Apr 7, 2008
Executives
William W. Sherertz – President and CEO Michael D.
Mulholland – Vice President-Finance, Treasurer and Secretary
Analysts
Timothy Brown – CFA, Roth Capital Partners Tobey Sommer – SunTrust Robinson Humphrey Josh Vogel – Sidoti & Company Kvane A. Wong – JMP Securities Ruthen Russell – US Trust, Bank of America Shawn Willard – Black & Company Walter Piston Jim Bouffant
Operator
Good afternoon. My name is Beth and I will be your conference operator today.
At this time, I would like to welcome everyone to the BBSI 4Q Earnings Call. (Operator instructions) Mr.
Sherertz, you may begin your conference.
Michael D. Mulholland
Thank you. Good morning.
This is Mike Mulholland with Bill Sherertz. Today, we will provide you with our comments regarding the company’s operating results for the fourth quarter ended this December 31 and our outlook for the first quarter of 2008.
At the conclusion of our comments, we will respond to your questions. Our remarks during today’s conference call may include forward-looking statements.
These statements along with other information presented, that are not historical facts, are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by the forward-looking statements.
Please refer to our recent earnings release and to our quarterly and annual reports filed with The Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. Turning now to the fourth quarter results: As reported, the company earned $0.34 per diluted share in the fourth quarter, as compared to $0.45 for the same quarter in 2006.
The decline of $0.11 per share adhered to the comparable 2006 quarter was due solely to higher than anticipated Worker’s Compensation claims cost. For the full year, the company earned $1.44 per share in 2007, which compares to $1.40 per diluted share for 2006.
Page one of our operation results summarizes the company’s revenues and cost of revenues on a net revenue basis as required by generally accepted accounting principles. Our comments today, however, will be based upon gross revenues and various relationships to gross revenues because management believes such information is more informative as to the level of our business activity and more useful in managing our operations.
Comments related to gross revenues have no effect on gross margin dollars, SG&A expenses or net income. Total gross revenues for the fourth quarter of $293.8 million increased 7.3% over 4Q 2006.
Excluding the benefit from the July acquisition of Strategic Staffing and the December 3 acquisition of Phillips, organic growth for the company on a quarter-over-quarter basis was up 2.3% for total growth revenues. Staffing revenues for 4Q07 increased 39% over 4Q06.
On an organic basis, staffing revenues declined 2.7%. PEO revenues grew 3% in 4Q07 as compared to 4Q06.
Our two acquisitions in 2007 were staffing companies thus growth rate for PEO revenues are on a comparable branch office basis. We continue to be very pleased with the financial performance of Strategic Staffing.
All operational transition issues are well behind us, including the December acquisition on Phillips in Denver. Total gross revenues for 2007 of $1.12 billion increased 7.2% over 2006.
Staffing revenues grew 19.2% for the year and on an organic basis, staffing revenues declined 1.9% as compared to 2006. 2007 PEO growth revenues increased 5.6% over 2006.
Gross margin percent for 4Q07 declined 46 basis points compared to 4Q06, a lower direct payroll percentage was more than onset by higher Worker’s Compensation claims costs. 4Q07 SG&A expenses of approximately $10 million, or 3.4% of gross revenues, were up over 4Q06 due principally to nine additional offices from our two acquisitions.
Our effective income tax rate for the year was 35.2%. Turning now to the balance sheet at December 31, cash and marketable securities totaled $64.9 million.
The decline from a year ago was due to the $13.5 million paid during the year for two acquisitions. Receivables of $36.7 million at 12/31/07 increased over a year ago due in part to higher revenues in December 2007, compared to December 2006 and a slight increase in DSO, or Day Sales Outstanding, and Receivables from 10.7 days to 12 days.
Material increase in Goodwill on the balance sheet simply reflects the two acquisitions for the year. Turning now to our outlook for the first quarter of 2008, we’re expecting gross revenues to range from $263 to $268 million for the quarter, which equates to an approximate increase of 3.1% over 1Q07.
In addition, we anticipate diluted earnings per share for the first quarter of 2008 to range from $0.08 to $0.12 per share, as compared to $0.15 per share for 1Q07. These earnings projections incorporate the effect of an increase in the California Unemployment Tax of approximately $600,000 on a pre-tax basis, which equates to approximately $0.03 per share.
This incremental expense primarily affects the first quarter as the California Unemployment Tax only implies to the first $7,000 of wages. The current economic climate warrants a very cautious outlook as we move further in to 2008.
At this time, Bill Sherertz will comment further on the recently completed fourth quarter, as well as, our outlook for the first quarter of 2008. Bill?
William W. Sherertz
Thanks, Mike. During the quarter, we signed 71 new customers in the PEO sector.
We also lost 44 that were cancelled, 10 were sold or had no more business, 12 left because of AR or risk issues, and 22 left on their own volition. Twenty-five of the 44 left in December, which is one of the higher December cancellations that I’ve seen in a long time.
Signs in the first quarter look to be in the 50 range, not as robust as it has. Overall, looking at January so far, sales are down 2.2%.
As Mike said, Unemployment Insurance went up 1.5 or 1%. It’s interesting that when unemployment goes up, unemployment insurance to employers goes up as well.
You would think it’d work the other way. It does not.
Employment went up, unemployment rates would go down but it doesn’t work that way and certainly that affects our company as Mike said, that are tentative about $600,000 in the first quarter. Comp expenses were higher than normal in the fourth quarter.
Unfortunately, I think that we were taking some of the Comp income from the cap in the first three quarters and we will no longer do that. If any of the analysts are listening to this call, they need to build that into their model.
There will be not taking about $750,000 worth of income in the next three quarters and we’ll look at fourth quarter on how we feel about Comp and the overall level of reserves when we get there. All of our branches are fully staffed and we’re going to be running the company on very tight reins.
We’ve already started that. The good news—the acquisitions don’t appear to be in the same kind of malaise that the California is.
They’ve gone very well—Utah’s doing extremely well for us. Phoenix looks very good and Denver has rolled in very nicely for us.
I don’t think you have to debate whether or not California’s in a recession. It is and the only question is how bad is it going to get?
Most of the markets that we’re in now are 6.25% unemployment, moving higher. I’d have to guess that in January, the unemployment rate in California probably was closer to 7%.
We’re seeing a great deal of weakness among our customers. We remain very positive, signing new customers but we see no visibility as to an upturn as of today as we sit here, which doesn’t mean that we’re going to give up and kind of abandon ship.
It just means that certainly, we’re fighting an uphill battle on a mackerel economics. So, I guess overall, I would say that if we can replicate 2007 and 2008 in a recession—and I don’t know where the recession goes from here.
I don’t know if it gets substantially deeper or it stays about where it’s at. In my opinion, the Fed has done some good things in terms of lowering the interest rates and how you got Congress throwing $170 billion into the economy and then we’ll see how that plays out on the marketplace but I’m certainly glad that the Feds are responding the last couple times that I’ve been going through recessions and the Feds didn’t respond and we got so far behind the curve that it took a year or so to get out of it.
So, I think the Fed doing what they’re doing gives us hope that the corner will turn on the economy and if so, we’ll participate. In general, I would look for this year to be kind of break even with 2007 and I think that would be a big win for us.
We’ll continue to expand our base, our overall strategy, expanding our geographic presence to lessen our full exposure to California. We’ve accomplished that, or at least got a good start on it.
I don’t know if we can accomplish that but we’ve got a good start on it and it shows up in our numbers that we’re not totally dependent on California just to run our company. California is a big place; it’s a wonderful place to do business but it does get some fairly wide economic swings.
And with that, we’ll take your questions.
Operator
As a reminder, ladies and gentlemen, if you’d like to ask a question, please press *1 on your telephone keypad. Your first question comes from Josh Vogel.
Josh Vogel – Sidoti & Company
Hey, good morning fellas. Could you just give a little bit more detail on the spike in the Worker’s Comp costs?
Were there just unfortunate spike in accidents last quarter or what happened there?
William W. Sherertz
No, Josh, it’s just kind of an overall looking-at-the-reserve level in Q42007 and developed it in past years. We felt that it was appropriate to be conservative and make sure that we’re well covered on that.
Michael D. Mulholland
Unfortunately, have we not been taking some of the cap income earlier in the year, we would not have had a spike. So, overall our comp for the year was 2.9% or 2.99% or whatever.
A little better than last year, just we got it spiky in here and we’re going to fix that.
Josh Vogel - Sidoti & Company
Okay, you said that we should not expect $750,000 worth of income over the next three quarters?
William W. Sherertz
Yeah, you need to take your estimates down by about that much for the first, second and third quarter. It’s already built into our numbers in the first quarter and then we’ll be able to look in the fourth quarter and if appropriate, we’ll take in the numbers.
If not then you won’t see it. So, this running on, you’ll get really spiky if you take it all on income and if anything doesn’t go perfect, it just—
Josh Vogel - Sidoti & Company
Right.
William W. Sherertz
We’re just going to be more conservative.
Josh Vogel - Sidoti & Company
Okay, and as far as your safety inspection program, you think that’s still running well?
William W. Sherertz
Yes, I’m very pleased with it. In fact, 2007 was maybe the best year in five years that we’ve had on accidents and claims and sights of those things.
Josh Vogel - Sidoti & Company
That was how much you were down on claims in 2007 versus 2006? Do you have that number?
William W. Sherertz
Well, the overall number was relatively flat but the number of time loss was, I think, half.
Michael D. Mulholland
About half and those are the expensive claims.
Josh Vogel - Sidoti & Company
Okay, and you mentioned on the last conference call about stock op below 20 would be aggressive buyers and I was just wondering your thoughts on the stock buybacks.
William W. Sherertz
I am an aggressive buyer and well, we’re limited to what we can buy. We are in the market and we will continue to be so and we’ve already been in their market shares and we’re happy to take the shares.
Yes, we’re very pleased to buy our stock.
Josh Vogel - Sidoti & Company
Can you remind me how much left you have on your current authorization?
Willaim W. Sherertz
Well, from my point of view, I think it is right around 10 million shares. Well, that’s my point of view.
The Board’s authorizing 840 remaining. Yes, my point of view’s a little different.
Josh Vogel - Sidoti & Company
Okay, and you think the dividend’s safe here? You plan to keep it in tact?
William W. Sherertz
Yes, we’re making money. We had a great year and even though our first quarter’s down a little bit and the rest of the year looks to be, I think, a comparable year to 2007.
The dividend’s pretty light compared to the kind of cash that we threw off here. There’s no lack of cash flow in the company.
I wouldn’t be surprised unless—you know, the only caveat I’ll throw out here is I don’t know how bad this thing gets, this whole recession deal. I don’t think anybody does.
I mean, I watch CNBC in the morning and Chambers from Cisco comes on and he says January weakened. Well, it did.
Yes, I’ll tell you right now. January weakened.
There’s no question from December. So, there are a lot of other people that are seeing the same thing.
It appears that it’s much worse here in the United States than it is for those multi-nationals and I would guess that if you could separate California, you would probably see them right at the top of the worse in terms of where are the states that are sort of leading the whole deal. You have national employment of 4.9 and I want to guess that California, outside maybe the city of San Francisco, the outline areas—Kvane Wong of JMP went around and did a survey of all the cities in December and the average was around 6.25% unemployment.
So, if it weakened then I’m probably pretty correct about it being about 7%.
Josh Vogel - Sidoti & Company
Okay, and just lastly, outside of the captive accounting, you’re baking in the week that you saw in January fully into your guidance?
William W. Sherertz
Yes, we don’t have rose colored glasses on here.
Josh Vogel - Sidoti & Company
Okay, thank you very much.
Operator
Question from Tobey Sommer.
Tobey Sommer – SunTrust Robinson Humphrey
Thanks. Bill, I just wanted to clarify something: You’re prepared in March and just in the recent questions.
You said that 2008 kind of break even compared to 2007. You mean roughly the same level of earnings.
You don’t mean actually break even from a net income perspective?
William W. Sherertz
Yes, I won’t be the CEO if that happens or unless we go to 12% on a plummet. Yeah, we can replicate 2007, make a $1.47 and $1.50 in 2008.
I think that would be a good year.
Tobey Sommer – SunTrust Robinson Humphrey
Okay, thank you and then just to get a sense for how you think the Worker’s Comp evaluation will work throughout the year. Do you think that since you’re not going to be looking at income the first three quarters that you may address helping or progressing your third quarter conference call what an expectation may or may not be headed into the fourth quarter?
William W. Sherertz
Yeah, you could do that but you have to be careful because you’re dealing with accountants and you’re dealing with actuaries and you really don’t get into that until you get into January. So, I don’t know if I want to get expectations up in the third quarter.
I can give you an overall sense just as I said about how 2007 was. I can give you an overall sense of how things are.
Tobey Sommer – SunTrust Robinson Humphrey
Right. Right.
Can you update us on what the percentage of your business is in California and then from a strategic standpoint of where you would like it to be and expect it to be a couple of years from now?
William W. Sherertz
Well, in the good year, we’d like it to be 100% and the bad year, we’d like it to be 10%. Now, we’re about 70%...65?
Michael D. Mulholland
Seventy-five.
William W. Sherertz
—75% California and having run branches with big customers, I would prefer that to be less than 50%. Now, let’s just hope we don’t get to 50% the wrong way.
I mean, we can grow with Utah and Denver and Phoenix. Those were three of our target markets and we still have three more markets that we’re looking at short-term and we can build those markets to lessen the dependence on the California market.
I think that’s an overall strategic goal that we’re looking at.
Tobey Sommer – SunTrust Robinson Humphrey
Right and now one last question and I’ll get back in the queue. When you look at the slow down that you saw in business in January, have you been able to perceive any change on the part of potential sellers in the marketplace that may present opportunities for you to take advantage of and with your substantial cash balance?
William W. Sherertz
You know actually, I’m not sure that we would have been able to buy either Denver or Phoenix without a perceived issue over recession coming. I mean, I think in both cases, I heard that they just didn’t want to go through one more downturn and so I’ll be surprised if other opportunities don’t open up to us on the same basis.
It’s better to buy them at front than it is when you get in it because once you get in it, they say, “Well, geez, we might as well just write it out and then things would be better and we’ll sell on the other side.” So, as long as those markets that we’re looking at are still fairly vibrant but the rest of the country is—a lot of talk about recessions—I think those provide opportunities for us.
Tobey Sommer – SunTrust Robinson Humphrey
Thank you very much. I’ll get back in the queue.
William W. Sherertz
All right.
Operator
Your next question comes from Tim Brown.
Timothy Brown – CFA, Roth Capital Partners
Good morning. I just wanted to go back to the Worker’s Compensation really quick.
You said 2.9% for the year and that’s what you expect in 2008.
William W. Sherertz
Yeah, we’ll be right around that number.
Michael D. Mulholland
Yeah, it was 299 for the full year, 304 for last year, so both years are about comparable at 3% of gross revenues.
Timothy Brown – CFA, Roth Capital Partners
Right about 3% and I’m sure that your take on the fact that the unemployment rate’s rising and the economy’s getting worse. Is there a possibility that you see Worker’s Compensation claims rise in that type of environment in 2008?
William W. Sherertz
I haven’t really seen any indications of that, Tim, so far. I mean, our 2007 year was a good year.
What you would see would be the prod and I haven’t seen that. I haven’t seen a lot of—let’s put it that way.
There’s always a certain amount of claims that are very questionable. Nobody witnessed and so on and so forth, but I haven’t seen it like it was back in the 2001 period.
Timothy Brown – CFA, Roth Capital Partners
Okay, and I guess the way to think about the spike in Q4—that should really be more spread evenly throughout the year?
William W. Sherertz
Yes, the only mistake was between you guys, the analysts, and me and Mike was that we kind of let you guys, us, lay down the path of including all of the income and quite frankly, we would have had a $3 million excess sitting at the end of the year. So, it would’ve covered what we needed to do.
Michael D. Mulholland
Put it another way—the spike in 4Q is not—there’s no correlation between a changing economic environment.
Timothy Brown – CFA, Roth Capital Partners
Okay. Within that captive, is there money that will hit the income statement at some point?
Michael D. Mulholland
Well, it did this year and if you think about it, we probably brought in $800,000 or so. So, yeah.
There’s earnings here. Sure.
Timothy Brown – CFA, Roth Capital Partners
So that’s $800,000 for the year?
Michael D. Mulholland
Yes.
Timothy Brown – CFA, Roth Capital Partners
Okay and then just switching back to the attrition. Maybe you could just give us some color on it.
You said twenty-two customers left on their own. Was that something having to do with their own financial difficulties with the credit situation?
If you could just give us some more color there.
William W. Sherertz
Yes, with the recession deal, we had three companies go bankrupt in the last week. So, when I say California’s in a recession, I’m not kidding.
When you go bankrupt, it’s not recession, it’s depression. So, there’s a lot of that going on out there.
People, I think, left trying to survive. I mean, we do charge fees for our services and at some point when it comes down to survival you don’t give a rip about HR.
I mean, you could care less. So, I think there’s that element in there and our job is to just stay ahead of it, sign more customers than we lose.
And I haven’t really, at this size, been through the recessions enough to know just how many customers will leave and how many will go out of business. I don’t know that I have those kinds of numbers yet.
Timothy Brown – CFA, Roth Capital Partners
Do you have a January attrition number?
William W. Sherertz
Well, it tends to be very low. I mean, if you go back to October, we only lost like five and then we lost a few more in November and then the big swing came in December.
So, in January, we’ve lost a very low number but the real key will come around what happens at the end of March. It tends to all happen around then end of quarters.
So, I think it’s five or six in January. It’s not a big deal but I’m not going to put a lot of faith in that, trying to run that out, say, “Well, you know, for the quarter it will be fifteen.”
Timothy Brown – CFA, Roth Capital Partners
Okay and then just on the staffing side of the business—have you seen demands declining at this point? What are the demands?
William W. Sherertz
Well, the big decline in staffing is all right in Northern California. Staffing was down 48% and they tend to deal with a lot of multinational companies.
Outside of that, most of our staffing stuff is pretty well set. It’s not really going to be subject to the overall economy, per say, unless it really gets bad.
Where we have some exposure on that basis is going to be Utah and Phoenix and Denver now because those are pure staffing places and so far, those markets appear to be very solid.
Timothy Brown – CFA, Roth Capital Partners
Okay, thanks guys.
Operator
Your next question comes from Kvane Wong.
Kvane A. Wong – JMP Securities
Hey, guys—a few questions. I guess the first easy one: Tax rate going into 2008—what do you guys take it might be?
It looks like it came out a little over 35…should we be looking at mid-35’s for 2008?
Michael D. Mulholland
Yeah, 35.5, 36. It’s an evolving number as assumptions grow and shrink and tighten up, and we try to go into the year more conservative so that at the end of the year, we’re turning up on a positive note.
Kvane A. Wong – JMP Securities
And also looking at the general with revenue guidance for 2008, it’s really sort of a swing here between what people were sort of looking for before and what’s sort of guiding—is it more on the staffing business that should have more of a swing or is the PEO business also net-down because maybe getting a lot more new clients but the existing base is coming down and make that a negative number? Just trying to get a sense on whether staffing versus PEO should be looking to grow.
William W. Sherertz
Well, the staffing side because of the acquisitions is going to be hot. The PEO side, so far—and I’m going to do Round Robins next week with the branches in the next two weeks—but what I’m hearing is that even though they’re signing a lot of new customers, they’re losing headcount at their current customer base faster than they can sign it up.
So, at some point, we’re hopeful that will stop and when that does, obviously, there will be a slingshot effect because we’ll have a lot more new customers than we had before. But until that happens, we’re kind of on a treadmill.
Kvane A. Wong – JMP Securities
Okay, so is it more flattest or it’s not looking down right now?
William W. Sherertz
What’s looking down—that’s what I said—in overall, the company—and I get to see all branches where they are and if you look at the top of all the branches that are down, I mean it’s almost like all the California branches. They’re not down huge but that’s, again, it’s the 9,000 pound gorilla that whatever they do, we’re going to reflect in the company.
You’re the one that ran the unemployment deal at 6.25% and I think if you did it again, we’ll get January numbers, Kvane, I’ll bet it’s up.
Kvane A. Wong – JMP Securities
Is this causing a pricing pressure or is it simply a matter of the guy that can afford are the ones that are doing okay, and the ones that aren’t are the ones that are leaving anyway? So your pricing’s holding up?
William W. Sherertz
Our price is fine. I’m running our margins in terms of that.
We haven’t seen that packed pressure. It comes down to we just can’t do it anymore.
We went in and said, “I’ll give it to you free,” and they just say, “You know I can’t do it anymore.”
Kvane A. Wong – JMP Securities
Gotcha, and then last and it maybe this gets a little complex and I’ll maybe take most of it offline, but looking at the Worker’s Comp swing every quarter: First, on the balance sheet, is that what causes the movement of roughly $3 million from the safety incentives liability line down to the Worker’s Comp claim liability line? Is it simply a moving of the fees there and that’s what flows to P&L?
William W. Sherertz
Well, the interplay between the crude Worker’s Comp liabilities and the Safety Incentives liabilities—we look at it from an operational standpoint as holistic. It’s very interactive and on a quarterly basis, we sort of recast what the interplay looks like it’s going to be in future periods.
As a consequence of that, those numbers, when you stratify it periodically, do have swings in them but I think from your perspective, you should look at it on a combined basis. And going forward, we will probably report it on a combined basis.
Michael D. Mulholland
So interactive, Kvane, that because you’ve got contracts expiring every single month—it’s a really hard number to nail down. I mean, you can kind of pick the time.
We can tell you what that number is but there can be some fairly volatile swings over time, depending on what the Reserves do. They have once the Reserve goes up, safety incentives go down.
So, you’re moving back and forth.
Kvane A. Wong – JMP Securities
So, it’s like—maybe thinking a different way—so we read into that any sort of issues of having the safety incentives liability going down from 3Q to 4Q or is that really more simply accounting related to the captive that you sort of adjust it?
Michael D. Mulholland
No, it’s just more related to how much we paid out and the Reserves went up and the safety incentives went down. Again, they’re very interactive so when you see our Reserves jump, you’re going to see our safety incentives go down.
Kvane A. Wong – JMP Securities
Is it indicating at all that there’s any judgment on your guys that your risk there is higher simply because the safety incentives liability line is lower?
Michael & William
No.
Kvane A. Wong – JMP Securities
Okay, thanks.
Operator
Your next question comes from Ruthen Russell.
Ruthen Russell – US Trust, Bank of America
Hi, it’s Ruthen Russell speaking. Good morning.
Most of my questions have actually been answered already. There was one that I wanted though to go back to quickly which was—we’ve talked in the past on calls about the possibility during the recession itself that there were to be one of our downturn, not necessarily acquiring competitors outright but simply waiting until they’re in trouble or no longer existing and then grabbing their market shares.
Is that something that’s still in the picture and how does that dub-tell with your statements earlier on the call today about opportunities opening up for acquisitions as you move into the recession?
William W. Sherertz
Well, we’ve already benefit some from people who’re going out of business and it’s mostly in California. And I think the opportunities to make acquisitions in other states in metropolitan areas—until those get into the recession—are probably going to be more opportunistic for us.
Now we’ve made a couple very fast here. We’re still not done with Phoenix.
I mean, they’ve only been on board since the fourth but it looks very promising that it’ll go as smooth as Denver did. Then, we’ll have our site set on some other markets.
Ruthen Russell – US Trust, Bank of America
All right. Thanks very much.
Operator
Your next question’s from Shawn Willard.
Shawn Willard – Black & Company
Good morning. I think it might have been pretty much answered but just a couple of quick follow ups.
You’ve got five and a half, six, bucks of shares in cash. This is sort of candid on what everybody else has said, but doesn’t that sort of make you a first-tier buyer when people start shopping?
I mean, you get to see the premium goods up-front. You’re not chasing anything out there, right?
William W. Sherertz
Yes, I mean cash talks and most of the acquisitions that we run into have got from other buyers but they want to do an earn-out over five years or that kind of stuff, and so we just walk in. We typically pay them 75% up-front and do a little bit of a hold-back for performance and move on.
So, in a year, they’re out of it.
Shawn Willard – Black & Company
I didn’t run the number. I think I heard it’s 11-day DSO’s.
You mentioned you had a couple of people that just went out of business at the end of the year. You don’t have any material credit risks though that’s out there.
You’ve got either prepayments they’ve made or very, very short lease on people so not really any reason, even with the slowdown, to expect anything to pop up there that might be of an impact going forward?
William W. Sherertz
Well, the good news is that nobody has that kind of size that would really be an issue to us and we do have a meter on prepayment, or personal guarantees. And the personal guarantee probably is more powerful than anything that we do.
So, I would say our exposure to bad debts is very limited. Very limited.
Shawn Willard – Black & Company
And then lastly, since you have started picking up something in Phoenix, which you talked about for two years that you’d like to have been there—granted it’s a smaller scope compared to the rest of the company but any thoughts of starting to head more East now that you have something established in Colorado and Arizona? Or, really, those are still huge markets for you and you prefer to just leverage what you have there?
William W. Sherertz
Well, I think overall our strategy will be opportunistic but certainly Phoenix, Utah and Denver, or Salt Lake City, provide a lot of opportunities for us to build some very substantial branches and to be real frank about it, Shawn, that’s a lot on our plate, to get those up and moving in our direction. So, while we bought a nice toll hold—Utah’s a little more than a toll hold—but certainly Denver and Phoenix are toll holds and markets that we want to be in.
Our strategy on a go-forward basis will be how do we expand our presence in those markets and really take advantage of the size of those markets.
Shawn Willard – Black & Company
All right. Thanks.
Operator
Your next question’s from Walter Piston.
Walter Piston
Good morning, Bill.
William W. Sherertz
Good morning.
Walter Piston
I wanted to ask you: Is most of the recession in California coming from the real estate slowdown or is it in all segments of the California economy? In other words, what types of businesses are failing?
William W. Sherertz
The ones that fail, Wally, are a lot of the construction-related. Those are the ones that go bankrupt but overall, all the customers.
I mean, it’s a typical recession. You look around and the restaurants aren’t doing as good and importers aren’t doing as good.
The retailers aren’t doing as good. It’s pretty much across the board.
Walter Piston
Across the board…okay. And there’s one other, Bill.
The Board’s authorization was to buy back $10 million in shares, right?
William W. Sherertz
Oh, no. It’s a million.
My authorization. In my mind, it’s $10 million.
Walter Piston
Oh, then $1 million shares. And so, $840,000 are left, to be able to be bought back?
William W. Sherertz
Yes, that’s correct.
Walter Piston
And when does that expire.
William W. Sherertz/Michael D. Mulholland
It doesn’t.
Walter Piston
It doesn’t expire. Okay, thank you.
Operator
Your next question’s from Jim Bouffant.
Jim Bouffant
Good morning. In the past, your sector that posed the most exposure was the Tech sector.
Is that still a Tech sector or has that changed given the recent change in the customer mix?
Willaim W. Sherertz
We have very little exposure, rather in probably our Northern California market, to the Tech industry.
Jim Bouffant
So overall, what sector would you say is your biggest exposure company-wide?
William W. Sherertz
Well, probably Distribution, I would think, Warehouse Distribution. We do a lot of that on the staffing side of the world.
On the PEO side, we’re very diverse. There’s very little exposure vertically anyplace.
It’s pretty much across the board.
Jim Bouffant
Okay, thank you.
Operator
At this time, there are no further question.
William W. Sherertz
Well, all right. We’re hopeful with what the Feds done or started, provide some daylight at the end of the tunnel, and it’s not a train coming at us.
I don’t have a good deal of which way it’s going to go but certainly, again, I think the Feds has done the right things to buffer the economy. Then, we’ll participate and do extremely well if we can get the economy back on track.
We will talk to you next quarter. Thank you very much.
Operator
Thank you for participating in today’s conference call. You may now disconnect.