we think about having excess capital, right. The first thing we're going to do is we're going to invest in our businesses and invest in our branches in our business units. And then we're going to look and we're going to invest in things that make the Company either revenue synergies or expense synergies, ie, IT, information technology. And then you know, we're not a very acquisitive company, when you think of our value prop. People are our product then why buy it when you can grow it. So then we get down to the next tranche which is raising the dividend, which we've done and then stock purchase -- stock repurchase, which the Board authorized last quarter for $50 million over three years. That's a tool that we will utilize if we see any kind of dislocation in the market to be a backstop for when we think the stock is undervalued and I can just say that we don't have an itchy trigger finger and we're going to be smart and methodical with how we spend our shareholders dollars.

Michael L. Elich -- President, Chief Executive Officer

Yeah, I would say too and to complement that, Jeff, that when we look at investments that we've made, typically when we add a branch, it's not capitalized. So it just comes up through our own earnings stream and it becomes the headwinds to earnings. One of the areas that we have been putting a lot of energy back into is just bringing a new look and maturity level to our overall IT platform and once we get into 2020 and beyond, we'll be rolling that but with probably a broader strategy today than we've had in the past, relative to how we're building technology and where we're going with that as a complement to our existing infrastructure and model, so.

Jeff Martin -- Roth Capital Partners -- Analyst

Right. All right. Okay, last question. Some of your peers have had issues with underwriting healthcare insurance. Just want to clarify that you have no exposure to underwriting healthcare and some of the similar issues that others are having.

Gary Kramer -- Chief Financial Officer

Yeah. So we do not offer healthcare to our clients, as you're seeing with some of our peers that they can be difficult risk to underwrite and we don't really feel the need for it in our value prop. When we think about the risk we do take, call that, workers' comp and for that risk, we have a very methodical process for how we bring clients on, for how we work with the clients to align better for how we can work with them to mitigate risk and we feel like, really we can make that a better underwriting decision as opposed to the healthcare side, which is more of a challenging risk that it's more difficult to mitigate.

Michael L. Elich -- President, Chief Executive Officer

Yeah. I would also say that, Jeff, as we've grown and matured our model over time, that the healthcare side is although an opportunity, I think it always has been a little bit of conflict with what we're really trying to get done with our business owners and we're running our high-touch model, I would rather be non-captive to health benefits and have professionals that can come in and really support our clients for where they're living rather than have one stop fits all and -- and as we have stayed outside of that and stayed risk-neutral on the healthcare level, we still have mechanisms, where we can help our clients find the best resources, but we do that as a service rather than taking underwriting risk.

Jeff Martin -- Roth Capital Partners -- Analyst

Great, thank you guys.

Operator

Thank you. Our next question comes from the line of Josh Vogel with Sidoti & Company. Please proceed with your question.

Josh Vogel -- Sidoti & Company -- Analyst

Thank you. Hi, Mike and Kramer.

Michael L. Elich -- President, Chief Executive Officer

Good morning, Josh.

Josh Vogel -- Sidoti & Company -- Analyst

Mike, you usually give us some commentary around the average pay and over time trends across your client base. I was wondering if you could share that with us.

Michael L. Elich -- President, Chief Executive Officer

So, in the quarter, I'll probably defer to the absolutes with Kramer. One of the things that we have seen probably is it relates to growth in same customer sales are still probably coming from wage inflation and, but I'll let Kramer talk to this more of the detail with that.

Gary Kramer -- Chief Financial Officer

Yeah. Hey, Josh, it's more of the same trends that we talked about last quarter. So when I give you numbers here, I'm going to adjust it for the one extra day. So we're still seeing, of our 4.3% increase in same customer sales, the lion's share of that is wage inflation, which is going to be in the mid-to-high 2's. And then after wage inflation, you get a little bit of a bump up in headcount adds. And then you get after that, you get a little bit of a bump up in hours worked so when we're looking at how this -- how our same customer sales is performing, it's probably going to be in this -- over this next cycle, I'll say, next 18 months, it's going to primarily come from the wage inflation. I don't -- with unemployment at a sub-35, I just don't see how we're going to get the uptick in WSCs.

Michael L. Elich -- President, Chief Executive Officer

Yeah. And I would say, Josh and meeting and spending time with our clients, they are -- a lot of them just turned a good spot. They're doing well. They're profitable, they're making money and what we did notice probably over the last couple of quarters is that wage or hours worked did somewhat normalize were to me that's where business owners aren't finding that they have to stress their organization to capture market opportunity, but more have modulated themselves to make sure that their capacity is aligned with the opportunity and not to push it to have a lot of over time, and in doing so, I think, are running more profitable businesses.

The one flip, and this is maybe off this mark a little bit that we noticed in the conversation that we we're having a couple of weeks with a group of owners, is that you're seeing a little bit of a transition where you have an old guard and a young guard. The older guard is the group that is on the businesses for a long time lived through '08, '09, '10 and as they look at their business, they can think about growth, they can think about where they're going. But they are not going to break it to take unnecessary risks.

The interesting part is the younger guard is coming in where you've got maybe a mid-30's group that seems to almost be a split now in the room where they're actually buying companies, they're doing acquisitions, they're more aggressive and they are building for their future. And so there is a little bit of a shift going on there, it's more anecdotal at this point, but I think that there is a little bit of that going on as well.

Josh Vogel -- Sidoti & Company -- Analyst

That's helpful. Thank you. And I don't want to get too into the weeds here, but you did mention that 45 businesses closed in your attrition number for PEO clients and I was just curious, is that mostly being seen in California or elsewhere and then I can't find it in my notes, but i'm just, it seems a little high. I was wondering how that stat has trended this year and how often you evaluate your client base and given how immersed you are in their business as a partner, do you typically see the writing on the wall before they do?

Michael L. Elich -- President, Chief Executive Officer

So, we've got very good visibility as we work with that client. The idea of closing versus selling is probably a closing could mean that they changed in FDIA[Phonetic] number and move to different ownership structure and we probably wouldn't be able to see or dissect that as much as we recognize that the business was there and then it wasn't there,

The businesses that sold, we recognize that they moved -- they shifted ownership structure there and typically we might capture that same business on the other side, but the trend has upticked in the last couple of quarters between businesses sold and businesses closed. But one thing I'd kind of look at that a little bit too, though, is this, on a relative basis if you said I have 65 clients in the quarter that either closed or sold, it's less than 1% of our total base of business. So as our overall base grows, those numbers may get skewed a little bit when you look at them, just on a -- from a real standpoint.

Gary Kramer -- Chief Financial Officer

Yeah. And I would say, Josh, we pay attention to companies that have the potential to go dark from a credit perspective and we've got a push, we push $6 billion through the pipe. And if you look at our allowance and our expense for companies that go dark, it's not even a rounding issue because we got pretty, pretty tight on how we do that side of it. So we're usually ahead of it than behind it if they are going dark.

Josh Vogel -- Sidoti & Company -- Analyst

Great, thanks for the thoughts around that. And just around that, let's say, you rolled out, I was curious how that's being received across the client base. And can you discuss some of the other efforts that are planned for rollout and if this involves any notable investment or outlays on your end?

Gary Kramer -- Chief Financial Officer

So,

Michael L. Elich -- President, Chief Executive Officer

I'm reluctant to call it anything related to a rebrand and that when you start to shop different in the market, that's how it can be perceived. What I would say is that as we discussed internally, we started to really rebuild and restructure and realign who we are from the inside out before we ever decide we could look different from the outside looking in.

And so when we pull the organization as a whole and we ask them when do they really think that we started to rebound or retool ourselves, people will point back to 2011, 2012. We finally have reached a place where all the pieces that we've been pulling together for the last many, many years have reached a place where we can actually tell a different story.

And that story has been well received. I think that if you go out to the new website, It's under mybbsi.com, you'll see maybe a story that represents a lot of what we've been talking about the last couple of years, but it aligns us with what we really believe were brand to market and as business owners and different people see it they -- with the one comment that I've had back for me is that it finally talks about what we really do. And that's where we're excited about that.

As we look forward, I think that as we look at what's possible from here, we've got a very strong core business. I think we've got good core discipline around how we interface with our clients through our blueprinting, through how we basically manage and manage the full client life cycle through our framework process that we have and then ultimately how we tie that out with the talent that we have in front of clients every day, and then how we support that with technology.

So those are all things that will continue to enhance as it relates to different places that you might see us show up. It will be -- you might find us in different venues, showing up in our -- in different ways. But I think the real emphasis toward where the direction we're going is, when you think about mybbsi versus BBSI, it implies community and when we look at business owners that we pulled together, we are building communities both locally and super regionally around an idea that they don't have to be alone and that they actually have a place to go and a partner that they can be there with to help them increase their own probability for success.

So that's the direction we're going with it and but through these communities that we're building, and we've been, -- we've been working on this for about three years now, when we bring a group of business owners and we start to get them to talk to each other, it's game changing. And as we get better in the field working with our clients, it's actually accelerating. So I'm excited about all those things and we'll keep you posted as there is more to look at.

Josh Vogel -- Sidoti & Company -- Analyst

Sounds good. Thanks for taking my questions guys.

Operator

[Operator Instructions]. Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Please proceed with your question.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. I have a group of questions. And I'd like to start just picking up on where you left off. Early in the opening remarks, you said that mybbsi was just a first of many steps that you will be making to highlight your value proposition. Would you please kind of open the shades on the window and give us a look into what you're going to be doing from this point forward to highlight that value proposition?

Michael L. Elich -- President, Chief Executive Officer

Well, I'm going to make them blind and as we kind of turn the little thing in the blinds up a little bit, let a little bit of sunlight in, I'll give you that much. How about that?

Bill Dezellem -- Tieton Capital Management -- Analyst

That's great.

Michael L. Elich -- President, Chief Executive Officer

As we look at -- again, if there is a theme about what we've been building over many years, it's been about creating a client interface where our clients see us as a true partner, and through the interface that we have with them over a long period of time, they see us as their true advocates.

As we look also to our referral channels and we educate and help them understand the value they can bring to their clients by introducing us into the DNA of their client base, that begins to support it. So if you look at the theme around mybbsi being a community, there are a lot of things we can do there related to our access point where we can bring them in, and give them exclusive access to the collective of business owners that we work with.

So I think that when we look at technology aligned with that, that becomes one way that we are broadening that network and access to information that's proprietary to us. When I look at just where we start to show up outside of what we do already, we do a lot of our, I'll call it, referral channel developing through a networking strategy and through a channel strategy and we build it through an event strategy and as we have events where we bring a lot of our referral partners in to really understand and have an experience with BBSI as well as our channel partners that we work with that support us as well as we bring customers in that becomes a little bit of an incubator to learn a little bit more.

We have today three LPGA events that we use where we'll bring and do create environments that literally it's -- there is barrier to entry. They can't get into those but over periods of times, we've brought groups through and we've got very, very firm relationships over time. With that we've looked at the idea of front running new markets that we might be getting too and creating a way -- efficient way and cost effective way to being able to start building a -- building visibility in the market to a broader footprint over time and using the LPGA a little bit, but we've actually, this last year we're on three or two new golf bags that are on tour year round out on the LPGA.

What we recognize there is 77% of those individuals that participate in a Pro-Am and participate as business owners in Pro-Ams are CEOs or business owners. So we're tapping a market that allows us to, one, create an experience, we're also getting our brand out in front of us without being -- go on TV and media wise. But we're creating environments to build relationships with our referral channels and then ultimately to begin to expand and create avenues where the brand of BBSI and mybbsi are being seen by those people that might be our audience either today or in the future and creating more of a curiosity approach.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. And you had also mentioned that your referral relationships were widening. Would you talk about that and really what you mean when you state that?

Michael L. Elich -- President, Chief Executive Officer

When I look at somebody that is a potentially a person that's aligned and a trusted advisor to a business owner, when we first meet them, we would probably tier them as a Tier 1 referral partner and that individual probably can kind of get who we are, they see us as may be an opportunity for them to create business for themselves, but it tends to be a little more transactional. So as we recognize the work we have to do through education and through helping them see maybe the opportunity through a different lens, we spend a lot of time working with that -- those individuals both in local markets in micro regions throughout our network of branches and then on a more global basis as we get to a point where we're doing business and they're starting to get to understand our value proposition, we'll bring them into environments to help them see their -- see the product through the eyes of their own business, if that makes sense.

So if you think of somebody that might own a -- an accounting firm or a law firm or an insurance agency, they're running a business and rather than help them see the product is that might be explained will bring them into a similar environment that we bring our business owners into and when we do that, they actually start to see the product from the inside out and start to really understand the nature of what we're trying to do.

From there, we double back and we'll tend to work with their internal organization to help mature and help them understand it. That might lead us to a Tier -- a Level 2 or Tier 2 referral partner that at that time now all the sudden becomes one of those areas where we've got a still handhold a little bit, but they're catching on and they're getting there.

If we can now evolve that relationship from Tier 2 to Tier 3, you get the Tier 3 referral partner that probably understands they can articulate our value proposition, as well as we can. Now they're really doing work for us in the market.

Bill Dezellem -- Tieton Capital Management -- Analyst

That's helpful. And as you so presumably have been, you are seeing an increasing number of the partners you would consider Tier 3 and hence the widening of the relationships.

Michael L. Elich -- President, Chief Executive Officer

Yeah. And so one of the areas, the one of the ways we look at that is through yield, and as we look at opportunities that we have presented to us versus the number of conversions or the yield on the original opportunities, that's a little bit of where we then start to stratify where is that business coming from, from who and then what's our effective yield with different audiences.

The one thing that we have also seen in this last quarter and probably a couple of quarters is a significant uptick in referrals from existing clients.

Bill Dezellem -- Tieton Capital Management -- Analyst

Mike, I think you mentioned in your opening remarks or somewhere in this call that the California yield was less than referral channel yield was less than outside of California. So congrats on having more referrals from existing customers. But what can or needs to be done to improve that referral channel yield in California?

Michael L. Elich -- President, Chief Executive Officer

And I would probably -- what I meant was the way the channel works is if you look at first meeting to second meeting to third meeting to fourth meeting, there's -- the fall off happens differently. When we finally get to the ultimate yield of the ultimate --- of the first pipeline that we see to the end, it's pretty much in line with what we see and in California as well and it's pretty consistent across all states, but how it happens is different.

So I thank you for bringing that up so I can clarify that. The other part, though, that I would say is that, as we have seen the uptick of even with client referral, it's the more we execute and the more clarity we bring to the market as to what we really do, it's more of a time-based maturing process that is allowing us to get more from the opportunities that we have.

Gary Kramer -- Chief Financial Officer

Yeah, I would just put some numbers around that. Our efficiency ratio is, right, for how we acquire clients is pretty consistent, whether it's California or all other geographies. We are growing quicker outside of California, but California is still adding more clients than outside of California and it's just -- and we get to California, it continues to grow and it's -- so we would like diluting the ocean because we've got such a big footprint in California.

Bill Dezellem -- Tieton Capital Management -- Analyst

Thank you. And then I do want to talk about claims frequency and then I'll -- then I'll be done here. You said claims frequency dropped to roughly 13%. What was behind that success?

Gary Kramer -- Chief Financial Officer

You know, I wish we could pinpoint to the one thing and do it over repetitively, but when you're doing these things, it's a lot of a little things. So we've got about 30 different strategies, and those 30 different strategies are yielding the favorable results that we're seeing. So it's not one thing we can pinpoint to, it's a lot of little things, but we feel very comfortable with where we are for the year for workers' comp, for claims coming in, for the value of the claims. We feel very comfortable about what we're seeing on the prior years, and you can see those results in the consistent redundancies that we have in the prior year loss picks.

So, the only thing I can say is we have a disciplined strategy and we are conservative and we are executing to that strategy. And then you start to see the conservatism unwind over time.

Michael L. Elich -- President, Chief Executive Officer

Yeah, I would add that it's more of a systemic approach to all the things that we do from when we bring a new client on board to actually the level of retention that we have with the overall base and that the longer we do business with a client, the more apt they are to be better run companies and I think that's probably where we see one area that makes a big difference.

Bill Dezellem -- Tieton Capital Management -- Analyst

So were you serious, when you said 30 different things to improve the claims frequency?

Gary Kramer -- Chief Financial Officer

We have many tools in the box.

Bill Dezellem -- Tieton Capital Management -- Analyst

So is this just one of those examples where the business is being run much better from an operational perspective than it was several years ago and as part of this consistency that you referenced in your opening remarks, as part of what is going to lead to that consistency going forward?

Gary Kramer -- Chief Financial Officer

I would say this that BBSI is better and I would say that the value that we're bringing to our client is better. So when you take the two, it becomes a multiplicative effect.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great, thank you both for taking so many questions.

Michael L. Elich -- President, Chief Executive Officer

Thank you.

Operator

Thank you. At this time, this concludes our question-and-answer session. I'd like to turn the call back over to Mr. Elich for any closing remarks.

Michael L. Elich -- President, Chief Executive Officer

Again, thank you for continuing on this journey with us. It's been very rewarding to see all the work that we've been putting into the organization over many years starting to pay some dividends and look forward to catching up with you both in the field and on the next call. Thank you, Bye.

Duration: 51 minutes

Call participants:

Gary Kramer -- Chief Financial Officer

Michael L. Elich -- President, Chief Executive Officer

Chris 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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