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Barrett Business Services Inc (BBSI) Q3 2020 Earnings Call Transcript

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Barrett Business Services Inc (NASDAQ: BBSI)
Q3 2020 Earnings Call
Nov 4, 2020, 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, 2020. Joining us are BBSI's President and CEO, Mr. Gary Kramer; and the Company's CFO, Mr. Anthony Harris. Following their remarks, we will open the call for your question.

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 it's not reflect, excuse me -- does not reflect historical fact are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by these forward-looking statements. Please refer to the Company's recent earnings release and to the Company's quarterly and annual reports filed with the Securities and Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ.

I would like to remind everyone that this call will be available for replay through December 4, 2020, 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 would like to turn the call over to the President and Chief Executive Officer of BBSI, Mr. Gary Kramer. Sir, please go ahead.

Gary Kramer -- President, Chief Executive Officer and Director

[Technical Issues] business teams are performing around the country with our clients as we traverse this rapidly changing economic landscape together.

Bringing the best of BBSI to market is a difference maker to our clients, and we are experiencing better client retention, lower-than-expected client failure rate and better-than-expected revenue. I want to again thank everyone on the BBSI family, many of whom are listening to this call, for their exceptional response to the crisis. I would also like to thank all of our clients for entrusting BBSI. Your entrepreneurial spirit is adaptable, resilient and refreshing.

Regarding the Company's financial strength, our balance sheet is in an excellent position as our unrestricted cash investments grew 8% versus Q2 of '20. Anthony will go into more detail regarding our capital and use of capital in his prepared remarks, but I would like to state that we are operating from a position of financial strength. Having a strong capital position affords us peace of mind to focus on the business and to continue to invest in future growth for the long term.

Regarding the third quarter operations, we exceeded our expectations in virtually every financial metric in the quarter. Our gross billings decreased 2.6% over the prior year, and is up 10% sequentially over Q2 '20. To recap, we navigated a challenging second quarter, where our revenue were down 14% in April and then down 3% in May and June. We forecasted that Q3 would behave similar to May and June, and we are pleased that we finished slightly better than forecast.

As previously discussed, we do not have clients in the most distressed industries such as airlines and cruises, and we have low concentration in other industries such as retail, restaurants, gyms and salons. Our forecasting by industry was relatively in line with our actual results for the quarter. Overall, we are extremely fortunate that our market approach of working with all clients, rather than focusing on industry verticals, has helped us avoid concentration risk.

Regarding our client count, we added 253 new PEO clients. We have previously mentioned that we solve referral partners and business owners who go into their bunkers and reaction to COVID. Each month, we are seeing more and more leads, and the market is adapting to operating in a COVID world. Our sales conversion ratio continues to be consistent with pre-COVID metrics, but simply put, there is just not as much business transacting. Our Q3 leads were sequentially 30% better than Q2, but still behind Q3 of '19.

Client acquisition in the COVID world is our number one priority. We are not sitting by and waiting for the business to come to us. We have various initiatives that I will speak to shortly about going and getting the business. We experienced the attrition of 139 clients, which was a better retention ratio than Q2 of '20 and of Q3 of '19. This shows that during a crisis like COVID, our product was needed more than ever.

Regarding client attrition, we lost three due to accounts receivable, eight due to risk profile, five businesses sold, 14 businesses closed. 36 businesses closed due to COVID, and 73 left due to pricing competition or companies that moved away from the outsourced model. This represents a build in the quarter of 114 net new clients.

Our staffing business rebounded slightly and was down 16% in the quarter compared to being down 26% in Q2. Results vary by geography, but in the aggregate for the quarter, we have the orders, but not the supply as the majority of individuals could earn more money on unemployment stimulus versus working wages. We are seeing this business pick up some in October as the stimulus has expired.

Regarding our branch footprint, at the end of September, we had 59 total branches. We continue to be mindful of operating efficiencies and consolidated the Dow's Oregon branch into the Portland, Oregon branch. This decision was made with the intention of continuing to grow revenue while servicing our clients, but doing so in a more cost-efficient manner.

Our Mountain regions have been exceeding our expectations, and we made additional investments opening two new branches: Albuquerque, New Mexico and Glendale, Arizona. As discussed last quarter, the quality of our product will be the same, but how we approach these markets will vary slightly.

The new area managers will approach their market-focused on sales and pipeline development. We will not commit to commercial real estate, but will utilize alternative lease options to keep costs down. Support of these branches will be helped by adjacent markets or a corporate until they reach a critical mass, and then we will invest in local teams to support the business.

Our branch stratification of the 59 total branches is as follows: 19 mature branches with run rates in excess of $100 million, 20 emerging branches running between $30 million and $100 million, 20 branches we consider developing with run rates up to $30 million, our business unit teams totaled $114 million.

Regarding other operational updates, our SG&A was down significantly in the quarter compared to prior year. This is the result of the cost cutting, cost deferrals and restructuring that took place throughout the year. I am pleased to say that we no longer have any employees on furlough. As our revenue increased, our folks return to grow and support our business.

Next, I'm going to provide an update on our other initiatives and strategies. In June, we announced the successful launch of mybbsi for all new clients. Client feedback thus far has been overwhelmingly positive as they appreciate the ease, simplicity and individualization of the system. All new clients since June are on the new system. And as of last weekend, we have converted 82% of our existing clients. We are on pace to be fully transitioned before the end of the year.

We are also pleased to announce that we are now able to offer our PEO services nationwide. We have the systems, licenses and operations in place and are starting to sell this value. We were able to expand relationships with 15 existing clients and successfully brought on 11 new clients that utilize this offering. It is still early days, but we are optimistic that we will see more and larger opportunities as a result of this offering.

Regarding larger opportunities, we can package our new technology with the nationwide offering, and we are asking for larger clients. In the quarter, our percentage of larger leads were up 14% over Q3 of '19. We know that we need to be adaptable and are not sitting back and waiting for the business to come to us. We have been actively pulling our client referral lever, and almost 10% of our ads in the quarter were from client referrals.

In addition, we mentioned previously that we formed a dedicated sales and marketing team. The team has been working on various strategies and initiatives, and I am pleased to announce that we will have a new company website that will launch later this month that will better reflect the best of BBSI value proposition. It is being designed with the intent to better tell our story, but more importantly, to attract additional business. We have a long-term marketing and sales plan that hinges on our website refresh, and we will have more to discuss in the upcoming quarters.

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

People have been and continue to be our product, which has never been more relevant to the business owner than it is today, packaging their knowledge and expertise with our new technology platform and the ability to transact nationally, strategically positions us to go after larger, more tech-savvy clients and increases our total available market.

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

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

Thanks, Gary, and hello, everyone. Our quarterly results were strong, despite the continued economic impacts of the COVID-19 pandemic. Net income for the quarter was $18.5 million compared to $25 million in Q3 '19, with the reduction due to lower billing volume, lower favorable development on claims incurred in prior years and a decrease in investment income, partially offset by reductions in operating expenses in the period.

Gross billings declined 3% to $1.5 billion. PEO gross billings declined 2% to $1.48 billion, and staffing revenues declined 16% to $28.5 million. Net revenues of $227.5 million were down 8% from Q3 '19. As Gary mentioned, these results were better than management's expectations for the quarter.

PEO gross billings growth by region versus the prior year quarter were as follows: Mountain States grew 17%, east Coast grew 6%, Northern California and the Pacific Northwest were both flat, and Southern California declined by 8%.

Same-customer sales for the period were down 1.3% from Q3 '19 due to the ongoing economic downturn. This decrease was in line with expectations and was attributable to a decrease in headcount partially offset by an increase in average payable rates over Q3 '19. Average hours worked in the period were generally consistent with the prior year.

Workers' compensation expense as a percent of gross billings was 3.4% this quarter, which is below our expected range of 3.8% to 4%. This decline is primarily attributable to actuarially determined reductions of prior year estimated liabilities of $3 million in the third quarter. Our overall workers' compensation claims frequency continues to trend favorably.

In the quarter, we saw trailing 12-month relative frequency of claims as a percentage of payroll decreased 15% compared to the third quarter of '19. We continue to monitor the impact that the COVID-19 pandemic may have on our workers' compensation program. This includes monitoring updates to state regulations in response to COVID-19 and changes to the presumption of coverage.

The only significant update to report this quarter is the passage of legislation in California in September that codified COVID-19 coverage in a way that is generally more restrictive and therefore, more favorable than the governor's executive order that was issued in May, and has since expired.

The new legislation will apply to most employers in the state that have COVID-19 outbreak. An outbreak is defined as having positive COVID-19 tests from either four employees or 4% of the workforce, whichever is greater, and the cases must occur within a 14-day window. We reported previously that we've had minimal COVID-19 claims exposure and minimal claims reported through Q2.

And with the more favorable terms of the new California legislation, we continue to believe that COVID-19 claims will not materially increase our overall workers' compensation costs. However, we continue to monitor the situation carefully, and we have contemplated COVID-19 uncertainty when selecting our accrual rates for our workers' compensation reserves.

We have discussed previously that the broader market for workers' compensation insurance has become increasingly competitive, particularly in California, where most carriers have instituted price decreases over the last two years. While we do not compete primarily on price and our offering is more comprehensive than traditional insurance, we continue to adjust our pricing and marketing strategies to remain competitive and attract new types of customers.

One of the adjustments we made was to scale back our safety incentive program in exchange for lower service fees. This change is particularly attractive in the current environment, as it allows customers to pay less money upfront and allows BBSI to better position our pricing relative to competitors. This change is expected to be margin-neutral, but you will see our safety incentive costs and liabilities decrease with a corresponding reduction in gross billing rates.

SG&A in the quarter was $35.6 million compared to $41.4 million in the prior year quarter, representing a decline of 14%. As we described in our previous earnings calls, cost savings measures were implemented in response to COVID-19. And while we continue to be cautious in our spending, SG&A levels will continue to increase modestly as business volume grows. We also incur a larger share of our variable employee compensation, including profit share and other incentive payments in quarters three and four.

Our investment portfolios earned $1.7 million in the third quarter compared to $3 million in the prior year. The decrease in investment income is directly attributable to the lower interest rate environment compared to the prior year and is consistent with our expectations for the period. Our investments continue to manage conservatively with an average duration of 1.6 and average quality of investment at AA. Due primarily to our variable rate holdings, our average book yield has decreased to 1.5% from 2.3% at year-end.

Turning to the balance sheet. We had $148 million of unrestricted cash investments at September 30 compared to $130 million at June 30. We continue to be debt-free at quarter end with the exception of our $4 million mortgage on our corporate headquarters. We announced in Q1 that we increased our line of credit with Wells Fargo as a source of additional financial flexibility, given the current economic uncertainty.

Our agreement with Wells Fargo provided the option to revert to a lower credit line amount if we wished. And due to the available unrestricted cash and investments on hand and the general resilience of our operations, we have elected to lower our credit line back to $33 million at September 30, which also included corresponding fee reductions.

As our cash investment balances increase, management and the Board of Directors have remained diligent in our approach to capital allocation. We have discussed previously the importance of establishing a working capital reserve sufficient to weather unforeseen circumstances, and the COVID-19 pandemic was a validation of that strategy. But we believe we now have unrestricted cash and investment balances above the level necessary for these reserves, and we will continue to execute on our capital allocation philosophy. This philosophy has four priorities.

First, our investments in our company to take advantage of the significant market opportunities available to us. The PEO industry is widely underpenetrated, and BBSI is well positioned to serve the addressable market. We are excited about continuing our journey of growth in part by enhancing our products and evolving our strategies. The launch and continued enhancement of the mybbsi portal is an important example of that type of investment.

Second, Gary has previously mentioned that we are now pursuing strategic inorganic growth opportunities, where we believe we can launch into new geographies more effectively through M&A than we can through greenfield branch openings. We continue to actively evaluate potential targets but are maintaining high standards as we consider who we might bring into the BBSI family. It is important that our people, product and vision are all aligned before we would move forward.

Third, the Board reinstated our stock buyback program, and we repurchased approximately 57,000 shares at an average price of $53.61 per share during the trading window. We will continue to be an opportunistic buyer of our stock as a preferred method of returning capital to shareholders.

Fourth, we remain committed to our quarterly dividend, which the Board just reaffirmed at $0.30 per share. We will continue to evaluate and update our capital plans regularly to ensure that we are responsive to our environment and new opportunities as they arise.

Turning to outlook for the year. With the favorable results of Q3, we now expect full year diluted earnings per share to be $4.1, up from $3.70 in our prior outlook. We now expect gross workers' compensation expense as a percentage of gross billings to range between 3.7% and 3.9% versus 3.8% and 4% previously, and we continue to expect an effective tax rate of approximately 21%. As with our past forecast, these estimates do not include significant economic deterioration or widespread shelter-in-place orders in the remainder of the year.

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

Gary Kramer -- President, Chief Executive Officer and Director

Thanks, Anthony. In conclusion, our product is strong and has never been more relevant to the business owner. We have responded swiftly and decisively to the unusual events of 2020. Q3 exceeded our expectations, and we have raised our full year earnings guide accordingly. We are working on the right things, and I'm extremely optimistic of the future. We continue to always think of the client first and to advocate for the success of the business owner.

Now, operator, and I'll turn it over for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore -- CJS Securities -- Analyst

Yes. I just want to make sure that I'm looking at the guidance correctly. So the gross billings guide for fiscal '20 is down 3% year-over-year. So that would imply that Q4 gross billings is down closer to 6%. Is that right?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

Yes, approximately. Yes, proportionately, that's right. We have it closer to 5%.

Chris Moore -- CJS Securities -- Analyst

Got you.

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

And Chris, just one thing for Q4, right? It's -- in Q4, we -- a lot of our business owners pay themselves bonuses. And we made a, call it, non-model adjustment that we thought based upon the way the economy is that bonuses were going to be less this year. So that's why the number is down a little much because we factored in about a $20 million decrease in bonuses for '20 versus '19.

Chris Moore -- CJS Securities -- Analyst

Got it. That's helpful.

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

But that's a little bit of a gut feel there. There's nothing that I can give you quantitative or qualitative on that one.

Chris Moore -- CJS Securities -- Analyst

Got it. And in terms of the cost structure, I mean, you guys are doing a great job there. Just trying to get a sense in terms of what -- as things turn around, are there costs that the cost structure improved moving forward? Or for example, from an SG&A standpoint, if fiscal '21 revenue was roughly equivalent to '19, would the SG&A be roughly equivalent to '19? Or likely a little bit lower or just any kind of big picture thoughts there?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

No, it's a great question. So we have some pretty significant cost reductions, as you know, in Q2, and we said that those were not sustainable as the business grew until and so those have increased in Q3. We have been very mindful, as Gary said, to look at operating efficiencies where we can, and we've learned a lot of important lessons, and we've been very strategic about how we bring cost back and where we spend money, frankly.

So the answer to your question is, so SG&A will continue to scale up with operations, as you saw from Q2 to Q3, and that trend would continue for Q3 to Q4. But if business volume, all else equal in '21 were consistent with '19, you would expect SG&A to be less because we are being very mindful of where we're adding back.

Chris Moore -- CJS Securities -- Analyst

Got it and I appreciate that. I'll jump back in queue. I appreciate your time guys.

Operator

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

Jeff Martin -- ROTH Capital Partners -- Analyst

Thanks, good afternoon guys. Sorry, I didn't quite catch exactly what you said relative to the implied guidance for Q4. It seems like $0.75 is a very conservative number, which is the implied guide. Understood that there's some catch-up in the profit share at the branch level, but is there anything else that is different relative to what the business was running operationally in Q3?

Gary Kramer -- President, Chief Executive Officer and Director

Yes. Hey, Jeff, so it's a tough time to forecast for everybody out there, right? We don't even know who won the election yet. So we put out a number that we thought was attainable, right? So any number we put out there, we want to make sure that we got a high degree of confidence, and we have a high degree of confidence in the number. And there's two -- when you're trying to do your year-over-year compare for Q4, there's, I'll call it, two headwinds for Q4 of '20. The first headwind is, we're forecasting reps to be down, which is, call it, a $0.25 differential on earnings. The second is, if you look at just the way the yields are working on the portfolio for investment income, our investment income is going to be down $0.17 to $0.20 per share for '20 versus '19.

So two big headwinds there, and I'll couple of that Jeff, with the fact that Q4 typically is quite a bit less profitable than Q3. Q3 is always our most profitable quarter and there's a couple of reasons for that. One of which is the payroll tax caps reset on a cash basis and so something like at the crude back into Q4. If you look at the ratio of '19 to '20, it's actually not that far off. Our '19 Q3 to Q4 from '20 Q3 to Q4 is not that far off from what we're forecasting.

Jeff Martin -- ROTH Capital Partners -- Analyst

All right. Okay and then, were there anything in particular driving any movement in some of the non-business-related cost of revenues, specifically payroll taxes and benefits and direct payroll costs?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

Nothing, I guess abnormal or significant that we are -- that will be noteworthy for reporting.

Gary Kramer -- President, Chief Executive Officer and Director

I think there is -- it's a pure quarter.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. And then in terms of new business leads, was there any progression to -- of note as you move through the quarter and as October is now behind us. Are you starting to notice those pick up and if so what's driving that?

Gary Kramer -- President, Chief Executive Officer and Director

Yes, I mean this is -- we've been talking about this for a couple of quarters now, right? That we knew that the business owner and the referral partner one in their bunker, right? And if you think about the business owner, they are more worried about the front of their shop instead of the back of the shop, right? So they were worried about staying in business, they weren't worried about doing anything on the back end. So if you think of our product, it help support and scale their products, so they weren't thinking on necessarily for us at the time.

So we -- Q3 we were up 30% as far as our leads, compared to Q2, but we were still about 15% to 20% behind our leads for Q3 of '19. So it's really a volume issue and where we're not sitting and highly by and waiting for it, we're out there, beating the bushes, trying to get it. It's just where -- when the business comes in and we go and meet with the business owner, our conversion ratios are as high as pre-COVID. So we know how to sell in a COVID world, we know how to sell in a virtual world, it's not a sales issue, it's a volume issue. So our batting average is good, we're just not getting as many plate appearances. But we're seeing that get -- it's been getting better as every month goes by.

Jeff Martin -- ROTH Capital Partners -- Analyst

Okay. And then last question. PEO growth by region, Mountain certainly performing very well. Northern California and Northwest doing, OK. But is there any specific Southern California market, is it kind of concentration by industry? Or is -- can you identify any other trends going on there that's driving the underperformance there?

Gary Kramer -- President, Chief Executive Officer and Director

Yes, there is no -- I mean, we look at everything by industry, we look at everything by geography. And there is no commonality I'll say between why we're seeing it down the way it is in Southern Cal. We are seeing the same customer sales in Southern Cal, be slower than Northern Cal. And it's really the same customer sales issue and it's just the work site employees in Southern Cal are down more than in any other geography that we have.

Jeff Martin -- ROTH Capital Partners -- Analyst

Got it, OK. Thanks for taking the question.

Gary Kramer -- President, Chief Executive Officer and Director

Thanks, Jeff.

Operator

Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Please proceed with your question.

Vincent Colicchio -- Barrington Research -- Analyst

Yes, Gary, you had cited increased success using the clients for referrals. Have you implementing any changes there that are drawing that out?

Gary Kramer -- President, Chief Executive Officer and Director

No. I mean, others in our teams want to grow and they get compensated for growth, right? So everybody at our company has a sales goal and a sales target, so they want to make sure they're hitting it. So it's really just taking a step back and as you're working with the client and saying, hey, we did all of these great things. Do you have anybody else that would benefit from our services?

Vincent Colicchio -- Barrington Research -- Analyst

And then you talked about -- Anthony, you talked about some changes to your workers comp pricing. How will that impact your overall pricing package as you go to market?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

So if you think of safety incentive, let's say your rate per payroll is $0.10, right or 10%. For safety incentive, say we're going to get back 10% on that 10% to call at one point, we would have to charge the client 11 points. So what we're doing now is we're reducing it to only charge 10 points and they get no safety incentive. So before we would gross it up in the rate and now we're just netting it out. And the idea there is, rates have been competitive, it allows us to be competitive. It's zero cost to us, it's just reduced reduction of the pass-through. But the idea there is -- it's more competitive for us in the marketplace to reduce the pass-through number one. And then number two, for the business owner. The way the safety incentive works, if they would -- they pay us up, they pay us during the time and then they get it back at the end. So it helps their cash flow and especially during these times of extenuating circumstances, it helps their cash flow to pay less in.

Vincent Colicchio -- Barrington Research -- Analyst

Thanks for that. The staffing business had a good quarter. You mentioned, it's hard to secure talent. Having said that, should we expect staffing to drop back down or what are your thoughts there for the sequential period?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

I think it's going to be very tied to what the stimulus package is. So if you're figuring out, if it's going to be a bipartisan government. I think, the pressure is going to be on stimulus and I think there is going to be less stimulus and I think that's going to be better for staffing. But that one specifically is going to be the most affected by the stimulus.

Vincent Colicchio -- Barrington Research -- Analyst

Okay, one last one from me. You had a good amount of branch consolidation. Just curious, is there any more that you think you can do that we may see in coming quarters?

Gary Kramer -- President, Chief Executive Officer and Director

More importantly, when we're dealing those it's just kind of removing some cost out of the equation, but we're able to sell and service the business. When you saw in the quarter that we opened two branches in the Mountain States and they're doing very well. They've learned the craft quickly and they're out there converting business and we're not done with organic growth, right? So right now we are actively recruiting in Pittsburgh, Memphis, Nashville, Atlanta, right and the idea there is we're looking for good talent that can go run their operations and we want to bring them in, train them as quickly as possible and get them out there to go get it the market. So we are playing more offense than we are defense at this point.

Vincent Colicchio -- Barrington Research -- Analyst

Okay. Nice quarter. Thank you.

Operator

Thank you our next question comes from Josh Vogel with Sidoti & Company. Please proceed with your question.

Josh Vogel -- Sidoti & Company -- Analyst

Thanks, good morning guys. Just want to build off, one of the earlier questions about the safety incentive program. Anthony, you mentioned, you guys planned to scale it back, but are you going to ultimately eliminate it altogether?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

We will scale it down by default, but we have a decentralized sales structure. And there are certain referral partners, certain clients that, that is very valuable to them and the economic trade off there might makes sense. So it's not going to be a wholesale, we're not allowed to do that anymore. We are giving kind of the general guidance to the field, but it's not going to be 100% reduction.

Josh Vogel -- Sidoti & Company -- Analyst

Okay and just to confirm that, whatever the reduction is, is it dollar-for-dollar on the gross billings line?

Gary Kramer -- President, Chief Executive Officer and Director

Correct. Yes. So, it's a little bit of a headwind for gross billings as we do this, because we reduced in the pass-through, but the zero effect on margin, this is the pass-through.

Josh Vogel -- Sidoti & Company -- Analyst

Okay. I just want to get a little bit better handle on the leverage in the model and you talked about the efficiency on the SG&A line. But maybe at what level of gross billings in business mix when you include staffing? Do you think that you can get to a 1% operating margin?

Gary Kramer -- President, Chief Executive Officer and Director

Well, it's a good question. I mean, I don't know that I have the specific number that you to look for there. But I can tell you that we do pay attention to leverage. Obviously, as our volumes have decreased in '20, our -- we had reversed leverage in the sense that our EBITDA to gross margin level, the ratio went down. But we responded and cut out as much cost as we could. And honestly, if you look at that ratio in Q2, our leverage is pretty consistent Q2 '20 over Q2 '19, which is impressive, given the significant volume decrease we had.

As we progressed, we put back in cost to make sure we weren't hindering our future growth. I want to make sure that we're looking at the long-term and setting ourselves up for success. So we have seen our full-year leverage decreased slightly, but only a couple of percentage points. So leverage is holding pretty well. The idea is that we are investing wisely and we think we're at good sustainable SG&A levels. So we should see leverage benefit going into '21 and beyond as we start to return to kind of non-COVID, post-COVID, pre-COVID and everyone to look at it normalized growth patterns.

Josh Vogel -- Sidoti & Company -- Analyst

Alright. And just one last one. I know we're sitting here in November and a fluid situation with COVID, we still don't know what's happening in on the political front. But is there any commentary or outlook that you can share heading into 2021, given the current environment? How you see the year playing out especially earlier on, just any sort of commentary you can share would be great.

Gary Kramer -- President, Chief Executive Officer and Director

Yes, I mean there is -- where we're sit now and you know that our business all comes down to our stack, right? So we -- before we even venture into giving a guide for '21, we need to know where our ending client stack is for the year. But I mean, if you think of everything that's out there, Josh right? Between the election, between COVID and shelter-in-place between the vaccine, as it going to happen, when is it going to happen, how everybody is going to get it. Are we going to do another stimulus, it's for where we sit at this time, we know that we are going to return to growth in '21. We're just a little apprehensive to put a number on that growth, just because of all of the unknowns out there.

Josh Vogel -- Sidoti & Company -- Analyst

Yes, it makes sense. Well, thank you guys for taking my questions.

Operator

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

Bill Dezellem -- Tieton Capital Management -- Analyst

Great, thank you. I have a group of questions. First of all, let's start with staffing. You mentioned that you have seen a rebound in October and given that the stimulus ran out, closer to the end of July or what is kind of perspective on why you didn't see that rebound earlier, whether it be August or September?

Gary Kramer -- President, Chief Executive Officer and Director

Yes, I mean if you -- it depends on the geography we're in, right? So just in certain geographies, we saw a pick ups or other geographies, which was the majority it was still the -- we still had more orders then we can fill. And if you just look at the savings rate that folks had, they lived on their savings rate for a little bit, before they had to go back and obtain gainful employment. So you had a little bit of a lag between when the stimulus checks started to stop first when they're saving started to decrease, so when they had to start to get back out there. We -- in July and August, we had -- depending upon the branch, we had some branches that had 300, 400 orders and on any given week that we couldn't fill. Just because we didn't have the bodies and the people that wanted to do the work. So that's -- that number is decreasing now that we're watching in September into October. October was a better month and September for staffing.

Bill Dezellem -- Tieton Capital Management -- Analyst

And for clarification, does an order equal one body or can an order -- when you say 200 or 300 orders each of those could have multiple people that they're looking for?

Gary Kramer -- President, Chief Executive Officer and Director

Typically one order is one body.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great, thank you.

Gary Kramer -- President, Chief Executive Officer and Director

And then on that one too, just to qualify too, our staffing is more than just placement, we do a lot of placement fees. And the placement fees right so you go and you hire, some money we pay like a recruiting when I think of it that way. That business we saw slowed down the most, just because people during the times of uncertainty weren't hiring. So it was a little bit of -- a little bit of people weren't hiring permanently and then they wanted to do temporary and we couldn't fill the temporary orders and we're seeing the temporary orders come back, we haven't seen the full-time employment has come back yet as far as our recruiting fees.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great, thanks Gary. And then relative to your investment income at $1.7 million this quarter. What are you expecting on go forward quarters, given what you know about your reinvestment rates in your portfolio and growth in the cash?

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

So we indicated in our Q1 call, when we give some broad guidelines with our investment income would be down [Indecipherable] for the year and that's turning out to be fairly accurate. I will say the delta between year-over-year investment income is going to widen in Q4 and that's not so much because our interest income will go down. It will go down a little in '20, but Q4 '19 we had a pretty significant increase in interest income there. So that also attributes for some of the delta between Q4 and '19 and Q4 '20. But it's our interest income has held fairly steady, you can see that the trend that gradually decreases in Q2, Q3, Q4. And I would say, we expect that trend to continue.

Bill Dezellem -- Tieton Capital Management -- Analyst

And do you have...

Gary Kramer -- President, Chief Executive Officer and Director

There is a little bit of a function to -- we've about half of the portfolio is invested out into -- call it, longer term. And you're going to have a situation where those assets are going to be come and due and maturing and then we're going to be reinvesting at a lower rate. So it's not only the green money coming in for the new business, it's also going to be the reinvestment going on a lower. We unfortunately when rates go to zero, it punishes savers and we're a saver.

Bill Dezellem -- Tieton Capital Management -- Analyst

Understood. And I think an explanation point is behind that you're a saver, when you look at the $150 million and I'm rounding of cash that you have on the unrestricted cash on the balance sheet. And since that represents about 30% of your market cap? Talk to us about your -- just how you're thinking about that? And Anthony, I know that you earlier in the call referenced the four items and the priorities. I'm thinking more philosophically, than prioritization. So, just given that 30% of your market cap is in cash. Talk through that with us please?

Gary Kramer -- President, Chief Executive Officer and Director

Yes. We -- going back to my remarks earlier, we're intentional about accumulating that level of cash or I should say a level of cash to be able to weather a storm against that and that was pre-COVID. So we do want that financial moat around the company. We now have more cash than we need in that respect and we are being very proactive around how we deploy that. We did start buying back stock again, since we last spoke. So we bought back 57,000 shares and we have an ongoing commitment to be an opportunistic buyer of our stock, going forward in future quarters, in addition to our dividend. We also continue to look where we can invest strategically and as we look at acquisition targets in key geographies, where we feel like going and acquiring a PEO is more strategically advantageous than planting a new branch. That is per our modeling a high return for shareholders and our expectation now that, that would be financed largely or perhaps entirely [Technical Issues] acquisition with some of that cash as well.

So we are mindful of that, we want to be cautious. But we are being diligent with that with respect to our market cap and there was the ratio of that. I think that's as much a function of the market pricing relatively post COVID and we continue to focus on running a good company and we're excited about the future and expect that, that will continue to go up.

Bill Dezellem -- Tieton Capital Management -- Analyst

Great, thank you both.

Operator

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

Gary Kramer -- President, Chief Executive Officer and Director

Thank you, Jessie. So I just wanted to again say that the company is strong and the business is resilient and the small business owner is resilient through these times. And I really believe that we are in a good position to get back to strong growth and we have the right people, the right product and the strength of the company behind us. So we're optimistic about the future, don't know who will talk to anybody between now and the holidays, but have a good holiday and we'll talk to you next year. Thank you.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Gary Kramer -- President, Chief Executive Officer and Director

Anthony Harris -- Vice President of Finance, Secretary and Treasurer

Chris Moore -- CJS Securities -- Analyst

Jeff Martin -- ROTH Capital Partners -- Analyst

Vincent Colicchio -- Barrington Research -- Analyst

Josh Vogel -- Sidoti & Company -- Analyst

Bill Dezellem -- Tieton Capital Management -- Analyst

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