Barrett Business Services Q1 Earnings Call Highlights

06 May 2026, 19:34 by Jessica Moore · The Cerbat Gem

Barrett Business Services (NASDAQ:BBSI) reported first-quarter 2026 results that management said were “in line with our expectations,” citing continued client growth initiatives and progress in its benefits and technology offerings despite ongoing macro-related client workforce reductions.

First-quarter results and worksite employee trends

President and CEO Gary Kramer said the company had a “solid start to the year,” with gross billings up 3.5% year over year. He described the quarter’s growth as driven by “controllable growth” — new client additions and retention — but tempered by broader reductions in client headcount.

Kramer said BBSI added approximately 5,300 worksite employees year over year from net new clients, but overall worksite employee growth was held back as some clients continued to reduce staffing levels. He noted that while further reductions occurred in the first quarter, the pace of decline moderated from the back half of 2025. “Despite client workforce reductions, we achieved a 2% increase in total worksite employee growth for the quarter,” Kramer said, attributing the increase to strong sales volume and improved retention trends relative to historical levels.

CFO Anthony Harris reported gross billings of $2.16 billion for the quarter, compared with $2.09 billion a year ago. PEO gross billings increased 3.7% to $2.15 billion, while staffing revenues declined 21% to $14 million. Harris said average billing per worksite employee per day increased 1.7%, driven by higher wages, partially offset by lower overtime and hours worked.

Regional performance and asset-light expansion

Harris detailed regional PEO gross billings growth for the first quarter, with Southern California up 2% and Northern California down 2%. The Mountain region grew 6%, the East Coast grew 17%, the Pacific Northwest rose 1%, and the company’s asset-light markets increased 85% year over year.

Harris said slower growth in Southern and Northern California reflected year-over-year client workforce reductions, and he noted that Northern California also experienced “slightly elevated runoff” and was more impacted by softer client hiring trends. He highlighted the East Coast as a standout, delivering its 20th consecutive quarter of double-digit growth, supported by strong controllable growth and positive hiring. The Pacific Northwest returned to growth as net client additions offset softer hiring.

Kramer said the company continued to see traction in its newer, “asset-light” markets, adding about 550 new worksite employees during the quarter. He noted BBSI opened a Nashville branch in January, following openings in Dallas and Chicago last year, and said the company anticipates converting three additional locations to traditional branches in 2026 as it continues investing in its expansion strategy.

During the Q&A session, Kramer said the company’s total asset-light count was “like, I think it’s 22,” including Chicago, Dallas, and Nashville, and added that BBSI had started entering states where it previously did not operate, including efforts in Florida.

Staffing softness and recruiting support

BBSI’s staffing business declined 21% year over year, which Kramer said reflected a reluctance among clients to place staffing orders amid macroeconomic uncertainty. He said the company responded by leveraging recruiting expertise for PEO clients, placing 90 applicants during the quarter.

Benefits growth and technology product rollout

Kramer said BBSI continued to build out BBSI Benefits, its health insurance offering. He said the company renewed 93% of its benefits book in the Jan. 1, 2026 season despite rising insurance rates, and on an adjusted basis retained 97% of clients, including those that left the benefits platform but remained with BBSI as PEO clients.

He said the company added nearly 140 clients and 3,500 participants to its health plans during the quarter and reported traction across a variety of client sizes, industries, and states.

On the call, Kramer noted a shift in the benefits business mix. “When we launched benefits, we did more upsell than new sell. Now we’re at the point that we do more new sell than upsell,” he said, adding that about 60% of the clients added to benefits in the first quarter were new to BBSI. He also said conversion rates on benefits opportunities were higher than PEO-only opportunities once a quote is presented, while noting that the company declined to quote some opportunities to protect its pool.

Harris reported that benefits costs rose 56% year over year, which he said was broadly consistent with growth in BBSI Benefits billings. He added that the company separated benefits costs into a discrete income statement line item representing the direct costs of the fully insured client benefits offering.

Kramer also outlined several technology initiatives aimed at supporting the employee lifecycle experience. He said BBSI recently launched the Employee File Cabinet in January, a “secure, centralized, and fully integrated digital repository” with e-signature capability, and officially launched a Performance Management module in April. He said beta clients responded positively to usability and the overall offering.

Asked how the technology features affect pricing, Kramer said the intent is not to generate substantial incremental pricing, but rather to improve competitiveness and retention. “We’re not gonna get rich on these products,” he said, adding that the broader tech stack helps BBSI “get us to the table with every competitor,” supports sales into larger and more white-collar clients, and increases stickiness as clients adopt more products.

Margins, workers’ compensation pricing, tax charge, and outlook

Harris said BBSI’s workers’ compensation program continued to perform well, resulting in favorable prior-year liability and premium adjustments of $1.1 million in the quarter, compared with $3.8 million a year ago. He also discussed the workers’ comp pricing environment, referencing the California Insurance Commissioner’s approval of an average 8.7% premium rate increase in 2025 and noting that BBSI has now seen a five-month trend of increased pricing. Harris added that the WCIRB has recommended an additional 10% increase in California advisory rates for 2026.

In response to an analyst question on timing, management said pricing changes take time to move through the book because only about one-twelfth of clients renew each month. Harris said year-over-year gross margin impact from improved pricing is expected to be more apparent in 2027. Kramer said pricing improvements have varied by market but described the aggregate trend as “the tide’s coming in.”

Harris said SG&A increased about 6% in the quarter, primarily due to the timing of certain employee-related expenses. Investment income was $2 million, down roughly $600,000 from the prior year due to lower rates and lower average investment balances, as cash was used for share repurchases. Harris said the investment portfolio is managed conservatively with an average quality rating of AA.

Harris also reiterated that BBSI recorded a one-time tax charge tied to disallowed credits from tax years 2017 through 2022. The charge totaled $11.6 million, or $0.46 per share, and the company said it is evaluating legal options, including an appeal. As a result, GAAP net loss per diluted share was $0.59, while adjusted net loss per diluted share excluding the charge was $0.13, compared with a net loss of $0.04 per share a year ago.

On capital allocation, Harris said BBSI ended the quarter with $92 million of unrestricted cash investments and no debt. Under its $100 million repurchase program authorized in August 2025, the company repurchased $20 million of shares in the first quarter at an average price of $28.68 per share, leaving $55 million available at quarter-end. The company also paid $2 million in dividends and reaffirmed its next-quarter dividend, bringing total capital returned to shareholders over the last six months to more than $40 million.

Management reaffirmed full-year guidance. Harris said the company continues to expect:

Gross billings growth of 3% to 5%
Worksite employee growth of 2% to 4%
Gross margin as a percentage of gross billings of 2.7% to 2.85%
A normalized effective annual tax rate (excluding the one-time charge) of 26% to 27%

Kramer said the company’s outlook for the rest of 2026 was unchanged, with client growth expected to remain below historical norms, but with the impact of low hiring expected to moderate in the second half of the year. He added that BBSI believes it is positioned to navigate macroeconomic and geopolitical uncertainty through its service model, expanding product suite, and sales execution.

About Barrett Business Services (NASDAQ:BBSI)

Barrett Business Services, Inc (NASDAQ: BBSI) is a professional employer organization (PEO) headquartered in Northridge, California. Founded in 1971 by Barrett K. Levesque, the company provides comprehensive human resources outsourcing solutions to small and mid-sized businesses. Through its consultative model, Barrett Business Services helps clients streamline administrative processes, mitigate regulatory risk and focus on core operations.

The company’s core offerings include payroll administration, employee benefits management, workers’ compensation and risk management services.