Barrett Business Services Q3 Earnings Call Highlights

Key Points

• Q3 billings grew, but earnings declined: Gross billings rose 3.2% to $2.4 billion and revenue increased 5%, while diluted EPS fell to $0.69 from $0.79. New-client additions were partly offset by workforce cuts at existing customers.
• BBSI lowered its employee-growth outlook: It now expects average worksite employee growth of 1%–2% in 2026, down from 2%–3%, while maintaining its 3%–4% gross-billings growth forecast. Gross margin is expected near the lower end of its 2.7%–2.75% range.
• Smaller workers’ compensation adjustments pressured margins: Favorable prior-year adjustments fell to $800,000 from $3.9 million a year earlier, a trend management expects to continue. BBSI had $74 million in unrestricted cash and investments, no debt, and repurchased $9 million of stock during the quarter.

Barrett Business Services NASDAQ: BBSI reported higher third-quarter gross billings but lower earnings per share as new client additions were offset by workforce reductions among existing customers and smaller favorable workers’ compensation adjustments.

The company lowered its full-year outlook for average worksite employee growth, citing continued softness in client hiring. It maintained its gross billings growth forecast but said it expects gross margin to land toward the lower end of its projected range.

Gross billings rose 3.2% to $2.4 billion in the quarter ended September 30, 2026, from $2.32 billion a year earlier, Chief Financial Officer Anthony Harris said. Revenue increased 5%, while diluted earnings per share fell to $0.69 from $0.79.

Client Additions Offset Workforce Reductions

President and CEO Gary Kramer said the company added approximately 3,100 worksite employees year over year from net new clients. Total worksite employees grew 1%, however, as existing customers continued to reduce headcount, albeit at a more moderate rate than when the trend began in the third quarter of 2025.

Professional employer organization, or PEO, gross billings increased 3.3% to $2.38 billion. Staffing revenue declined 7% to $18 million as existing clients reduced demand and remained reluctant to place new orders, Kramer said.

Regional PEO gross billings performance varied. The East Coast grew 18%, marking its 22nd consecutive quarter of double-digit growth, while the Pacific Northwest rose 10%. Northern California returned to growth at 2%; Southern California and the Mountain region each declined 1%. Asset-light markets grew 74%.

Kramer said Southern California faced a difficult comparison with the prior year, before many clients in the region reduced their workforces in the fourth quarter of 2025. He expects the region’s comparison to improve next quarter.

Workers’ Compensation Adjustments Weigh on Margin

Harris said BBSI increased workers’ compensation pricing each month of the third quarter, extending its run of consecutive monthly increases to 11 months. He said those increases more than offset a modest rise in current-year costs.

Favorable adjustments to prior-year workers’ compensation liabilities and premiums fell to $800,000 in the quarter from $3.9 million a year earlier. For the first nine months, the adjustments totaled $3.9 million, compared with $16.5 million in the same period of 2025.

Harris said industry-wide increases in claims costs have reduced the magnitude of favorable adjustments and that the trend is expected to continue. He described 2026 as a transition year, with more normalized year-over-year comparisons expected in 2027 and beyond.

Asked about next year’s workers’ compensation margin, Kramer said the company views this year as a low watermark but needs to see further pricing results and the terms of its July 2027 insurance renewal before providing a more confident assessment.

Benefits Activity and Market Expansion

BBSI added approximately 70 clients with 1,500 participants to its health insurance benefit plans during the quarter, Kramer said. Benefits submissions rose approximately 30% year over year in the third quarter, while October submissions for January 1, 2027 transactions were about 55% higher than a year earlier.

Kramer attributed increased shopping activity to rising health insurance rates and carrier exits in some markets. He cautioned that it was still early in the selling season, although he said consistent closing ratios could result in a stronger January 1, 2027 intake than a year earlier.

The company’s asset-light teams added more than 700 new worksite employees during the quarter. BBSI has opened physical locations in Pittsburgh, Chicago and Dallas, and Kramer said it would probably convert two more markets to physical branches within four months.

Outlook and Capital Returns

BBSI now expects average worksite employee growth of 1% to 2% for 2026, down from its prior forecast of 2% to 3%. It maintained its forecast for gross billings growth of 3% to 4% and a gross margin rate of 2.7% to 2.75% of gross billings, though it expects the margin rate to be toward the lower end of that range.

The company ended the quarter with $74 million in unrestricted cash and investments and no debt. It repurchased $9 million of stock during the quarter and paid $1.9 million in dividends. Harris said BBSI has returned more than $50 million to shareholders over the first nine months of the year.

About Barrett Business Services (NASDAQ:BBSI)

Barrett Business Services, Inc (BBSI) provides business management solutions for small and mid-sized companies in the United States. Its services are designed to help clients manage administrative responsibilities and improve operational efficiency while allowing them to focus on their core businesses.

The company operates primarily through a professional employer organization (PEO) model, providing payroll administration, human resources support, employee benefits administration, workers' compensation services, and risk management.

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